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Biden proposal for electric vehicle tax credits irks Canada and Mexico

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A provision of the Build Back Better bill backed by the Biden administration that would provide a generous tax credit for buyers of electric vehicles has run into firm opposition from the governments of Mexico and Canada.

And while appearing at a meeting of western governors in Coronado Thursday, a Canadian diplomat said unless stricken, the provision represents “an existential threat” to Canada’s auto industry.

“The automotive sector is at risk with the current wording” of the bill, said Zaib Shaikh, the Canadian consul general for Southern California, Nevada and Arizona.

Part of the mammoth 2,135-page Build Back Better bill that has already passed the U.S. House of Representatives, the tax credit would give buyers of electric vehicles, or EVs, a break that would amount to $12,500 by 2027. But to qualify, the vehicles purchased must be made in the U.S. by a union workforce.

Canada and Mexico worry the provision would lead to dramatic reductions in EVs purchased in their respective countries and violates the U.S.-Mexico-Canada Agreement, or USMCA, the trade pact the three countries passed last year to replace NAFTA.

Determining the country of origin of a given vehicle is complicated, Shaikh said, because the auto industry of the three North American countries has become so highly integrated.

“When you think about vehicles assembled in Canada, they’re actually 50 percent U.S.-made,” Shaikh said, “because the supply chain works so that things are crossed over six or seven times across the border” before a vehicle is finally assembled.

The U.S. is the second-largest automaker in the world while Canada is the seventh-largest and Mexico is No. 12.

The Canadian government says it applauds efforts to incentivize purchases of electric vehicles and supports the bill in general but says the tax credit’s wording would hurt the economies of all three countries. “This is a hugely encompassing issue and challenge,” Shaikh said.

The Mexican government has been blunt, comparing the provision to threats former President Trump made of imposing a 25 percent tariff on all Mexican imports to the U.S.

“This proposed measure could be equivalent to a tariff that’s higher than the 25 percent that Trump proposed at the time and that we all thought was a crazy idea,” Mexico’s undersecretary for foreign trade Luz María de la Mora said to The Hill, a Washington D.C. newspaper that covers Capitol Hill.

The auto industry directly employs about 1 million workers in Mexico and about 135,000 in Canada, mostly in the province of Ontario.

According to the Congressional Research Service, the U.S. imports $29 billion of car parts from Mexico and exports $5.9 billion of parts to Canada and exports $11.7 billion of completed vehicles to Canada and $67.5 billion to Mexico.

Representatives from Canada and Mexico say if the tax credit goes through as written they will litigate the provision under the USMCA conflict resolution rules. The two side have lobbied members of Congress to eliminate or alter the provision.

“This is a full-court press in terms of outreach,” Shaikh said.

Thus far, the Biden administration appears unmoved.

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

The credit has been touted by Sen. Debbie Stabenow, D-Michigan, and Rep. Dan Kildee, also a Democrat from Michigan, where the United Auto Workers union is a major political force.

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

The debate over the tax credit provision may end up being a moot point.

The Build Back Better bill still needs to pass the Senate, which is evenly split 50-50 between Republicans and Democrats. In case of a tie, Vice President Kamala Harris can cast the deciding vote. But Sen. Joe Manchin, D-West Virginia, has said he’s worried about the bill’s price tag — estimated at roughly $2.2 trillion — and when visiting a non-union auto plant in his home state last month, he described the tax credit as “wrong.”

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

“Canada is always going to be out there ensuring Canadian interests are met and are being addressed,” Shaikh said. “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 taking part in the Western Governors’ Association winter meeting, a two-day conference that opened Thursday at the Loews Coronado Bay Resort. The group that brings together governors from 19 states and three U.S. territories also invites premiers and diplomats from Canada.

Earlier this week, the European Union joined Mexico and Canada in opposing the tax credit proposal, fearing it would hurt sales of EVs imported from Europe to U.S. consumers.

“We agree that tax credits can constitute important incentives to drive demand for electric vehicles,” EU trade commissioner and executive vice president Valdis Dombrovskis said in a letter to the U.S. 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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