Canadian business groups are joining their counterparts in the United States and Mexico to ask for a delay in the implementation of the new United States-Canada-Mexico Agreement that replaces NAFTA, saying it’s unfair to expect companies to adjust to new rules during a deadly pandemic.
The Trump administration has talked about making June 1 the entry-into-force date for all elements of the USMCA – including new regional content rules for autos – and United States Trade Representative Robert Lighthizer sent Congress notice of that date in early March.
Flavio Volpe, president of Canada’s Automotive Parts Manufacturers’ Association, said the imposition of new rules on companies “that are in an unprecedented shutdown because of a global pandemic would be recklessly harmful."
His organization, along with auto industry associations in the U.S. and Mexico, is urging all three governments to work together to postpone enforcement until January, 2021. Mr. Volpe points out that all three countries are still working to develop uniform regulations to implement the deal.
Mark Agnew, senior director of international policy at the Canadian Chamber of Commerce, the country’s largest business lobby, said they would also like to see a delay.
“All new regulatory processes that are not critical need to be paused," Mr. Agnew said. “The government needs to be talking to businesses about what a grace period or phase-in approach could look like."
He said the Chamber understands U.S. President Donald Trump wants to have the USMCA in force before fall elections, but added there must be a way to delay new obligations on companies. “Under normal circumstances, companies could rush to make it happen. But you have all sorts of businesses that are closed. You have workers going into self-isolation. And those who are working are pulling their hair out because of COVID-19.”
Asked whether the Canadian government would try to convince the United States to put off implementation of the USMCA, Deputy Prime Minister Chrystia Freeland’s office said Ottawa is in close contact with the U.S. government.
“With respect to the entry into force of the new NAFTA, Canadian government officials continue to closely co-ordinate with our businesses, labour and other domestic stakeholders. Canada is working with the U.S. and Mexico on uniform, trilateral regulations, which are required before the agreement can enter into force for all three countries,” Katherine Cuplinskas, Ms. Freeland’s press secretary, said in a statement.
A Canadian government official, who was granted anonymity by The Globe and Mail because they were not authorized to discuss the matter publicly, said Ottawa understands the concerns being raised by business groups, but cautioned the Trump administration remains very eager to bring the deal into force on June 1.
The U.S. embassy in Canada referred questions to the Office of the United States Trade Representative. The trade department could not be immediately reached for comment.
The USMCA imposes stricter rules for cars made in Canada, Mexico or the U.S. if automakers want to avoid duties when moving between the countries. Seventy-five per cent of North American auto content must come from the NAFTA region, up from 62.5 per cent under the old North American free-trade agreement. Forty per cent to 45 per cent of content must be made by workers earning at least US$16 an hour. Canada and Mexico will also be bound by a quota system and new auto-content rules; any auto exports that exceed the quota and fail to meet the new rules will be subject to tariffs.
Canadian trade consultant Peter Clark agrees it’s “overly ambitious” for the U.S. to expect companies to be able to comply with new rules in two months.
“The supply chains are all screwed up. They just can’t do it in that time frame."
If the rules go into force June 1, Mr. Volpe says, the risk is that cars entering the U.S. from Canada could be slapped with duties because companies don’t have the necessary information to know if their products are compliant. “There is going to be a massive list of vehicles that don’t meet the new USMCA rules and will incur a 2.5-per-cent tariff on them at a time when nobody is spending money or working," he said.
Mr. Agnew said exporters who aren’t equipped with all the new tariff codes taking effect could find themselves paying tariffs and then having to request refunds from government.
With reports from Reuters
Steven Chase