A Modern Trade Agreement has been Reached Between Canada and the United States
The New USMCA Trade Deal and the Impact on Canadian Incentives
On October 1st, 2018, Canada and the US officially announced that a deal had been reached, and NAFTA would now be replaced with the US-Mexico-Canada Agreement (USMCA). Both American and Canadian leaders praised the deal as good for both countries in strengthening trade relations. Overall the trade deal is positive for Canada’s trade with the US, with few industries giving major concessions. One of the wedge issues in negotiations was the Canadian dairy industry, as well as high tension created from US steel and aluminum tariffs. While a new agreement will bring stability to North American trade, Canada will remain highly motivated to diversify trade.
Changes to Canada’s trade strategy were already being felt as of last August, with the appointment of Minister Jim Carr to serve as the Minister of International Trade Diversification to develop Canada’s approach to expanding trade moving forward. Canada will likely shift its focus to implementing the USMCA, and other existing agreements, while driving new international market growth and increasing trade. In a country where diversity is perhaps our greatest strength, Carr has made it very clear that diversifying our relationships with other countries will be the top priority, and that Canada is working hard to encourage Canadian businesses to leverage the recently signed CETA and TPP free trade agreements to that end.
One of the largest concessions Canada made in the USMCA was to provide US farmers access to 3.5% of the Canadian market, as well as the elimination of class 6 and 7 milk categories and associated pricing. Poultry and egg industries will also be affected by the trade deal by allowing more American farmers into the market. The Canadian government has announced that they will be compensating the loss in the market but have not yet revealed the details. The compensation will be released as an incentive program or a supplement to help the Canadian dairy industry compete with their American counterparts. When the Canada-European free trade agreement was reached, new funding programs were announced as follows: $100MM for dairy processors and $250MM for dairy producers. It is anticipated that a similar structure will be set up as a result of this free trade agreement.
Despite reaching this new agreement, all steel and aluminum and Canadian retaliatory tariffs have remained in effect. President Trump has made it clear that the USMCA and steel tariffs will remain separate and Canada is continuing to negotiate on behalf of steel producers. All associated new funding programs, such as the Strategic Innovation Fund – Steel and Aluminum, will remain open and accepting applications at this time. The $250 Million in funding that was established to help offset these tariffs is still working its way through the system; no approvals have been issued to date.
The creation of the USMCA, and its effect on the Canadian economy, will likely play a large part in the upcoming 2019 Federal election. A 16-year sunset clause, with a review after 6 years, will ensure that the deal will continue to be a part of North American trade long after Trudeau and Trump have left power. The success of Prime Minister Trudeau rests on the ability of Canada`s key industries to flourish in times of instability and change.
The uncertainty surrounding the NAFTA agreement created a holding pattern on behalf of government authorities to commit to various funding programs. With the new USMCA deal in place, the next few months will be critical in the establishment of new economic policy that will drive an improved funding landscape.