From Canada’s perspective, the new US-Mexico-Canada Agreement (USMCA) to replace NAFTA is somewhat akin to the medical oath in which doctors promise —–above all else “do no harm”. On balance, Canada comes away with its core principles intact with some adjustments that do no real damage to the Canadian economic structure. Considering the threats issued by the Trump Administration at the start of negotiations, the end result is a far cry from what might have taken place. Let’s look at the major issues negotiated and how they may impact Canada:
Automotive Trade
The agreement stipulates that Canada and Mexico each will not be affected by any auto tariffs unless exports to the United States top 2.6 million cars annually. Canadian exports 1.8 million cars to the United States, thus Canada is effectively exempt from future tariffs. The labor cost provisions for cars call for 40 % content to come from workers whose pay averages more than $16 per hour. Canadian wages are already in the $22-30/hr range. Thus, the Canada-U.S. auto trade remains untouched.
Dispute Resolution
Canada was very adamant the NAFTA’s dispute-settlement mechanism continue to be an integral part of the new agreement (so-called Chapter 19). Canada has used this provision numerous times to settle anti-dumping and countervailing duties cases initiated by the United States. The United States has maintained that international administrative adjudicators infringe upon U.S. sovereignty. Nevertheless, it was clear that Canada was not going to yield to its removal. Prime Minister Trudeau has argued that “we need to keep the Chapter 19 dispute resolution because that ensures that the rules are actually followed. And we know we have a president who doesn’t always follow the rules as they’re laid out.”
Trade in Dairy Products
The United States has long taken issue with Canada’s agricultural supply management system in which Canada matches supply and demand through domestic quotas and selective tariffs. The protection of Canada’s dairy industry has long been a bone of contention with the United States. In the Trans-Pacific Partnership talks and the Canada-EU trade deal, Canada opens up 3.3 % of its dairy market to imports. This degree of access will be extended into the USMCA. Since both countries already are dealing with oversupply, especially in milk. Thus, it is not clear how the benefits and costs will shake out, other than Canadian consumers will likely be the winners with lower dairy costs. Bear in mind, that the dairy trade between the two countries represents less than 5% of the total Canada-US trade, despite its relatively high political profile.
