What the Canada-US-Mexico Free Trade Agreement means to you & your business
Nearly three years in the making, the revamped NAFTA agreement came into effect on Canada Day, July 1, 2020.
Our federal government calls it the Canada-United States-Mexico Free Trade Agreement (CUSMA), while U.S. president Donald Trump refers to it as the United States-Mexico-Canada Agreement (USMCA). The lack of agreement on the name of the agreement nicely sums up the bumpy road that got us here.
Getting the U.S. out of the North American Free Trade Agreement was a Trump campaign promise, but the agreement itself was an idea Ronald Regan came up with in 1980. It was negotiated by U.S. president George Bush, Canadian prime minister Brian Mulroney and Mexican president Carlos Salinas de Gortari in 1992, and became law in 1994. It’s a monumental document; free trade between the three NAFTA members was valued at nearly $1.5 trillion in 2018.
With a new deal that took almost the entirety of Trump’s first term to reach, what do the latest changes mean for Canadian businesses?
Cheaper online shopping. Canadians no longer pay duties to have online purchases worth less than $150 shipped across the border. Good news for shoppers but not so good for Canadian retailers, who argue that the change encourages Canadians to shop online in the U.S. or Mexico instead of buying Canadian at bricks and mortar stores. (It’s worth noting that the COVID-19 pandemic changed shopping habits and more consumers are now shopping online.)
Protections for copyright and digital content. The revised agreement will extend copyright protection from Canada’s current 50 years to 70 years past an author’s death, aligning with laws in the U.S. As well, internet platforms are now protected from liability related to third-party information they publish, and consumers will no longer be charged customs and other charges on digital products like music, games, videos and e-books.
More opportunities for auto parts manufacturers. All vehicles must now include 70 per cent North American steel and aluminum, and 40 per cent of passenger vehicles must be made of materials, parts and labour produced or carried out by workers in a plant where the average wage is at least US$16. The downside for consumers is that vehicles may cost more to purchase as the cost to produce them go up.
Even with the new agreement finally in place, it’s still not entirely smooth sailing for Canada-U.S. trade relations. Just as CUSMA eases what has been a couple of years of volatility (in response to U.S. imposed tariffs on steel about a year ago, Canada put tariffs on a variety of U.S. products, including quiche, mayonnaise and toilet paper) the U.S. is once again talking about increasing tariffs on Canada’s aluminum.
It’s a threat that puzzles the Canadian government. According to Prime Minister Trudeau, the U.S. does “not produce enough, nowhere near enough” aluminum to fill domestic manufacturing needs, and especially now, with the requirement for a higher ration of North American aluminum to be used in auto productions. Increasing tariffs on Canadian aluminum, which the U.S. has to buy anyways, will increase costs for U.S. consumers. The decision on tariffs could be made within weeks.
How long will we agree?
After nearly three years of discussions, do we finally have a trilateral agreement all three countries can live with? CUSMA is good for 16 years, but mandates a joint review be conducted within the first six years to determine if all three countries want to extend the agreement for another 16 years. It also includes the option for a country to opt out of the deal with six months’ notice. This option was part of the previous NAFTA and was taken up by the U.S. when Trump tore up the agreement after taking office.
So…in a world where anything can happen, anything could happen.