Motion - Discussing what matters - United States-Mexico-Canada Agreement (USMCA): Episode 5

1. What will be the major implications for Canadian businesses?

The major implication is that it brings certainty to the trade relationship between Canada and the United States. There had been quite a bit of unpredictability since the Trump administration took office. But we now know as a result of the USMCA that the vast majority of goods that flow between Canada and the United States will continue to benefit from tariff-free status. We also know that Canada was able to retain the dispute resolution mechanism that Canadian exporters can use to go outside of the US court system if they run into trade dispute issues. We’re not out of the woods completely yet because the USMCA needs to be ratified by all three countries before it takes effect. And right now the estimate in relation to US congressional approval is that that will only take place sometime in late spring 2019.

2. How should clients navigate the uncertainty over the tariffs on steel and aluminium?

Well, despite the fact that Canada was able to negotiate the USMCA with the US, they weren't able to convince the United States to drop the aluminum and steel tariffs that they imposed on Canadian goods in June 2018. As a result Canadian exporters of aluminum and steel who want to continue to export to the United States have to take those tariffs into account, but Canada also decided to impose some retaliatory tariffs on inbound US goods and the range of goods that are covered is much broader than just aluminum and steel. For example paper products, appliances, and a number of other goods – coffee – are covered by the tariff so Canadian importers who are importing goods for the first time, or who have not imported goods for a long time, need to verify to make sure that these goods that they intend to import are not on a retaliatory tariff list.

3. How does the USMCA affect Canada`s ability to negotiate other trade agreements?

Well, one of the biggest surprises in the USMCA is the fact that it included Chapter 32, which imposes on Canada the obligation to notify its trading partners before it enters into free trade negotiations with a non-market economy. The only non-market economy of any consequence to Canada is China. So what this does is effectively add a hurdle to the continuation of free trade agreements between Canada and China. Now it’s unclear as to whether Chapter 32 is binding and whether it will actually prevent Canada from finalizing a free trade agreement with China. But already we're sensing that there is a chill in the negotiations between the two parties and that there may be a delay in the continuation of free trade negotiations between them.