Canada trade groups welcome NAFTA replacement amid scepticism

05 October 2018 20:31 Source:ICIS News

TORONTO (ICIS)--Canadian chemical, auto and other trade groups are cautiously welcoming the new US-Mexico-Canada (USMCA) trade agreement - but there are also sceptical voices.

Canadian chemical and automakers rely heavily on access to the US and thus would have been hurt if the negotiations, concluded this week, to the USMCA, which succeeds the North American Free Trade Agreement (NAFTA), had failed.

The Chemistry Industry Association of Canada (CIAC) said that while further study was needed to assess the impact USMCA will have on Canadian chemical manufacturing, “this new trilateral trade agreement appears to provide investor certainty and build a strengthened platform for trade across the highly integrated, North American chemicals supply chain”.

“We are particularly pleased to see that in the area of regulatory cooperation, the USMCA signatories have reaffirmed their support for a risk-based approach to chemistry management,” said CIAC president Bob Masterson.

Nearly 70% of Canada’s chemical production is exported, with nearly 80% of those exports going to the US.

Deal strengthens Canada's auto, manufacturing

In the auto industry, which is deeply integrated with US auto manufacturing, Canada’s Automotive Parts Manufacturers’ Association (APMA) said that it was pleased that the new trade deal provides for higher regional value content (RVC) - which means that if an automaker wants to sell to a consumer in North America it needs to source more of the auto's content from within the region.

Under the USMCA, the vehicle RVC level rises from 62.5% to 75%.

While the cost of an automobile may increase marginally with higher RVC, Canada, and in particular Ontario, where most of the country’s auto industry is concentrated, would benefit because of more investments and jobs, the group said.

Trade union Unifor, which represents both auto and chemical industry workers, also sees “positive gains for the Canadian auto sector” in the new trade deal.

However, it cautioned that it would need to “review the language” of USMCA on key issues, including dispute resolution mechanisms, media and cultural rules, labour standards, and the supply management system in Canada's dairy sector, among others.

The Canadian Chamber of Commerce said that USMCA would provide “clarity and predictability” in Canada’s trade relations with the US and Mexico.

However, the chamber would still need to assess how the new trade deal addresses the tariffs the US imposed on Canadian steel and aluminium, as well as how it will ensure that tariffs and quotas upon Canada’s auto sector exports will be avoided in the future, it said.

The chamber will also need to look closely at how the agreement treats sectors such as dairy and government procurement, it added.

Trade group Canadian Manufacturers and Exporters (CME) said that it sees USMCA as a deal that secures and preserves North America’s integrated manufacturing supply chains.

“The manufacturing sector is the cornerstone of the North American economic relationship and the reason this trade agreement is so critical,” added CME’s CEO, Dennis Darby.

Canada’s manufacturing sector directly accounts for roughly 11% of Canada’s GDP and more than 1.7m jobs.

Nearly two-thirds of Canada’s exports are manufactured goods and more than 80% of these exports go to the US and Mexico, CME said.

Does USMCA infringe on Canada’s sovereignty?

However, Canadian critics deplored that even with USMCA the US tariffs on Canadian steel and aluminium were not immediately abolished.

They also warned of political difficulties for Prime Minster Justin Trudeau in Quebec and Ontario as with the new deal Canada opens its heavily protected dairy sector to competition from US farmers.

Furthermore, critics and opposition politicians said that clauses in USMCA could bar Canada from negotiating free trade agreements (FTA) with other countries, in particular with China - thus infringing on Canadian sovereignty.

Wenran Jiang, senior fellow at the Institute of Asian Research at the University of British Columbia, said that under article 32.10 of the USMCA on non-market countries, Canada was effectively no longer free to pursue a FTA with China.

“If Canada insists on negotiating a FTA with China, the US will have the final say on whether it can proceed,” he argued in an op-ed article in Canada’s Globe and Mail national newspaper.

The clauses amounted to a “veto power” given to the US, forcing Beijing to negotiate with Washington if it intends to pursue an FTA with either Canada or Mexico, the academic said.

However, Trudeau and other government officials have rejected this claim, saying that the respective USMCA clauses would have little effect.

“We, as always, will look for ways to engage, deepen and improve our trading relationship with [China] in ways that are beneficial both to Canadians and to everyone," he told reporters this week when asked about the issue of Canadian sovereignty after USMCA.

Pictured above: Minister of Foreign Affairs of Canada Chrystia Freeland, Mexico's Secretary of Economy Ildefonso Guajardo Villarreal and United States Trade Representative Robert Lighthizer during a meeting in September.
Source: Carlos Tischler/REX/Shutterstock

By Stefan Baumgarten