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USMCA signed but not sealed – A few steps (and plenty of big questions) to resolve

The new United States-Mexico-Canada Agreement (USMCA) is a milestone, but what’s next?

The deal

The fact that Canada and the United States (U.S.) reached an eleventh-hour deal to modernize the North American Free Trade Agreement (NAFTA) certainly came with a sense of relief for some industries, while others are far from thrilled with the outcome.

The deal itself contains a mixed bag of wins and losses for Canada including:

  • The U.S. getting expanded access to Canada’s dairy market, which slightly exceeds previous concessions under the old Trans-Pacific Partnership;
  • A higher de minimis threshold that will make cross-border online shopping less expensive for Canadian consumers within certain price points;
  • A review provision, which replaces the proposed sunset clause which had been a major sticking point for the negotiators from Canada and the U.S.;
  • Chapter 19 (state vs. state) dispute resolution mechanism remains intact, while the Chapter 11 (industry vs. state) dispute mechanism has been removed except as it relates to Mexico;
  • Changes to intellectual property and copyright regulations. For example, copyright now extends 70 years after an author’s death rather than 50 years;
  • The exclusivity period on new biological innovative pharmaceuticals has been extended from eight years to ten years, meaning that generic drug producers will need wait longer before manufacturing their products;
  • The new agreement provides certain guarantees against the imposition of auto tariffs on Canada.

Prime Minister Trudeau and U.S. President Trump spoke this morning, during which “[they] stressed that the agreement would bring the countries closer together, create jobs and grow the middle class, enhance North American competitiveness, and provide stability, predictability, and prosperity to the region. The leaders agreed to keep in close touch and move the agreement forward."

The questions

While there is now a deal on paper, the agreement leaves quite a few questions unresolved. Among those questions are:

  1. The Section 232 tariffs on steel and aluminum are subject to ongoing talks
    The steel and aluminum tariffs that the U.S. imposed on Canada in the name of national security applied significant pressure on to Canada in order to secure a trade deal favourable to the U.S. On numerous occasions, President Trump assured Canada that the tariffs would be lifted if a new deal was reached – and that was not the case. The new USMCA lays out a 60-day period in which American and Canadian negotiators will discuss the best way in which to resolve the impasse.
    It remains to be seen though if the delay in repealing the Section 232 steel and aluminum tariffs is a tactic to gain additional concessions from that sector, or a political move to distance the use of tariffs in the name of national security from the finalization of a trade deal.

  2. The U.S. President remains unpredictable
    President Trump absolutely prides himself on being unpredictable, and he views it as the best way to keep both allies and opponents on edge about what is coming next. This means that he is himself a large question mark post-USMCA since we cannot know for sure what he will attempt to do next on the international trade front, and we do not know what he is willing to do in order to leverage victory.

Hurdles ahead

What is complicating matters is that even though the deal is agreed to in principle, it still has to navigate ratification both at home and abroad.

Ratification at home

The new USMCA will likely be ratified in Canada by virtue of the fact that the Liberal government has a large majority of the seats in the House of Commons. This will not stop the opposition parties from doing their best to point out flaws in the agreement that may prove politically useful for them a full year out from the next federal election scheduled to take place on October 21st, 2019.

The opposition Conservative Party of Canada (CPC) and the New Democratic Party (NDP) are in dire need of a victory against the government. Given that there is only a year until the next election, the new trade deal provides potentially fertile ground for industry sectors dissatisfied with the outcome of the new deal to find allies within Parliament willing to help them pressure the government.

In this instance, the CPC will probably be quite content to champion issues such as dairy, eggs, and chicken in the battle against the reduction of their protected market share. Conversely, the NDP will likely point out that the new deal completely fails to mention gender issues and did not succeed in inserting chapters on Indigenous rights.

Ratification at home could be further complicated by the Liberal Party’s own successes in Quebec and rural Ontario, with some Liberal Members of Parliament (MPs) representing ridings rich with dairy farmers.

Ratification abroad

One of the biggest potential threats to ratification of the new agreement is the fact that the U.S. is entering a major election in just over a month in which it is expected that the opposition Democrats will take control of the House of Representatives and possibly the United States Senate.

If the Democrats take control of Congress, they may decide that they do not like certain elements of the new agreement, or they may choose to block its ratification outright in order to deny President Trump any kind of economic victory.

What’s next?

Just because a deal has been reached does not mean the end of stakeholder engagement on this issue. In fact, for several industries seriously concerned with the contents of the agreement, their lobbying efforts may only intensify now that an agreement has been tabled.

Stakeholders should be prepared to tell governments and elected and non-elected officials what they think about the deal and how it will impact both their industries and their individual organizations. The new USMCA may be signed, but it is not sealed. In fact, some parts of the agreement such as the allocation of import quotas still have to be determined. There is still plenty of time for industry to have their voices heard on what is likely to be the new North American trading regime for the foreseeable future.

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Written by Guillaume Fillion | Guillaume Lefèvre | Alexandre Boucher

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