It has been nearly a year since Canada, the U.S. and Mexico signed a trilateral trade agreement to replace the North American Free Trade Agreement (NAFTA). Mexico ratified the agreement in June but the deal – known as the Canada-United States-Mexico Agreement (CUSMA) in Canada, and flipped around as USMCA south of the border – has yet to be ratified by either the U.S. or Canada.
American lawmakers now say the deal could pass Congress by the end of November, despite political upheaval south of the border. In Canada, the ratification was put on pause until after the October federal election.
As the Nov. 30 anniversary of the signing of CUSMA approaches, the Globe spoke to three experts about the winners and losers in the deal – and what surprised them. Dennis Darby, chief executive of Canadian Manufacturers & Exporters; Drew Fagan, a professor at the Munk School of Global Affairs and Public Policy at the University of Toronto; and Atif Kubursi, professor emeritus of economics at
McMaster University and president of Econometric Research Ltd., weigh in on the new trade era for North America.
How does Canada fare with CUSMA?
Mr. Darby of the Canadian Manufacturers & Exporters says the trade negotiation wasn’t an exercise in substantially improving the agreement for Canada. “It was about maintaining our access to the markets,” he says, adding there were a number of very positive changes for Canada.
“At various points in the process, the U.S. had threatened fairly significant changes to market access, fairly significant changes to U.S. content requirements,” he says. “So, at the end of the day, we did well.”
The trilateral agreement includes greater co-ordination of customs procedures, a commitment to strengthen regulatory co-operation, provisions addressing digital trade, and commitments by the three countries to co-operate to combat unfair trade practices.
Mr. Fagan of the Munk School of Global Affairs says it was U.S. President Donald Trump who demanded renegotiation in the context of U.S. protectionism.
He says the North American economy has changed significantly since the NAFTA agreement was negotiated in 1992, particularly the increase in technology and in services. “You could have made a good argument for renegotiation regardless of who was in the White House or who was prime minister,” Mr. Fagan says.
Unfortunately, that modernization is not the focus of the agreement. “There was progress made in these areas but fundamentally it was a negotiation in which the Americans demanded that Canada and Mexico make concessions out of a premise that most people think is false – that the original NAFTA was unfair to the United States,” Mr. Fagan says.
Still, he believes Canada emerged reasonably well. “Sure, there were some concessions made with regard to supply management, with regard to pharmaceuticals, with regard to auto trade,” he says, “but not so fundamental as to damage our overall economic interests and, all in circumstances where domestic policy could be used to make up for the challenges politically and economically that caused.”
Mr. Kubursi of Econometric Research says there are pitfalls with CUSMA, but describes it as a win for all parties, “to some extent. In economics, we always talk about economies of scale and economies of scope. The upshot is that USMCA affords both.” For a small country like Canada, he says, the agreement provides a much larger market and economies of scale.
What is the biggest win for Canada?
Mr. Darby says the biggest win for Canada is the security of having continued access to the U.S. “For our manufacturing sector, 75 per cent of everything we sell goes to the U.S. Any disruption to that would have had a huge effect on our economy. We didn’t lose any access whatsoever,” Mr. Darby says. “On the ground game, long-term, there are a lot of positive improvements to modernize NAFTA.”
Mr. Fagan believes Canada got a deal that “didn’t fundamentally damage Canadian interests.” While that doesn’t sound like much of a win, “when the United States, the world’s most powerful country, turns its guns metaphorically on its closest neighbour, look out. And we came out of that negotiation reasonably well. More than anything else, that’s the big win,” he says.
Mr. Kubursi believes the biggest win is the dispute settlement mechanism. “The Americans fought hard and long to extract themselves from this. They wanted their courts to determine,” he says. “We won, in the sense that we have an objective dispute settlement mechanism that puts all trade disputes into the hands of a group that is not wedded to the interests of a single party.”
What was the biggest loss for Canada?
Canada wanted to strengthen the dispute resolution process. The U.S. wanted it eliminated. “At the end of the day it was just never changed,” Mr. Darby says.
Canada also wanted to expand the list of skilled workers and business professionals who can move freely across the border without administrative reporting requirements, Mr. Darby says. That did not happen. “Both of which are more like nuisances in the current process.”
Mr. Darby says there has been a lot of discussion around the content requirements for the auto sector, “which we think doesn’t hurt Canada.”
Mr. Fagan believes Canada has been losing ground in the U.S., its most important market. The percentage of U.S. imports from Canada compared to other countries has declined substantially, he says. “There’s a more fundamental challenge for the Canadian economy that can’t be solved solely through a NAFTA agreement,” Mr. Fagan says. “Part of it has to do with our competitiveness; part of it has to do with the transition of the Canadian economy from hewers of wood and drawers of water to services and more intellectual capital pursuits.”
“Is there anything in USMCA that would accelerate those trade ties once again?" he says. "I’m not sure there is.”
Mr. Kubursi said a major loss was in the dairy industry. “We have to open our market. The Americans wanted even to change the supply-management system. They did not but they put a dent into it, no question about it,” Mr. Kubursi says.
Another loss, he says, is in intellectual property. “The (period of) protection of certain property rights – particularly pharmaceuticals – is longer than we would like. This will impose a high cost on a system like ours, which is publicly funded,” Mr. Kubursi says.
In the auto industry, he says the rules of origin favour the U.S. over Canada or Mexico.
What was the biggest surprise?
Mr. Darby says it was a more protracted renegotiation than initially expected “with everything put on the table.”
The American tariff on Canadian steel and aluminum also came as a surprise. “Everything that we negotiated in NAFTA successfully to maintain access to the markets, to make sure there were no unnecessary or unreasonable tariffs to move parts, materials and products back and forth and then the U.S. applied the (Section) 232 tariff on steel and aluminum and Canada got caught,” Mr. Darby says.
Mr. Fagan believes the biggest surprise was in the language around third-party trade pacts. “That’s being interpreted as Canada and Mexico being required to bring the United States into the tent with regard to any trade negotiation with China,” he says. “It is a potential step toward a deeper kind of integration in North
America – one step toward the kind of integration that you see, for example, in the European Union, where you don’t see individual countries negotiating their own trade agreements. They negotiate as a block.”
For Mr. Kubursi, the biggest surprise was the way in which President Trump “bullies his partners, I’m surprised that we got a solution and we got it not as bad as I thought it would be. It’s worse than NAFTA but it could have been worse.”
Mr. Darby expects no significant challenge to ratification in Canada but south of the border could be a different story. “I’m as confident (of ratification) as anyone who can predict U.S. politics,” he says. “I think everyone in all the countries are waiting to see whether it goes through unchanged in the U.S. or whether ultimately there’s any push to make any changes.”
Mr. Fagan expects ratification sooner rather than later. “There’s a growing sense among Washington players and watchers that the Democratic House of Representatives may be amenable to approving the new NAFTA later this fall, as a means of showing that Congress can get things done on important issues even amid the impeachment process,” he says.
Mr. Kubursi says the U.S., and President Trump, in particular, has little choice but to ratify. “One of the most unfortunate things is that now the USMCA is conflated with Trump, so as long as Mr. Trump is embattled one is at a loss trying to predict whether Congress, on the eve of an election, is eager to pass it.”