Biden’s proposal for electric vehicle tax credits irritates Canada, Mexico

A provision of the Biden administration-backed Build Back Better bill that would offer a generous tax credit to buyers of electric vehicles has met strong opposition from the governments of Mexico and Canada.

And during an appearance at a western governors’ meeting in Coronado on Thursday, a Canadian diplomat said that, unless struck down, the provision poses “an existential threat” to the Canadian auto industry.

“The auto industry is at risk with the current wording,” said Zaib Shaikh, Canada’s consul general for southern California, Nevada and Arizona.

Part of the mammoth 2,135 pages Build Back Better bill that has already passed the US House of Representatives, the tax credit would give buyers of electric vehicles, or EVs, a break that would rise to $ 12,500 by 2027 But to be eligible, vehicles purchased must be manufactured in the United States. by a union workforce.

Canada and Mexico are concerned that this provision will lead to dramatic reductions in the number of electric vehicles purchased in their respective countries and violate the United States-Mexico-Canada Agreement, or USMCA, the trade agreement that the three countries adopted last year to replace NAFTA.

Determining the country of origin of a given vehicle is complicated, Shaikh said, as the auto industry in the three North American countries has become very integrated.

“When you think of vehicles assembled in Canada, they’re actually 50% made in the United States,” Shaikh said, “because the supply chain works so things cross the border six or seven times” before a vehicle is finally assembled. .

The United States is the second largest automobile manufacturer in the world while Canada is the seventh largest and Mexico is No. 12.

The Canadian government says it applauds efforts to incentivize the purchase of electric vehicles and supports the bill in general, but says the wording of the tax credit would hurt the economies of the three countries. “This is an extremely large problem and challenge,” Shaikh said.

The Mexican government has been blunt, comparing the provision to threats made by former President Trump to impose a 25% tariff on all Mexican imports into the United States.

“This proposed measure could be equivalent to a higher tariff than the 25% Trump was proposing at the time and which we all thought was a crazy idea,” Mexico’s Under Secretary for Foreign Trade said. Luz María de la Mora told La Colline, a Washington DC newspaper that covers Capitol Hill.

The automotive industry directly employs around 1 million workers in Mexico and approximately 135,000 in Canada, mainly in the province of Ontario.

According to Congress Research Service, the United States imports $ 29 billion in auto parts from Mexico and exports $ 5.9 billion in parts to Canada and exports $ 11.7 billion in finished vehicles to Canada and $ 67.5 billion to Mexico.

Representatives from Canada and Mexico say that if the tax credit is applied as written, they will challenge the provision under USMCA dispute resolution rules. Both sides lobbied members of Congress to remove or change the provision.

“This is a full-fledged press in terms of awareness,” Shaikh said.

So far, the Biden administration seems unmoved.

“We don’t see it that way (as a violation of the USMCA),” White House press secretary Jen Psaki told reporters last month. “We believe the electric vehicle tax credits are an opportunity to help consumers in this country. “

The credit was touted by Senator Debbie Stabenow, D-Michigan, and Representative Dan Kildee, also a Democrat of Michigan, where the United Auto Workers the union is a major political force.

“The global pandemic has shown us what happens when we depend on parts made halfway around the world,” Stabenow said at a GM plant in her home country last month, accompanied by Biden. “We need semiconductor chips made here. We need battery cells and components made here. And that’s exactly what Build Back Better does.

The debate over the disposition of the tax credit can end up being a moot point.

The Build Back Better bill has yet to pass the Senate, which is split 50-50 between Republicans and Democrats. In the event of a tie, Vice-President Kamala Harris may cast the casting vote. But Senator Joe Manchin, D-West Virginia, said he was worried about the price of the bill – estimated at around $ 2.2 trillion – and during a visit to a non-union auto factory in his home state last month, he called the tax credit “bad”.

There have been hints that if the provision remains intact, Canada could squeeze shipments to the United States of some of the valuable and hard-to-find minerals such as cobalt that are needed to assemble the electric vehicles and the batteries that power electric vehicles. For example, a company in the Northwest Territories of Canada is development of a cobalt mine and another in Ontario is about to open a cobalt refinery.

“Canada will always be there to ensure that Canadian interests are respected and taken into account,” said Shaikh. “So in that sense, we’re really talking about finding solutions before we get to a place where tough decisions have to be made.”

Shaikh is part of the Canadian delegation participating in the Western Governors Association Winter Reunion, a two-day conference that opened Thursday at the Loews Coronado Bay Resort. The group, which brings together the governors of 19 states and three American territories, also invites Canadian prime ministers and diplomats.

Earlier this week, the European Union joined Mexico and Canada in opposing the proposed tax credit, fearing it would hurt sales of electric vehicles imported from Europe to American consumers.

“We agree that tax credits can be important incentives to stimulate demand for electric vehicles”, European Commissioner for Trade and Executive Vice-President Valdis Dombrovskis said in a letter to the US Senate, as reported by Automotive News. “However, we also believe that these tax incentives should be fair and avoid discriminating between car manufacturers.”

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