A dispute panel has ruled in favor of Canada and Mexico on the question of how to apply automotive-sector content requirements under the U.S.-Mexico-Canada free trade agreement, or USMCA.

Under the USMCA, 75% of a vehicle's components must originate in North America to avoid tariffs. But the United States favored stricter requirements for making that calculation.

Mexico and Canada say if a “core part” of the vehicle — like the engine — has at least 75% North American content, that can be rounded to 100% when determining the origins of the entire car’s parts.

The U.S. did not want rounded calculations, but was overruled and will have to abide by the decision, or it could face retaliatory tariffs.

The decision was announced amid another USMCA dispute pitting the U.S. and Canada against Mexico for its nationalist energy policies.