As the new NAFTA comes into effect, here's what it means for Canada
OTTAWA -- On July 1 the renegotiated North American Free Trade Agreement comes into effect, three years after talks first began to rework the trilateral trade agreement between Canada, the United States, and Mexico.
The new agreement—signed in November 2018— is referred to by Canadian officials as the Canada-United States-Mexico Free Trade Agreement or CUSMA for short, while U.S. President Donald Trump calls it the United States-Mexico-Canada Agreement or USMCA.
The coming-into-force of this revamped deal comes after the agreement got a slight reworking in late 2019 to satisfy U.S. Democrats, and after it was ratified in all three countries’ respective legislative bodies.
“With trade between NAFTA members valued at nearly $1.5 trillion in 2018, we can't overstate how vital it is to maintain free and fair trade between our three countries," said Prime Minister Justin Trudeau on June 29.
The new trade pact brings with it a series of changes to several sectors.
Here’s a rundown.
MORE DAIRY, WINE SELECTIONS
Under the new deal, American farmers will have increased access to the supply-managed Canadian dairy market. Specifically, Canada has increased the market access to 3.59 per cent, and the federal government agreed to get rid of what was known as Class 7 pricing on some dairy ingredients. The pricing arrangement allows domestic dairy processors to buy Canadian milk at lower prices.
American farmers will also have increased access to the supply-managed Canadian egg and poultry markets. In response, Trudeau has committed to compensating supply-managed Canadian producers.
As for what this could mean for consumers, experts have said it’s unlikely to bring down the cost of Canadian products, but it could result in a larger variety of options on grocery store shelves.
Already, in a side letter of the deal, Canada and the United States agreed that as of November 2019 British Columbia would have to scrap its law banning international wines from eligible grocery stores.
CHEAPER SHIPPING RATES
Cross-border shipments of online purchases to Canada worth less than $150 will no longer be subject to duties. The deal raises the minimum purchase price that qualifies for duties and taxes, known as the de minimis threshold. It used to be $20 before duty was charged, and similarly the threshold for taxes is now $40.
While the increase means Canadians buying and shipping items from the U.S. and Mexico will pay less in taxes and duties, it is less positive news for Canadian retailers.
The retail industry has long argued against the increase, claiming it would benefit American retail companies while putting Canadian businesses at a tax disadvantage.
Retailers have voiced concerns that a higher de minimis level will lead to shoppers staying away from bricks-and-mortar stores in favour of increasingly buying products online. Though, the COVID-19 pandemic has led to many small businesses having to re-think their business model and begin offering online shopping.
CARS COULD COST MORE
Changes were made to what is called the “rules of origin” for autos. Basically, this means that there is a new requirement where each car made has to have a certain amount of high wage labour put into it, as well as certain amount of North American-made materials.
The revised rules require a higher level of North American content in each vehicle, incentivizing more production and sourcing within Canada, the United States, and Mexico. Specifically the threshold has been increased from 62.5 per cent to 75 per cent.
As well, automobiles now have a 70 per cent North American steel and aluminum requirement 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 hourly wage is at least $16 U.S.
This could spark increased automotive production across the three countries, and offer new material production opportunities for Canadian auto part manufacturers. However, some auto industry experts have warned the requirements could result in higher prices for these vehicles if the anticipated higher production costs are passed along to consumers.
2026 REVIEW, TERMS ON NEW DEALS
The agreement is good for 16 years but within the first six years a mandatory “joint review” will be conducted to determine whether all three countries want to extend the agreement for another 16 years. It maintains the six month opt-out of the deal notice that existed previously.
As well, the deal includes a chapter that Canadian opposition parties have called a “Trump veto,” which has thrown into question how this portion of the agreement could impact future trade deals Canada makes.
Chapter 32 of the new NAFTA states that the signatories are required to give notice to the other countries in the deal, if they intend to negotiate a free trade agreement with a “non-market” country that is not already in a free trade agreement with one of the three countries.
For the purpose of this deal, a “non-market” country is one that any of the parties to the deal have declared to be such and if one of the three countries wants to enter into a deal with a “non-market” country, the wording allows for one of the other countries to trigger the six-month pullout mechanism of the new NAFTA.
HOW DID WE GET HERE?
As the agreement is about to come into effect, here’s a look back at five key moments along the way.
- January 21, 2017: After taking office, Trump declares intent to begin NAFTA renegotiation talks with Canada and Mexico, a campaign promise from his 2016 presidential run.
- June 9, 2018: Amid ongoing NAFTA talks, Trump calls Trudeau “meek and mild” and “very dishonest and weak” after a G7 meeting, sparking a series of attacks from American officials.
- July 1, 2018: $16.6 billion in Canadian counter-tariffs is imposed on U.S. steel and aluminum as well as other goods, in retaliation for the metal tariffs Trump imposed on Canada as NAFTA deliberations waged on.
- December 10, 2019: Deputy Prime Minister Chrystia Freeland signed on to an updated text of the deal after U.S. Democrats secured adjustments, including to a section on biologic and prescription drugs to keep advanced medicines affordable.
- March 13, 2020: Bill implementing the final text of the agreement is fast-tracked through the House of Commons and Senate on last day before COVID-19 shutdown Parliament Hill.
With files from CTV News’ Ryan Flanagan, infographics by Mahima Singh.