Canada struggles to decide whether to ratify NAFTA 2.0

Last May, we wrote about the difficulties in arriving at a new North American Free Trade Agreement.

Part of the negotiating strategy of the United States was to apply dubious hammers of tariffs on steel and aluminum while President Donald Trump launched rude comments about his NAFTA trading partners — Canada and Mexico. An unusual strategy to say the least, but agreement was eventually reached.

Canada, which emphatically said it would not budge on supply management of dairy, eggs and poultry, eventually made concessions and agreement was reached on what is euphemistically called NAFTA 2.0, or more appropriately the United States-Mexico-Canada Agreement.

Now, the real fun begins with the ratification process where each country must reach legislative approval of the agreement.

Canada’s federal budget for 2019 gives a $3.9 billion compensation package to dairy, poultry and egg producers. Milk production alone in Canada is expected to show annual losses of 8.4 percent from the USMCA, the Comprehensive Economic and Trade Agreement with the European Union and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Part of the amount is allocated to income losses and $1.5 billion for a Quota Value Guarantee program. That may not be the end of the dialogue if the impact of the various agreements proves to be higher.

But now, Canada has another agenda item that will prevent it from moving forward unless U.S. tariffs on Canadian steel and aluminum are removed. There are ongoing negotiations with counterparts in the U.S. that have positive murmurings but nothing substantive.

The real blockages to ratification for Canada and Mexico are part practical and part legislative.

The practical part is that until the new agreement is in place, the old deal is still in place, which is fine with both Canada and Mexico and actually the best solution for both.

NAFTA 2.0 is second best, and abolition of any agreement is the worst. With an election soon upon us in Canada, with some bigger fish to fry for the governing Liberal party, pushing ratification further out down the timeline is not a bad thing.

Canada won’t move on the issue until the U.S. tariffs are removed, and in mid-June Parliament adjourns for the summer.

The legislative issues in the U.S. are far more complex. How can Trump’s administration move the proposed trade bill to Congress while threatening to shut down the southern border, and all its related commerce?

The Democrats (in control of the House of Representatives) say they won’t move on this until Mexico improves worker protection laws. They would also be very happy if they could block a Republican vote from reaching the House floor.

If the treaty does not pass a congressional vote, the fear is that Trump will not hesitate to walk away from NAFTA entirely — not the best result for Canada.

Grant Diamond is a tax analyst in Saskatoon, SK., with FBC, a company that specializes in farm tax. Contact: fbc@fbc.ca or 800-265-1002.

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