photo credit: ronniechua
The 7th round of the North American Free Trade Agreement (NAFTA) renegotiations are scheduled to start later this month, but there is still uncertainty about the future of the deal. Even as the three sides make slow progress on some aspects of the trade agreement, U.S. President Donald Trump’s often-uttered threat of leaving the pact continues to loom over talks.
In Canada, of the 10 per cent of small-and medium-sized businesses that exports goods/services, nearly all (89 per cent) export to the U.S. These businesses are understandably nervous about what a change in our trading relationship with the U.S. might mean. We recently released a guide to help small businesses in the West start thinking about what they need to do to be ready if the U.S. does withdraw from NAFTA. The first changes businesses would notice without NAFTA are higher tariffs on some products. Businesses may find some reassurance in the fact that there are also many ways to improve the flow of trade between Canada and the U.S that are not part of NAFTA. Even if the U.S. leaves NAFTA and tariffs go up, we can expect many of these other measures to remain in place. Below are examples of some of these trade facilitation measures.
NEXUS and FAST
The NEXUS trusted traveller program expedites the movement of business travelers between the U.S. and Canada. Pre-screened travellers approved to participate in NEXUS receive ID cards that allow them easier entry into either country. The U.S. has a similar program – SENTRI – with Mexico, that also exists outside of NAFTA.
The Free and Secure Trade program (FAST) expedites the trucking of commercial goods between Canada and the U.S. Dedicated lanes for faster border clearance so far exist at four ports of entry between the two countries. FAST reduces delivery time – and therefore costs – and participants are subject to less paperwork.
Canadians who have flown to the U.S. will be familiar with one aspect of preclearance – border officials from the U.S. operating in Canadian airports who screen travellers before they travel to the U.S. In 2015, Canada and the U.S. signed an Agreement on Land, Rail, Marine, and Air Transport Preclearance. Canadian legislation that enacted the Agreement passed in December 2017. The new agreement means both Canadian and U.S. border officials can carry out customs as well as immigration and agriculture inspections in the other’s country. It also expands preclearance from just airports to any mode of transportation, including small or remote ports of entry. The goal is to “reduce congestion and delays at the border and increase efficiency and predictability in cross-border travel, tourism and transportation.”
Beyond the Border Action Plan
The new preclearance agreement is an example of an action item from the Canada-U.S. Beyond the Border Action Plan. Started in 2011, the action plan includes a range of initiatives to enhance both security and the flow of people, goods and services across the Canada-U.S. border. Besides preclearance, other Beyond the Border trade facilitation initiatives include pre-inspection, enhancing cross-border critical infrastructure and greater transparency on border fees and charges.
Regulatory Cooperation Council
The Canada-U.S. Regulatory Cooperation Council (RCC) is another well-established forum created outside of NAFTA that reduces red tape by removing regulatory duplication between the two countries. Mexico is the only other country that has an RCC with the U.S. This gives Canadian – and Mexican – firms a significant advantage over foreign competitors in the U.S. market. While Canada’s proposal to include requirements for a body similar to the RCC in NAFTA has not (yet) been accepted by the U.S., there are no indications that the U.S. is considering leaving the Canada-U.S. RCC.
World Trade Organization Dispute Settlement Mechanism
Under NAFTA, any participant country can request a binational panel to review a decision made by another NAFTA country regarding countervailing and antidumping duties. For example, Canada recently launched a NAFTA panel request in response to the U.S. imposing both countervailing and antidumping duties averaging 20 per cent combined on Canadian softwood lumber exports to the U.S. If the U.S. were no longer a part of NAFTA, Canada would not be able to appeal the U.S. duties through a NAFTA panel.
However, the World Trade Organization (WTO), the organization that governs global trade, also has a dispute settlement mechanism. Canada and the U.S. are both members of the WTO, so even if the U.S. withdraws from NAFTA, Canada will still have access to a dispute settlement process that is outside the U.S. domestic court system to fight U.S. trade action against Canadian exports.
Sub-national (province-to-state) engagement is another advantage we enjoy over other countries – even Mexico to some degree. Western Canadian premiers participate in forums such as the Western Governors’ Association and the Pacific NorthWest Economic Region (PNWER), which can help mitigate, or sometimes even prevent, trade irritants. For the small and medium businesses that dominate the Canadian economy, the ability of a premier, a provincial minister or an MLA to get a governor, mayor or state house speaker on the phone is far more important than calling Washington, D.C. and being put on hold behind other embassies in the U.S. capital. This has been a good tool in the past on issues including COOL (country of origin labelling) and Buy American, and will be especially critical if the U.S. leaves NAFTA.
Canada’s geographic proximity to the U.S. is another advantage that is not going anywhere (an advantage only Mexico shares with us). And, Canada is consistently ranked as the country Americans like the most.
The U.S. is going to be our major trade partner for the foreseeable future, no matter what happens to NAFTA. Many export competitiveness initiatives, which give Canadian companies an advantage in the U.S. market over competitors from other countries, won’t be affected even if we lose our trade deal with the Americans.
If the U.S. withdraws from NAFTA, Canada will not go from having privileged access to the U.S. market to being disadvantaged. We will go from being privileged to being less privileged – but still better off than any other country that trades with the U.S.
– Naomi Christensen is senior policy analyst at the Canada West Foundation