2026 CUSMA Review: A western Canadian perspective

House of Commons Standing Committee on International Trade

Carlo Dade, Director, Trade and Trade Infrastructure
Thursday, June 13, 2024

Standing Order 108(2), Study on the 2026 CUSMA Review: A Western Canadian Perspective

That, pursuant to Standing Order 108(2), the committee undertake a study on the pending CUSMA review that will take place in 2026 in order to help identify any trade irritants that currently exist between Canada, the US and Mexico that could potentially create issues in advance of the review process if not addressed before it takes place, and possible solutions to such irritants; that the committee invite the Minister of International Trade and any other Government officials and experts the committee deems relevant; that the committee hold a minimum of 5 meetings; and that the committee report its findings and recommendations to the House.

The Canada West Foundation welcomes the opportunity to provide a western Canadian view of irritants that may be part of the 2026 trilateral review of the CUSMA agreement and possible solutions. For the Prairies, over 80 per cent of exports go to Mexico and the U.S., which rivals Central Canada and is higher than the Canadian national figure of 78 per cent. For Alberta, the figure is still higher, with nearly 90 per cent of all exports going to our North American neighbours. More important than the gross export number is the importance of this trade for the prairies as illustrated in the U.S. Exports as % of Provincial GDP figure below.

Given Western Canada’s significant role in trade, it’s crucial that the issues faced by Western and Prairie exporters receive equal attention and coverage. This balanced approach is essential to ensure a fair and comprehensive review of the CUSMA agreement.

This brief discusses an irritant facing the West that is not featured prominently in national discussions and, more importantly, proposes a new approach to managing this irritant that could be applied to others facing Canada. The first insight is a call for a proactive approach, using the term “manage” in place of “resolve.” As we have learned in the West through our experience with the softwood lumber and country of origin labelling (COOL) disputes, these irritants are managed, not resolved. It is a war, never just one single battle. If this is the case, our fundamental approach to irritants will have to change from a reactive, whack-a-mole footing to a more costly, difficult, ongoing, pre-emptive footing where we anticipate irritants rather than wait to be surprised. This need for change does not mean the North American trade agreement is a failure—just the opposite. Trade agreements do not, cannot, eliminate irritants. They only provide the means to manage them. Here, Canada has done well in the bureaucratic and formalistic arena of legal challenges. Where the country has not done well, arguably has failed, is in the arena of creative solutions and winning the public diplomacy battles.

This analysis is drawn from extensive CWF work on North American integration and the CUSMA agreement listed at the end of the brief to discuss an example of a current irritant to suggest a better but more difficult path.

Country of Origin Labelling (COOL) and Voluntary Country of Origin Labelling (VCOOL)

We will not review the history of COOL and VCOOL. This is well-known, and our point is regarding recent circumstances.

In January of this year, the U.S. government issued a new rule for comment to enact “voluntary” country of origin labelling for beef and pork. Under the new scheme, the USDA redefines the criteria for its “Product of the U.S.A.” and “Made in the U.S.A.” labels that producers can choose to affix to their products.

Canada and Mexico won a WTO challenge against the U.S. for its previous mandatory labelling requirements, arguing that they imposed unreasonable and discriminatory costs that were a non-tariff barrier and at odds with U.S. treaty obligations. Our analysis at CWF is that “voluntary” labelling is the best we can hope for from the Americans. The issue of COOL, like softwood, has become an unpleasant reality of our trade relationship with the U.S. The past year saw two bills in Congress, both with broad bi-partisan support, including progressives Ro Khanna (D-CA) and MAGA republicans from the West like Harriet Hageman (R-WY), introduced the “Country of Origin Labeling Enforcement Act of 2023, which simply ignores the WTO rulings that Canada and Mexico won against the U.S. To quote from the proposed legislation

“No ruling by the World Trade Organization or by any other international organization of which the United States is a member that is established before, on, or after the date of enactment of this Act may be construed to limit, alter, or affect the authority of the Secretary of Agriculture to require country of origin labelling in accordance with the amendments made by this section.”

Country of Origin Labelling is the definition of a conflict which is a war, not a battle. Even when Canada wins a fight or two, the issue is not “resolved.”

Canada engaged the Americans, with allyship from Mexico, by launching dispute procedures at the World Trade Organization. This is standard procedure and the expected response, but it was also clearly not enough. What more could Canada have done?

To fight voluntary labelling, Canada will have to devise new tactics. Rather than being decided in international arbitration, voluntary labelling is more likely to be resolved by the markets of public opinion and economics.

A more effective strategy for Canada would be to make its case directly to U.S. consumers.

Or, as we wrote in April of this year, “It’s the cost stupid, not the trade rules.” A voluntary labelling rule (if truly voluntary) should not harm Canadian exporters. Made in the U.S.A. beef, if done according to the new specification, should not be able to be produced for less than beef made with inputs from Canada and Mexico. The question then becomes, will U.S. consumers pay more for beef labelled “Made in the U.S.A.”? And if so, will the market share be high enough to cause U.S. producers and retailers to shift their current production and distribution chains? The answer to the first question is “highly unlikely,” and the answer to the second question is also “highly unlikely.”

In this case, what should a successful Canadian response to voluntary labelling have been? Leaving the issue alone and trusting the market to work will only bring a temporary reprieve, as the proponents of COOL in the U.S., who are unhappy with voluntary labelling, will only try more aggressive measures.

A more effective Canadian response would have been to press the economic argument. In a period when ‘affordability issues’ explain much of U.S. politics and will likely determine the outcome of the next election (See The Economic Theory that Explains Why Americans Are So Mad, Ezra Klein, NYTimes, June 7, 2024) the ‘affordability of meat’ should have been the argument with which Canada led its charge.

The necessary immediate response to the U.S. announcement should have been to fill the airwaves with how much more this measure would cost the average American, both at the supermarket check-out line and in their tax bill. The U.S. Department of Agriculture had to publish a cost-benefit estimate for the implementation and impact of the new Voluntary Country of Origin Labelling. Their methodology is questionable, and their cited figures almost certainly underestimate the cost. A (our) cynical view is that the USDA selected a number that prevented cost from becoming an issue via the media megaphone. So, it’s a mystery why the Canadian livestock industry did not have its own cost estimate ready to blast out to the media as soon as the U.S. Ag Secretary announced the proposed rule. It was also a huge, missed opportunity: e.g., “VCOOL will raise your grocery bill by $XXX a year and raise your taxes by $XX.” The American public, not a ruling in “trade court,” is the only way to achieve longer-term relief and put the U.S. advocates for COOL on their backfoot for a change

A more permanent solution may be possible if a counteroffer to COOL and VCOOL accompanies this. This counteroffer is a push for a “Made in North America” label, as we outlined in February of this year. There should be a strong market in the U.S. for beef labelled Made in North America, two markets Americans trust more than, say, China or even Europe. Canada has a reputation for quality and safe production. On the other side of the equation, 37 million Mexican citizens or descendants in the U.S. may prefer beef from Mexico. If beef labelled as made in North America is cheaper than a made in U.S.A. labelled product, it should be even more attractive to consumers.

A “made in North America” label would codify the existing supply and production chains, which are largely North American. This would lower prices for consumers in all three countries and allow politicians to claim enough of a victory to save face.

However, both elements of this solution require something utterly lacking in the defence and advancement of Canadian trade interests in North America – creativity, original thinking and proactivity. Instead, we have an entrenched, desiccated, bureaucratic mechanism done out of habit and not of success. It is also a framework for understanding and policy making from the Reagan and Clinton administrations, not of those that followed. It is undoubtedly not a framework for the political reality in which we now face a potential second renegotiation of the North American trade agreement. Canada has shown glimpses of creativity in the recent past. In the fight against softwood lumber, the government, having discovered that a significant portion of U.S. contractors were Hispanic, developed a campaign to target this demographic. This incident was a departure from traditional outreach activities in the U.S. on softwood. More, much more of this is needed.

How we achieve this is the more difficult question. It will not, cannot, be solved if we rely on the process that birthed, or rebirthed, the current Team Canada approach to the U.S. To get new ideas and better results, Canada will need to adopt a new way of doing business starting from the ground up.

The Americans, unfortunately, have done this. We have not.


CWF Relevant North American Trade Publications to This Submission

North America Brief 17 | COOL nothing to get hot about, drought takes centre stage and more. April 5, 2024

North America Brief 15 | Team (Central) Canada, a new COOL, Mexico and LNG exports, and more. February 14, 2024

North America Brief 11 | U.S. raises MCOOL again, Mexico firm on GM corn ban and more. September 15, 2023

Canada has become roadkill in global economic competition. Globe and Mail, May 27, 2024

Canada must protect its economy and trade from a Donald Trump 2.0 presidency. Globe and Mail. November 15, 2023

Why Canada should think ‘America First’ when it comes to trade with the U.S.  Financial Post. Jan 29, 2024

Alberta a key player in new story about Canada-U.S. trade. Calgary Herald. April 29, 2024

New ‘Made in USA’ label rules could damage Alberta meat exports. Calgary Herald. March 12, 2024

REPORT | North America’s Border Infrastructure: How It Limits Global Competitiveness and How to Fix It. Woodrow Wilson Center. October 7, 2022

WHAT NOW? | Tweet of Damocles: Even with a new NAFTA, Canada’s biggest trade threat is from below the border.

December 10, 2019