How does the United States–Mexico–Canada trade agreement affect us?

Michael Shekter_300x200

Just before the September 30 deadline imposed by the United States, the governments of Canada, Mexico and the U.S. announced that they had agreed to the terms of a new deal to replace the 1992 North American Free Trade Agreement (NAFTA). The new pact is called the United States-Mexico- Canada Agreement, or USMCA for short. Most Canadians were aware of the negotiations but how does this new agreement affect us?

Michael Shekter, Professor of International Marketing at George Brown’s Centre for Business, weighs in on the USMCA trade agreement. 

Q. Is this new trade deal an extension of NAFTA?

A.  To be clear, this is not a renegotiation or extension of NAFTA from the American perspective.  While the basic principles are based on NAFTA, this new deal is called the United States-Mexico-Canada Agreement.

Q. Is the deal finalized?

It’s not a “deal” yet. While the principal negotiators and their political leaders are supportive, each of the participating countries must receive approvals from their respective governments.

Q. Prime Minister Justin Trudeau called the deal a “good day for Canada.” However, questions remain about what Canada's signature guarantees in terms of protections, and what concessions were made. Was this a good deal for Canada?

A. It looks very similar in many ways to the good parts of NAFTA with some concessions and not much in the way of gains. Some will say that makes it a good deal. Others will say that we gave up something just to keep things pretty well the same.

Any part of a deal that involves giving something up is going to be concerning for Canadians, however, many argue that measuring the new deal versus the old deal is not the correct standard, as the actual potential alternative was no deal at all, or the U.S. and Mexico having a deal that excludes Canada. We can expect politicians to make hay out of these terms in the federal election next year.

Q. Does this deal remove the tariffs U.S. President Donald Trump put on Canadian steel and aluminium a few months ago?

A. No, it doesn’t. Several months ago, in an effort to pressure Canada in the early days of NAFTA renegotiations, the U.S. placed import tariffs on Canadian steel and aluminium. Trump is allowed to do this because of a 1962 U.S. law that gives the president powers to invoke tariffs in cases of national security. Trump declared the steel and aluminium industries national security interests because they are used to make weapons. These tariffs were not part of the trade deal and are still in place. Canada is still a large steel and aluminium producer and the U.S. is our biggest customer. While the deal does not eliminate these tariffs, both the U.S. and Canada have discussed openly the idea that these tariffs may not be needed anymore, and Canadians are hopeful that the language of the new deal will limit the ability of the current or future U.S. government from doing this sort of thing in the future.

USMCA Key Components (as of Oct. 2, 2018)

  1. Supply management


    Supply management, which protects Canadian dairy and poultry farmers by making it difficult and expensive for U.S. companies to export these products to Canada, is still in place. However, the Canadian government has allowed greater access by increasing the percentage of dairy and poultry products that can be imported from the U.S.

    Why does this matter to Canadians?

    On the one hand, our supply management keeps prices of these goods higher than they would be for consumers if there was more foreign competition. So, we may possibly see some prices come down. However, it is still a very small percentage of total consumption. This system protects farmers. They are unhappy about having cheaper competition coming in, and farm families may find it harder to be economically successful. Similar deals have recently been made with European and Asian trade partners, so this was not unexpected. Prime Minister Trudeau swore to defend supply management, and technically he did as it still exists, but it’s not as robust as it was in the past.

  2. Source of origin


    This rule in the deal is designed to ensure that products being traded are actually manufactured or processed in the country that provides them. Some products, like automobiles, are not made of parts that are all produced locally, so in past deals, certain products had specific percentages that had to be produced in Canada.

    Why does this matter to Canadians?

    This probably affects the automobile sector more than any other, but the rule allows Canada (and U.S. and Mexico) to produce and trade goods that are not 100 per cent produced or processed locally.

  3. Cultural exemption


    This part of the deal excludes items that are considered culturally sensitive, like maintaining levels of Canadian content on the radio.

    Why does this matter to Canadians?

    With a large and dominant culture just to the south of us, finding ways of protecting a smaller Canadian cultural landscape is important to maintaining the existence of Canadian identity.

  4. Sunset clause


    The U.S. had originally proposed a deal that would expire every five years and then have to be renegotiated. This was seen by Canada as something that would discourage companies from investing in Canadian industry, not knowing if their product area would still be duty free in five years. The renewed agreement does not have a sunset clause, but rather a much longer time for first inspecting the agreement (after six years), and only then a 10-year process of discussion.

    Why does this matter to Canadians?

    Many Canadians work for companies that operate in Canada but are foreign owned or funded. These industries were at risk by investing in Canada, while counting on U.S. customers under free trade, if the deal could expire so quickly.

  5. Dispute resolution


    Probably no issue was more important to Canada than maintaining the dispute resolution process, which currently (and now still) means that any disputes or challenges to the agreement are determined in a three-way panel of all agreement members.

    Why does this matter to Canadians?

    Canada has actually won more often than they have lost in disputes under the current system. Maintaining this is not only important to the deal, but also important politically to the Trudeau government.

  6. Duty free limit

    Many Canadians are unaware that Canada has for decades imposed a limit on the dollar amount of goods that Canadians can buy online from the U.S. without having duties imposed. That amount was $20! The new deal raises that limit to $150. The Americans were pushing for something closer to $800.

    Why does this matter to Canadians?

    It does increase the amount we can buy from U.S. websites duty free, but the actual dollar amount is so low that the impact on most Canadians is very small. For Canadian retailers looking to protect their local business, it is considered a positive win for them.