Canada’s Consul General on What’s Next for the USMCA
- Keywords:
- nafta
- usmca
- cross-border
Last October, after more than a year of talks, the U.S., Mexico and Canada reached an agreement in principle to replace NAFTA. The United States-Mexico-Canada Agreement (USMCA, also known as CUSMA in Canada and T-MEC in Mexico), while not a wholesale rewrite of NAFTA, includes, in part, key changes for automakers and farmers, and a 16-year deal term with review and optional renegotiations at the six-year mark (a favorable outcome for business certainty relative to the five-year sunset initially discussed).
All three countries’ respective legislative bodies must still ratify the deal, so the impact of the final draft of the agreement is uncertain.
We recently sat down with John Cruickshank, Canada’s Consul General in Chicago, to further discuss some practical implications of the agreement, and what cross-border businesses and trade participants can anticipate based on the current state of play.
BMO: What modifications were made to make NAFTA more in tune with how business is conducted in the 21st century?
John Cruickshank: Nine new chapters have been incorporated into the USMCA, covering modern-day trade challenges faced by businesses—including digital trade— on which businesses have become increasingly reliant. The agreement has completely modernized a number of processes, which have a significant impact on companies that trade.
For example, the country of origin procedures chapter was fully updated, so origin certification and verification can be done electronically, doing away with paper forms. Changes like these will ultimately help cut costs and reduce the amount of time it takes to move goods across the border. Also, this new agreement should enhance opportunities for SMEs [small- and medium-size enterprises] owned by under-represented groups and foster more inclusive trade. This was one of Canada’s most important priorities. This includes businesses owned by women, indigenous peoples, youth and minorities, as well as startups, and agricultural and rural SMEs.
You mentioned digital trade as one of the new chapters incorporated to modernize NAFTA. What are the implications of the USMCA with regard to e-commerce?
The digital economy has completely transformed the way trade is conducted and how economic growth opportunities are created. Both this chapter and the agreement as a whole reflect that new reality. For companies, this means there will be a number of guarantees that were not in the original NAFTA.
For example, it includes a commitment not to apply duties to products transmitted electronically, as well as provisions to protect personal information—businesses will not be compelled to give proprietary source code to governments, and they will not be forced to use local servers for data storage.
Another update that will favor the development of e-commerce is the increase of de minimis shipment value levels, meaning Canada will increase the minimum value of an imported shipment that is subject to duty collection and customs documentation. This will make it easier for more businesses, especially SMEs and businesses selling online, to be a part of cross-border trade.
We know our clients are updating trade and business plans to account for pending changes as best as possible. What are some common misconceptions of the new deal?
First of all, it’s important to remember that the “new NAFTA” is not yet finalized. The agreement now must be ratified by the governments in all three countries. Until the new agreement is implemented, the current NAFTA remains in force.
Another common misconception is that the new trade deal resolved outstanding Section 232 tariff issues. As you know, since June 2018, the U.S. has imposed a 25 percent tariff on most imported steel products and a 10 percent tariff on imported aluminum products coming from Canada. The Canadian government has responded with dollar-for-dollar countermeasures, as did other countries hit by the U.S. tariffs, including Mexico and the European Union. The new trade deal does not resolve any of that.
In response to these tariffs, we’ve had clients aim to modify supply chain inputs and diversify source countries where possible, and in some cases seek credit to help alleviate the financial burden. What impact do you see tariffs having on businesses, and how are they managing them?
What we see right now is that businesses are facing a loss of competitiveness due to tariffs and a related increase in costs. North American products are competitive in the global market because we build things together in an integrated way, we innovate, and we find ways to keep costs down. The current tariffs harm companies on both sides of the border as foreign buyers will find cheaper suppliers. Once lost, made-in-North-America products may not be able to regain this market share, which will further harm businesses both in Canada and the U.S.
At the moment, our steel and aluminum sectors are highly integrated: Canada buys more American steel than any other country in the world, accounting for 50 percent of U.S. exports. Two-thirds of U.S. exports of aluminum products by value go to Canada or Mexico. However, to keep costs down, Canadian and U.S. companies will have to look for new suppliers and buyers too.
Jobs have already been cut, and many businesses might have to source from new markets, or move manufacturing offshore altogether. Businesses might also be experiencing a softening of cross-border investment and business sentiment as a consequence of the ongoing trade tensions surrounding both the NAFTA renegotiation and tariffs.
The ongoing tariffs are also creating uncertainty, and as we all know, uncertainty is bad for business. Companies can’t have a clear idea of the costs that will be incurred—or not—by the tariffs, which makes it difficult to plan ahead. I think this is all the more reason to continue working together to grow trade between our three countries if we want to build a more prosperous and competitive North America.
We’ve seen clients in the U.S. and Canada contemplating their international expansion plans in light of today’s global trade climate. To what extent are Canadian businesses looking to non-U.S. markets for growth? And what would you say to U.S. businesses considering expansion in Canada?
Our history, geography, economic supply chains and relationships are such that Canada’s trading relationship with the United States will continue to be vital. But Canadian companies have a tangible interest in diversifying export markets, generating more wealth, and getting more Canadians into trade. Taken together, Canada has 14 free trade agreements in force, covering 51 countries and 1.5 billion of the world's consumers—that’s 62 percent of the world’s GDP. Canada is the only G-7 nation with trade agreements with the other six member countries.
With the Canada-European Union Comprehensive Economic and Trade Agreement alone, investors have access to an additional 500 million consumers and a GDP of $17 trillion. Canadian-based companies also have preferential access to numerous markets in Asia through several free trade agreements, including CPTPP [the Comprehensive and Progressive Agreement for Trans-Pacific Partnership]. That is something that U.S. businesses should definitely see as an opportunity when they consider expanding to Canada.
Companies can already expect from Canada a stable business and political climate, low taxes and business costs, a highly educated and skilled workforce, and generous R&D incentives, but they can also count on this preferential access to global markets.
This says a lot about Canada's openness. We have a unique value proposition to investors that puts us at an advantage when compared to other countries.
John Cruickshank is the Consul General of Canada in Chicago. In his role, Mr. Cruickshank holds responsibilities for Illinois, Wisconsin, Missouri, northwest Indiana, and Kansas City Metro. Prior to his 2017 appointment to serve as Consul General in Chicago, Mr. Cruickshank enjoyed a distinguished career in newspapers and television in both Canada and the United States, including with the Toronto Star, CBC News, the Chicago Sun-Times, and the Globe and Mail.
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Laura Ullman
Director, Cross Border Banking
Last October, after more than a year of talks, the U.S., Mexico and Canada reached an agreement in principle to replace NAFTA. The United States-Mexico-Canada Agreement (USMCA, also known as CUSMA in Canada and T-MEC in Mexico), while not a wholesale rewrite of NAFTA, includes, in part, key changes for automakers and farmers, and a 16-year deal term with review and optional renegotiations at the six-year mark (a favorable outcome for business certainty relative to the five-year sunset initially discussed).
All three countries’ respective legislative bodies must still ratify the deal, so the impact of the final draft of the agreement is uncertain.
We recently sat down with John Cruickshank, Canada’s Consul General in Chicago, to further discuss some practical implications of the agreement, and what cross-border businesses and trade participants can anticipate based on the current state of play.
BMO: What modifications were made to make NAFTA more in tune with how business is conducted in the 21st century?
John Cruickshank: Nine new chapters have been incorporated into the USMCA, covering modern-day trade challenges faced by businesses—including digital trade— on which businesses have become increasingly reliant. The agreement has completely modernized a number of processes, which have a significant impact on companies that trade.
For example, the country of origin procedures chapter was fully updated, so origin certification and verification can be done electronically, doing away with paper forms. Changes like these will ultimately help cut costs and reduce the amount of time it takes to move goods across the border. Also, this new agreement should enhance opportunities for SMEs [small- and medium-size enterprises] owned by under-represented groups and foster more inclusive trade. This was one of Canada’s most important priorities. This includes businesses owned by women, indigenous peoples, youth and minorities, as well as startups, and agricultural and rural SMEs.
You mentioned digital trade as one of the new chapters incorporated to modernize NAFTA. What are the implications of the USMCA with regard to e-commerce?
The digital economy has completely transformed the way trade is conducted and how economic growth opportunities are created. Both this chapter and the agreement as a whole reflect that new reality. For companies, this means there will be a number of guarantees that were not in the original NAFTA.
For example, it includes a commitment not to apply duties to products transmitted electronically, as well as provisions to protect personal information—businesses will not be compelled to give proprietary source code to governments, and they will not be forced to use local servers for data storage.
Another update that will favor the development of e-commerce is the increase of de minimis shipment value levels, meaning Canada will increase the minimum value of an imported shipment that is subject to duty collection and customs documentation. This will make it easier for more businesses, especially SMEs and businesses selling online, to be a part of cross-border trade.
We know our clients are updating trade and business plans to account for pending changes as best as possible. What are some common misconceptions of the new deal?
First of all, it’s important to remember that the “new NAFTA” is not yet finalized. The agreement now must be ratified by the governments in all three countries. Until the new agreement is implemented, the current NAFTA remains in force.
Another common misconception is that the new trade deal resolved outstanding Section 232 tariff issues. As you know, since June 2018, the U.S. has imposed a 25 percent tariff on most imported steel products and a 10 percent tariff on imported aluminum products coming from Canada. The Canadian government has responded with dollar-for-dollar countermeasures, as did other countries hit by the U.S. tariffs, including Mexico and the European Union. The new trade deal does not resolve any of that.
In response to these tariffs, we’ve had clients aim to modify supply chain inputs and diversify source countries where possible, and in some cases seek credit to help alleviate the financial burden. What impact do you see tariffs having on businesses, and how are they managing them?
What we see right now is that businesses are facing a loss of competitiveness due to tariffs and a related increase in costs. North American products are competitive in the global market because we build things together in an integrated way, we innovate, and we find ways to keep costs down. The current tariffs harm companies on both sides of the border as foreign buyers will find cheaper suppliers. Once lost, made-in-North-America products may not be able to regain this market share, which will further harm businesses both in Canada and the U.S.
At the moment, our steel and aluminum sectors are highly integrated: Canada buys more American steel than any other country in the world, accounting for 50 percent of U.S. exports. Two-thirds of U.S. exports of aluminum products by value go to Canada or Mexico. However, to keep costs down, Canadian and U.S. companies will have to look for new suppliers and buyers too.
Jobs have already been cut, and many businesses might have to source from new markets, or move manufacturing offshore altogether. Businesses might also be experiencing a softening of cross-border investment and business sentiment as a consequence of the ongoing trade tensions surrounding both the NAFTA renegotiation and tariffs.
The ongoing tariffs are also creating uncertainty, and as we all know, uncertainty is bad for business. Companies can’t have a clear idea of the costs that will be incurred—or not—by the tariffs, which makes it difficult to plan ahead. I think this is all the more reason to continue working together to grow trade between our three countries if we want to build a more prosperous and competitive North America.
We’ve seen clients in the U.S. and Canada contemplating their international expansion plans in light of today’s global trade climate. To what extent are Canadian businesses looking to non-U.S. markets for growth? And what would you say to U.S. businesses considering expansion in Canada?
Our history, geography, economic supply chains and relationships are such that Canada’s trading relationship with the United States will continue to be vital. But Canadian companies have a tangible interest in diversifying export markets, generating more wealth, and getting more Canadians into trade. Taken together, Canada has 14 free trade agreements in force, covering 51 countries and 1.5 billion of the world's consumers—that’s 62 percent of the world’s GDP. Canada is the only G-7 nation with trade agreements with the other six member countries.
With the Canada-European Union Comprehensive Economic and Trade Agreement alone, investors have access to an additional 500 million consumers and a GDP of $17 trillion. Canadian-based companies also have preferential access to numerous markets in Asia through several free trade agreements, including CPTPP [the Comprehensive and Progressive Agreement for Trans-Pacific Partnership]. That is something that U.S. businesses should definitely see as an opportunity when they consider expanding to Canada.
Companies can already expect from Canada a stable business and political climate, low taxes and business costs, a highly educated and skilled workforce, and generous R&D incentives, but they can also count on this preferential access to global markets.
This says a lot about Canada's openness. We have a unique value proposition to investors that puts us at an advantage when compared to other countries.
John Cruickshank is the Consul General of Canada in Chicago. In his role, Mr. Cruickshank holds responsibilities for Illinois, Wisconsin, Missouri, northwest Indiana, and Kansas City Metro. Prior to his 2017 appointment to serve as Consul General in Chicago, Mr. Cruickshank enjoyed a distinguished career in newspapers and television in both Canada and the United States, including with the Toronto Star, CBC News, the Chicago Sun-Times, and the Globe and Mail.
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October 09, 2018 Economic Insights, Doing Business In Canada
After more than a year of talks to renegotiate NAFTA, there’s a new agreement in place. Pending approval, the United State-Mexico-Canada-Agreem…
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