{"id":52,"date":"2018-10-03T19:35:50","date_gmt":"2018-10-03T19:35:50","guid":{"rendered":"http:\/\/www.carlsonng.com\/carlsonngcom\/?p=52"},"modified":"2018-10-04T19:57:31","modified_gmt":"2018-10-04T19:57:31","slug":"goodbye-nafta-hello-usmca","status":"publish","type":"post","link":"https:\/\/www.carlsonng.com\/carlsonngcom\/2018\/10\/03\/goodbye-nafta-hello-usmca\/","title":{"rendered":"Goodbye, NAFTA?\u00a0 Hello, USMCA.\u00a0"},"content":{"rendered":"

It appears that the United States, Mexico, and Canada now have, in principle, a new trade agreement. This new trade agreement will no longer be known as the North American Free Trade Agreement, but will instead be called the\u00a0United States-Mexico-Canada Agreement<\/a>.\u00a0<\/span><\/p>\n

While the media has portrayed USMCA as the \u201cnew NAFTA\u201d or \u201cNAFTA 2.0\u201d, the reality is that the current iteration of USMCA is forked away from NAFTA.\u00a0 While there are many parts\u00a0of\u00a0NAFTA in USMCA, the two key words missing from the new title is \u201cFree Trade\u201d.\u00a0 This means that the whole premise of the agreement has changed from a free trade agreement to simply a trade agreement.\u00a0\u00a0\u00a0<\/span><\/p>\n

For Canada, this is a clear change as\u00a0Section 232<\/a>\u00a0tariffs on aluminum and steel remain in place, in spite of\u00a0the newly negotiated USMCA.\u00a0 According to the\u00a0technical summary<\/a>, the United States will exempt Canada for a further 60 days from future Section 232 tariffs to negotiate \u201can appropriate way forward\u201d.\u00a0 Based on the press conference by President Trump and the way the automobile tariff issue was resolved, a quota system for steel and aluminum appears to be the most likely outcome.\u00a0\u00a0We will have to wait a while before we know whether the quota negotiated is\u00a0favourable\u00a0for Canada.\u00a0\u00a0\u00a0<\/span><\/p>\n

There was shock in Canada when President Trump mused of imposing a 25% tariff on automobiles.\u00a0 With USMCA, the auto industry can rest easy in the knowledge that the prospect of tariffs has been removed as Canada now has a quota for exporting up to 2.6 million vehicles tariff-free.\u00a0 The quota is a generous one as Canada currently exports around 2 million vehicles.\u00a0 If Canada can meet the maximum quota\u00a0or at the very least exceed current production levels, then USMCA will be a win for Canadian-based auto makers.\u00a0\u00a0\u00a0<\/span><\/p>\n

During\u00a0Canada\u2019s press conference<\/a>, Minister Freeland mentioned that the proportionality clause<\/a> for oil in NAFTA is now gone.\u00a0 This is great news for Canada as Canada will no longer have to worry about exporting a proportional amount of oil (and at what price) to the United States.\u00a0 Canada\u2019s plan is clear: it is time to diversify away from the United States and access world markets.\u00a0 To that end, the\u00a0LNG Canada project<\/a>\u00a0was announced soon after the USMCA announcement and,\u00a0upon completion, will make Canada a player in the world LNG market.\u00a0 The goal to replace inefficient coal energy with LNG globally is admirable and burnishes Canada\u2019s reputation as an energy player on the world stage.\u00a0 Over time, we will also see if Canada makes structural changes\u00a0(hopefully now without any interference from the United States)\u00a0to lower energy costs for everyday Canadians.\u00a0\u00a0\u00a0\u00a0\u00a0<\/span><\/p>\n

With\u00a0a\u00a0trade agreement\u00a0of this magnitude, not every industry can win.\u00a0 Such is the case\u00a0for\u00a0Canada\u2019s dairy industry as it is forced to provide a 3.6% market share to the United States.\u00a0 The federal government has promised compensation for dairy farmers, which should help.\u00a0 For myself, I enjoy eating salted Canadian butter with my toast and will continue to buy it regardless of\u00a0American alternatives in the marketplace.\u00a0\u00a0Other industries who did not do as well as the auto industry include the pharmaceutical industry with respect to general drugs and B.C. wine.\u00a0\u00a0\u00a0\u00a0\u00a0<\/span><\/p>\n

At first glance, is USMCA better than NAFTA or the absence of a trade agreement?\u00a0\u00a0USMCA is certainly better than the absence of a trade agreement as Canada retains normalized access to the US market without the threat of further tariffs.<\/p>\n

With respect to NAFTA, steel and aluminum tariffs remain in place with a possible negotiated settlement on the\u00a0horizon with\u00a0USMCA.\u00a0 Currently, however, we have tariffs with NAFTA and tariffs with USMCA.\u00a0 USMCA is better than NAFTA when we look at Canada\u2019s two largest exports:\u00a0 oil and automobiles.\u00a0 According to the\u00a0OEC<\/a>, crude petroleum and cars accounted for 24% of Canada\u2019s exports in 2016.\u00a0 In these two areas, Canada has won with USMCA as the proportionality clause is removed for oil exports and the quota level has increased for the export of cars.<\/p>\n

But don\u2019t celebrate yet as USMCA still needs to be approved by Congress and no one knows whether President Trump will have the required number of votes to pass USMCA.\u00a0\u00a0\u00a0<\/span><\/p>\n

\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

It appears that the United States, Mexico, and Canada now have, in principle, a new trade agreement. This new trade agreement will no longer be known as the North American Free Trade Agreement, but will instead be called the\u00a0United States-Mexico-Canada Agreement.\u00a0 While the media has portrayed USMCA as the \u201cnew NAFTA\u201d or \u201cNAFTA 2.0\u201d, the … <\/p>\n

Continue reading “Goodbye, NAFTA?\u00a0 Hello, USMCA.\u00a0“<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"om_disable_all_campaigns":false,"footnotes":""},"categories":[5,4],"tags":[],"class_list":["post-52","post","type-post","status-publish","format-standard","hentry","category-contracts","category-negotiations"],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/www.carlsonng.com\/carlsonngcom\/wp-json\/wp\/v2\/posts\/52","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.carlsonng.com\/carlsonngcom\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.carlsonng.com\/carlsonngcom\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.carlsonng.com\/carlsonngcom\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.carlsonng.com\/carlsonngcom\/wp-json\/wp\/v2\/comments?post=52"}],"version-history":[{"count":3,"href":"https:\/\/www.carlsonng.com\/carlsonngcom\/wp-json\/wp\/v2\/posts\/52\/revisions"}],"predecessor-version":[{"id":55,"href":"https:\/\/www.carlsonng.com\/carlsonngcom\/wp-json\/wp\/v2\/posts\/52\/revisions\/55"}],"wp:attachment":[{"href":"https:\/\/www.carlsonng.com\/carlsonngcom\/wp-json\/wp\/v2\/media?parent=52"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.carlsonng.com\/carlsonngcom\/wp-json\/wp\/v2\/categories?post=52"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.carlsonng.com\/carlsonngcom\/wp-json\/wp\/v2\/tags?post=52"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}