Industry Stakeholders Discuss State of USMCA at USTR Hearing

The Office of the U.S. Trade Representative (USTR) on Dec. 3-5, 2025, held a hearing on the six-year review of the United States-Mexico-Canada Agreement (USMCA) that attracted a broad range of panelists representing industries covered by the agreement. This Holland & Knight alert summarizes public testimony and the views of various industry stakeholders as presented to USTR.

Automotives

Automotive industry stakeholders broadly supported USMCA's foundational rules for regional value content (RVC), labor value content (LVC) and rules of origin (ROO) but raised serious concerns about Section 232 tariff enforcement loopholes that are undermining the agreement's intended impact. Multiple speakers warned that existing enforcement mechanisms are failing to prevent circumvention of U.S. trade remedies for steel, aluminum and auto parts through Canada and Mexico. Specifically, they noted that foreign steel and aluminum, often from China, is being shipped into Canada and Mexico to avoid U.S. Section 232 tariffs, then processed there and incorporated into automobiles and auto parts exported duty-free into the U.S. under USMCA. This creates a significant cost advantage for non-U.S. production and directly harms domestic manufacturers who must source tariffed materials.

Panelists also stressed the importance of updating rules of origin to reflect the evolving composition of vehicles, particularly in the electric vehicle sector, where batteries, electronics and critical minerals make up an increasing share of value.

On the Canadian side, a parts manufacturers group praised USMCA for preserving regional integration and cross-border supply chains, particularly in Ontario's critical auto parts sector. However, it raised concerns about U.S. protectionist sentiment, including the possible unilateral use of Section 232 tariffs and tightening of origin rules, which could disrupt production and deter investment. The group also emphasized that any adjustments to automotive trade rules must consider the deeply integrated nature of the North American auto supply chain and the need for regional competitiveness in the face of global challenges, especially from Chinese and European automakers.

From the labor perspective, one prominent union emphasized that USMCA's labor provisions – especially the LVC requirements – must be preserved and strengthened to ensure that gains made in domestic auto wages are not eroded by weak enforcement in Mexico. Specifically, the union proposed the concept of automotive wage floors, instead of LVC requirements, to encourage higher wages in Mexico and the continued expansion of the Rapid Response Mechanism (RRM) to address labor violations in the Mexican auto sector, where cases of union suppression and poor working conditions persist.

Steel and Aluminum

Steel and aluminum stakeholders delivered the most urgent and unified call for significant strengthening of USMCA. Panelists from several organizations argued that foreign subsidies and global overcapacity, particularly from China, are increasingly distorting the North American market. Though Section 232 tariffs have reduced direct Chinese exports to the U.S., panelists emphasized that these products now enter indirectly through Canada and Mexico, undermining U.S. national security interests and the intent of Section 232 measures.

The central recommendation across the sector was to adopt a comprehensive "melted and poured" and "smelt and cast" rule of origin for all steel and aluminum extended to every steel and aluminum-intensive product covered under Harmonized Tariff Schedule Chapters 72 and 73 and 84 to 87. Many urged immediate implementation, arguing that any delayed implementation timeline would leave the supply chain exposed to circumvention. Stakeholders further called for strengthened regional value content rules, elimination of duty drawback and programs associated with Mexico's Industria Manufacturera, Maquiladora y de Servicios de Exportación (IMMEX), harmonized customs valuation methodologies that incorporate labor value and significantly enhanced data sharing across customs authorities to detect and prevent transshipment.

Several presenters proposed more ambitious structural reforms, including a common external tariffs of up to 50 percent on steel from USMCA countries, expanded restrictions on foreign direct investment from non-market economies in Mexico's steel sector and a shift to core parts-based rules of origin similar to those used in autos. The dominant message across the steel and aluminum panels was clear: Without decisive action to align border measures and close existing loopholes, USMCA risks becoming a conduit rather than a barrier to unfairly traded nonmarket steel and aluminum.

Labor Stakeholders

Labor stakeholder groups presented some of the most critical evaluations of USMCA, arguing that the agreement, as implemented, does not adequately address wage stagnation, offshoring or systemic labor rights concerns in Mexico that depress working conditions across the region. Some emphasized the need to revise the digital trade chapter, which they view as restricting U.S. policymaking authority over privacy, competition, and Big Tech regulation. They also urged significant reinforcement of the RRM and called for new enforcement pathways for environmental abuses that create de facto labor cost advantages.

Union representatives deepened this critique by highlighting persistent structural barriers to fair labor competition, with representatives of one testifying that judicial reforms in Mexico have led to widespread departures of labor judges and raised concerns about Mexico's capacity to enforce collective bargaining rights under USMCA. They recommended establishing a new regional labor compliance framework with clear timelines, exploring a North American minimum wage, strengthening RRM authorities to address bad faith bargaining and violence against union organizers, and aligning environmental provisions to improve working conditions. One union supported these proposals and further recommended harmonizing rules governing Foreign Entities of Concern (FEOCs) and developing consistent production models across the steel, aluminum and metals sectors to prevent outsourcing.

Mexican labor stakeholders underscored the human consequences of persistent labor inequities. Representatives argued that low wages and weak protections have contributed to cartel expansion, unsafe workplaces and migration pressures. They called for new USMCA conditions to improve working conditions, establish a baseline regional family-sustaining wage, protect union leaders from intimidation and coordinate legislation to ensure emerging technologies such as artificial intelligence (AI) enhance rather than replace human labor.

Cattle, Beef and Dairy

Livestock and dairy producers offered a more nuanced view of USMCA. Though supportive of its core framework, they argued that reforms are needed to ensure fair competition and restore market transparency. One association led a strong push for reinstating mandatory country of origin labeling (MCOOL) for beef, arguing that voluntary labels fail to inform consumers and disadvantage domestic producers. They urged the renegotiation to explicitly permit MCOOL without fear of World Trade Organization-style retaliation, framing the issue as essential to consumer choice and national sovereignty. Advocacy groups echoed this argument and urged revisions to USMCA's Technical Barriers to Trade (TBT) chapter to allow each country greater flexibility in food labeling.

Dairy industry representatives reiterated that although USMCA strengthened U.S. access to the Canadian market, Canada's administration of tariff rate quotas still impedes meaningful entry for U.S. exporters. A key association cited Canada's allocation of quotas primarily to domestic processors as a significant barrier and urged USTR to pursue enforceable reforms requiring transparency, fair allocation and compliance with USMCA disciplines. These panelists also highlighted environmental and labor compliance issues in Mexico and called for continued sanitary and phytosanitary (SPS) alignment and vigilant enforcement.

Agriculture, Corn, Grain, Soybeans and Biofuels

Agricultural stakeholders expressed strong support for USMCA and credited the agreement with preserving essential market access to Canada and Mexico, which remain the largest buyers of U.S. corn, soybeans, wheat, feed grains and biofuels. Representatives from several such groups praised USMCA's SPS provisions, describing them as a "gold standard" for ensuring transparent, science-based regulation. They emphasized that the dispute settlement system, particularly in the genetically modified organism (GMO) corn case, has been instrumental in defending U.S. agricultural interests.

Despite this strong support, panelists highlighted areas for improvement. These included reducing burdensome inspection procedures in Mexico, enhancing harmonization of residue limits and testing protocols, and expanding ethanol market access as a tool to modestly reduce the U.S. trade deficit. Stakeholders consistently endorsed extending USMCA for a full 16-year term and cautioned against major revisions that could destabilize agricultural markets or encourage retaliatory measures, particularly against soybeans.

Coffee and Alcohol

The coffee and distilled spirits sectors were broadly supportive of USMCA but advocated for targeted improvements. Because the U.S. produces negligible amounts of coffee, representatives of one association stressed that the sector depends on efficient cross-border trade. They highlighted the need to update ROO so that coffee roasted in North America qualifies for USMCA duty-free treatment, addressing instances where U.S.-roasted coffee faces tariffs as high as 45 percent when entering Mexico. Simplifying these rules, they argued, would strengthen North American supply chains and reduce costs for consumers.

Representatives of an association of dispelled spirits makers emphasized that USMCA has been instrumental in securing recognition for U.S. spirits abroad and ensuring nondiscriminatory treatment among member countries. They stressed the importance of maintaining protections for American rye, bourbon and Tennessee whiskey and upholding reciprocal recognition practices similar to those the U.S. affords to tequila, mezcal and Canadian whisky. Both industries viewed USMCA as fundamental to long-term brand value, export expansion and cross-border investment stability.

Wood and Lumber

Stakeholders from the wood products, millwork and cabinetry industries raised serious concerns about how USMCA's current rules of origin are being exploited to circumvent U.S. trade remedies and undermine domestic manufacturers. Representatives explained that imported cabinet components such as drawers and panels are being shipped into Canada and Mexico, where they undergo minimal assembly before being exported to the U.S. as finished products eligible for preferential treatment under USMCA. The organization's representative urged the adoption of LVC rules for wood products modeled after those used in the automotive sector to ensure that qualifying goods reflect substantial North American production and fair labor practices.

Representatives from a millwork association warned that non-market economies such as China are increasingly using Canada and Mexico as staging grounds to assemble and reroute wood products into the U.S. market, exploiting weak ROOs and limited enforcement. They called for stronger rules to prevent duty circumvention, including restrictions on foreign direct investment (FDI) by FEOCs in Canadian and Mexican wood sectors. Both panelists recommended modernizing USMCA's ROOs for millwork and wood products, aligning enforcement protocols across all three countries and closing loopholes that allow state-supported global overcapacity to undercut U.S. producers under the guise of regional integration.

Digital Trade

Digital trade featured prominently in the hearing, with stakeholders offering sharply divergent perspectives on its role within USMCA. Policy experts and economic security analysts generally praised the agreement's digital trade chapter as one of the most advanced globally, underscoring its importance in safeguarding cross-border data flows, e-commerce and digital investment. Industry institutions emphasized that a stable, rules-based digital framework is essential to North American competitiveness – particularly in strategic sectors such as AI, cybersecurity and semiconductors. These stakeholders called for modernizing the digital chapter to better account for emerging technologies, expand trilateral cooperation on export controls and digital infrastructure, and align policies to compete with non-market economies such as China.

In contrast, labor unions and progressive organizations were highly critical of the current digital trade provisions, arguing they constrain the ability of U.S. federal and state governments to regulate Big Tech. Groups asserted that USMCA's rules on data localization, source code access and cross-border data flows could be weaponized to preempt legislation on privacy, platform accountability and algorithmic transparency. They called for a major overhaul of the chapter, contending it was drafted without adequate public input and now serves to entrench corporate interests. Several labor representatives also raised concerns that digital transformation and automation, particularly through AI, are displacing workers and urged the creation of coordinated labor and regulatory frameworks to ensure new technologies enhance rather than undermine workforce security. Across all perspectives, there was agreement that digital trade is central to USMCA's future but deep disagreement on the appropriate regulatory boundaries.

Think Tank and General Policy Perspectives

Policy experts from leading research institutions emphasized the strategic importance of USMCA in maintaining North American competitiveness and countering China's growing economic influence. Panelists agreed that USMCA has delivered economic benefits through increased trade and investment but requires modernization to address emerging supply chain, digital economy and national security challenges. Several argued that weakening the agreement through unilateral tariff actions would jeopardize U.S. industrial competitiveness and undermine integrated supply chains, particularly in aerospace, defense, critical minerals and energy.

Recommendations focused on strengthening trilateral economic security cooperation, including creating a North American "product passport" system for supply chain transparency, formalizing energy coordination, expanding investment screening mechanisms – potentially establishing a Committee on Foreign Investment in the United States (CFIUS) equivalent in Mexico – and updating digital and data governance rules. Stakeholders also urged enhanced customs cooperation, improved data sharing to identify import surges and overcapacity, and maintaining continuity to ensure predictability for businesses operating across the region.

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