U.S. President Donald Trump shakes hands with Mexico President Enrique Peña Neto, left, as Prime Minister Justin Trudeau, right, looks on after participating in the CUSMA signing ceremony, Nov. 30, 2018 in Buenos Aires, Argentina.Pablo Martinez Monsivais/The Associated Press
The current North American free trade agreement is a strange beast. For one thing, each country calls it by a different name. In this country, it’s officially titled the Canada-United States-Mexico Agreement (CUSMA). To the Americans, it’s the United States-Mexico-Canada Agreement (USMCA) while the Mexican name is the Tratado entre México, Estados Unidos y Canadá (T-MEC).
Another, highly unattractive, oddity is that the treaty potentially expires in 2036. In 2026, the three countries must decide whether to extend the treaty beyond that expiry date for another 16-year term. If all three countries do not agree to that extension, then negotiations commence that could drag on for years. In the worst of all worlds, the negotiations would fail and the treaty would expire.
For Canada, whose economy is completely dependent on North American free trade, such a failure would be a disaster. Even uncertainty deters business investment. Convincing the United States government and Congress to extend CUSMA – or USMCA or T-MEC or whatever you want to call it – must be one of the federal government’s most urgent priorities, particularly as tariff wars threaten exports elsewhere.
Ideally, Canada would convince the next administration, be it Republican or Democrat, to eliminate the sunset provisions of the treaty entirely. For that to happen, Ottawa would have to be prepared to offer concessions.
The good news is that there are specific actions this country could take that would increase the likelihood that the United States would agree, not only to extend the deal, but to eliminate the sunset clause completely.
First off, Canada should crack down on products coming into this country that employ forced Chinese labour. The U.S. Uyghur Forced Labor Prevention Act requires firms importing goods from the Xinjiang Uyghur Autonomous Region of China to prove that the product was not made using forced labour from the persecuted Uyghur Muslim minority.
Canada’s existing law on forced labour and supply chain reporting merely requires companies to report on their efforts to ensure no forced labour is used in goods they import. Canada should toughen its law, not just to remove this trade irritant but because it’s the right thing to do.
The Americans are also very unhappy with the Trudeau government’s new Digital Services Tax, which imposes a 3 per cent tax on Canadian revenue above $20-million for large companies delivering online advertising, social-media services and other digital offerings.
The United States is protesting the tax using CUSMA’s dispute resolution mechanism. The tax undermines confidence in the Canada-U.S. trade relationship and puts Canadian businesses at risk of retaliatory tariffs. The Business Council of Canada warned this week that the tax threatened the future of the CUSMA talks. Canada should offer to rescind the tax and to co-operate with other members of the Organization of Economic Co-operation and Development, who are working to adopt a global digital services tax.
Finally, this would be a good time for Canada to once and for all end the supply management system that protects dairy and poultry farmers through production quotas and import tariffs.
Today there are fewer than 10,000 dairy farms in Canada and fewer than 5,000 poultry and egg producers, a small fraction of the number of farms in existence when supply management was introduced in the 1970s. Clearly the program’s efforts to protect the small family farm have failed. Nonetheless, in CUSMA and other trade treaties, Canada has insisted on protecting supply management, having to negotiate concessions in other areas in return.
Indicating that Canada would be prepared to phase out the quota system might go a long way to convincing the Americans to extend CUSMA and perhaps eliminate the sunset clause altogether.
Business leaders and organizations, provincial premiers, and federal leaders will need to start reaching out as soon as the new president and Congress are in office. As with the original renegotiation of the North American free trade agreement, the lobbying effort should include state and local governments as well as business and labour organizations.
For nearly four decades, a continental free-trade pact has been the foundation of Canada’s prosperity. The rise of protectionism makes it all the more critical to ensure that foundation is rock-solid.