Otto Kemerle, head of Food Trucks International, says he does about 75 per cent of his business with the United States.JOHN WOODS/GLOBE AND MAIL
Otto Kemerle may not make the food himself, but his company is part of the great North American food chain.
His Winnipeg company, Food Trucks International, manufactures food-producing vehicles. He and his staff of 20 ship about 10 trucks to the United States every year.
“It’s about 75 per cent of our business,” Mr. Kemerle says. That percentage puts Mr. Kemerle and Food Trucks International in the cross-hairs of contentious trade negotiations with the United States and Mexico, which culminated in the new United States-Mexico-Canada Agreement (USMCA).
Mr. Kemerle is not alone in feeling better that a new agreement is scheduled to be ratified by the three countries. Many Canadian businesses are intertwined with our southern neighbours: 76.1 per cent of Canada’s trade was with the United States and Mexico in 2017, according to trade experts.
“We were relieved that they reached a deal. We were nervous when [U.S. President Donald] Trump and [Prime Minister Justin Trudeau] got into a spat. We were terrified,” he says.
The new USMCA has not meant much change for Food Trucks International, but it is not quite business as usual: The overall trade situation with the United States is still not ideal for Mr. Kemerle’s company.
“We still have tariffs that were put on some of the materials we use to manufacture,” he says.
During the difficult and acrimonious free-trade negotiations, the United States slapped a 10-per-cent tariff on Canadian steel and a 25-percent tariff on Canadian aluminum, and Canada retaliated with tariffs of its own.
The tariffs, which are separate from the new deal, still stand for the time being, despite the new agreement. The main effect for Mr. Kemerle’s firm is not higher costs, just more paperwork. The Canadian government has brought in a tariff relief program to help Canadian companies.
Winnipeg-based Food Trucks International manufactures food-producing vehicles for different companies. He and his staff of 20 ship about 10 trucks to the United States every year.JOHN WOODS/GLOBE AND MAIL
“We have to apply to get the tariffs back for the goods we use that cross the border,” Mr. Kemerle says. More than 11-million tonnes of steel was traded between Canada and the United States in 2017, worth more than $14-billion.
Even with the paperwork, the prospects appear to be good for maintaining and possibly boosting cross-border trade for Food Trucks International. The rules for exporting have not really changed, says Robert Wolfe, professor emeritus at the School of Policy Studies at Queen’s University in Kingston.
“For small businesses in the auto industry, the changes may actually be good, but we’ll have to wait and see. Every company will have to look at its own supply chain and figure out what’s in it and make sure it meets the rules-of-origin rules [under USMCA],” Dr. Wolfe says.
Companies in the auto sector, both large and small, will have to meet the new and complicated rules of origin under USMCA starting in 2020. A vehicle produced in North America will qualify as “originating” and enjoy duty-free treatment under the agreement, only if each of the engine, transmission, body and chassis, axle, suspension system, steering system and advanced battery is “originating.”
“The documentation can become really complex and this can be quite challenging for a small business,” says Brian Kingston, vice-president, policy, international and fiscal at the Business Council of Canada.
Under USMCA, auto-sector companies will also have to track their labour costs, and indicate whether they are paying people less than the new $16-an-hour floor set for Mexican auto workers under the deal.
While Mr. Kemerle pays more than $16 an hour, it still means more record keeping. “It’s easy for large companies to put in software that can file information about the value of labour going into their products, but it can take time for the smaller firms, first to understand the details and then to comply,” Mr. Kingston says.
At the same time, “the new agreement brings opportunities for small businesses, including small companies in the auto sector,” he says. The certainty that comes with having a deal will help companies like Food Trucks International market to U.S. customers, making it easier to seek new business without worrying that it will be ripped away by a trade war.
For Mr. Kemerle’s food trucks, “much of the work goes into building the kitchen, and 90 per cent of the components of the kitchens are manufactured in the U.S.” There is still a lot of red tape, though, because each state has its own rules about what is allowed in a mobile kitchen, right down to the amount of propane that can be stored in a food truck’s tanks.
“But we benefit on labour costs from the low Canadian dollar,” he says. The loonie trades at about 76 cents U.S., making food truck manufacturing competitive, along with the fact that Canadian workers are covered by universal health care while American workers are not.
“We’ve seen a slow but steady increase in business in the last three years and I expect that to continue,” Mr. Kemerle says.