A Legal Opinion

Not surprisingly, most of the commentary in the media and elsewhere about Trump’s tariffs, focus on new vehicles and their production.

We wanted to know what effect the tariffs would have on used vehicle exports from Canada to the U.S., so we turned to a Chicago international trade law firm for a legal opinion.

Then we had to separate some of the technical jargon, which is what trade law is mostly all about, to get to the core message. This is what we can tell you:

Used vehicle exporters will have to pay tariffs on used vehicles that are less than 25 years old.

The free trade agreement, otherwise known as the Canada United States Mexico Agreement or CUSMA came into effect on July 1, 2020. It covers vehicles imported on or after that date AND (i) the vehicle has a 75 per cent Canadian, U.S. or Mexican value content; (ii) certain “core” parts in the vehicle need to qualify as “originating” in the CUSMA region; (iii) the producer needs to source 70 per cent of its steel and aluminum in North America; and (iv) the producer needs to achieve “high-wage” labour value content requirements.

The CUSMA contains no distinction between new and used automotive goods. All importers seeking CUSMA preferential treat- ment for automotive goods must meet the CUSMA’s automotive rules of origin provisions.

• Passenger vehicles and light trucks covered by CUSMA are eligible for U.S. content reductions on duty. If you are able to identify U.S. parts wholly obtained, produced or substantially transformed present in the vehicle, that level of content is eligible for duty-free treatment. In theory, for example, a qualified vehicle with 50% qualified U.S. parts could reduce the tariff from 25% to 12.5%. It remains unclear how easy (or difficult) it will be for exporters to obtain the parts content breakdowns, presumably from manufacturers, or the effect of aftermarket parts added during the working life of the used vehicle.
• This exemption is entirely at the discretion of the S. Secretary of Commerce who is not obliged to grant it AND there is presently no mechanism in place for this application.
• There has been much talk of VINs that start with a 1, 4 or 5 i.e. “made in the United States” being exempt. However, the math is not that simple, because the auto tariffs do not specifically exclude

  U.S. origin goods (i.e. substantial transformation). Our legal opinion states that there is no such exemption and the analysis is focused on U.S. content as described above.

For more information from U.S. Customs and Border Protection see: https://tinyurl.com/3xk55tnz or https://tinyurl.com/muyhvxbu

Time will tell how this all affects cross border trade in used vehicles, but as we have said from the beginning, our feeling is it will put a virtual end to the efficient export of used vehicles from Canada to the U.S. for the foreseeable future.

The numbers just do not add up to a profitable enterprise for either the seller or the buyer in such an environment.