Refreshed North American trade agreement establishes framework for interactions on investment, labour mobility
Many employers across Canada are probably breathing a sigh of relief now that a new North American trade deal has been signed with the United States and Mexico.
Called the United States-Mexico-Canada Agreement (USMCA), the pact refreshes the North American Free Trade Agreement (NAFTA) from 1994 — a deal which underpins $1.5 trillion in trade between the three countries, according to media reports.
The agreement-in-principle is “good for Canada, good for Canadian businesses and, most importantly, good for Canadian workers and their families,” said Prime Minister Justin Trudeau, shortly after the agreement was reached on Sept. 30.
“When this improved agreement is implemented, North American trade will be preserved and modernized for the 21st century — just as we set out to do.”
Renegotiating NAFTA was a major plank in U.S. President Donald Trump’s electoral campaign and the new deal aims to bring more jobs into the U.S., with Canada and Mexico accepting more restrictive commerce arrangements with their main export partner, according to media reports.
Each of the involved country’s legislatures will need to approve the agreement before USMCA takes effect. Once approved, the revised trade deal is expected to come into effect as of 2020, according to media reports.
News of the agreement-in-principle is a major relief for employers across Canada, according to Pedro Antunes, executive director of economic outlook and analysis at the Conference Board of Canada in Ottawa.
“Whether or not it’s the best deal, or the perfect deal… generally what it does is alleviate all of this uncertainty around whether we were going to have access to the U.S. consumer and the U.S. market in the near future,” he said.
Regardless of perceived winners and losers, a trade deal of this magnitude is necessary for the Canadian economy to continue growing, said Mark Agnew, director of international policy at the Canadian Chamber of Commerce in Ottawa.
“Does it meet all the objectives that we set up a year ago when we started this process? No. But given the world in which we live in with Donald Trump, it’s a good deal. And it’s a necessary one for us to have.”
Canadian employers have generally reacted positively to the refreshed agreement, said Agnew.
“Preserving the status quo, we think, is a good thing to have,” he said.
“It at least now gives that certainty to Canadian businesses that we haven’t really had the last several months when the negotiations were kind of teetering for a bit.”
Uncertainty is the cause of much difficulty when it comes to business investment or supply chain decisions, said Agnew.
“In the circumstances, it’s a necessary deal to have because we need that certainty,” he said.
“We’ve had about a year of negotiations, which is a pretty breakneck pace for an agreement of this size. And given the sort of unique way that this White House runs itself, shall we say, on trade issues, there was a heightened degree of uncertainty about what the final outcome was going to be.”
The negotiations surrounding the North American trade deal were the cause of much uncertainty in the Canadian economy and labour market over the past 14 months, said Parisa Mahboubi, senior policy analyst at the C.D. Howe Institute in Toronto.
If nothing else, the USMCA provides certainty in determining how business can interact with the U.S. and Mexico on trade, labour mobility and the like, she said.
“Coming to a conclusion after months of negotiation? It’s a good thing. It’s going to establish the market,” said Mahboubi.
The threat of tariffs from the U.S. on many Canadian-made products was very real — U.S. tariffs on steel and aluminum still remain in place — as was the possibility Canada could be left out of the trade deal altogether, said Antunes.
“The threat that NAFTA would be dissolved or could be dissolved… (in favour of a) bilateral trade deal with Mexico created much anxiety,” he said.
“Imagine the uncertainty that this generates — not only over the past year-and-a-half or two years, but for the next while.”
USMCA will alleviate that uncertainty and bring investment back into Canada, according to Antunes.
It makes North America more competitive on a global scale, and ensures that Canadian businesses relying on export have access to the U.S. market. Canada is largely an export nation, and international markets are crucial in terms of driving the domestic economy, he said.
“Exports of goods does tend to have a big impact, big repercussions through the supply chain — even in terms of exports of services, and other components.”
And while the USMCA may have dealt farmers a blow in terms of supply management, in the short-term, they will receive government support, said Mahboubi.
In the long-term, they will be expected to cope with the changes, just as other countries have in the past, she said.
Changes for employers
Canadian employers will endure slight changes under the revised deal, said Agnew.
“There are things in there which have changed from the status quo.”
For example, the USMCA includes tweaks to intellectual property provisions around biologics and extending the length of patent terms — a beneficial boost to innovative pharmaceutical companies, said Agnew.
Further changes surround digital trade and e-commerce rules in an effort to allow for the freer movement of data, regardless of borders, he said.
A boost to de minimis levels will affect brick-and-mortar retailers as it allows people shopping online to get a better price before duty taxes apply — a win for e-commerce companies, said Agnew.
For human resources professionals in Canada, the deal may ease some anxiety in a tight labour market, said Antunes.
“This is the big challenge for HR folks — it’s that pressure,” he said. “Perhaps it’ll take a little bit of pressure off the HR folks that are desperate to find workers.”
If the USMCA allows for more investment into corporate Canada, that could help alleviate some of the labour issues, said Antunes.
“What we’ve had in Canada really has been a lack of investment in retooling machinery and equipment, and these are things that tend to increase productivity and help alleviate labour market pressure,” he said.
“This is an agreement that directly doesn’t really affect labour markets in Canada. It’s more of that indirect effect. It’s a longer-term piece.”
Regardless, the USMCA maintains flexibility for employers seeking to hire foreign workers, in that there is no restriction on the number of employees who can cross borders, according to Mahboubi.
“This is a good thing,” she said. “We’ve seen high job vacancies and our economy is growing and the labour market is strong.”
If businesses are in a good position but are unable to hire the right workers with the right skills, it’s going to impact Canada’s economy and labour market negatively, said Mahboubi.
“If there is no restriction for labour movement, they can hire easily and they can benefit from that — the availability of, and having access to, the pool of higher-skilled workers.”