If negotiations for a new and improved North American Free Trade Agreement fall apart, Canada’s canola industry may have to cope with significant tariffs on oil exported to the United States.
Under World Trade Organization rules, the U.S. could apply a tariff of 6.4 percent on crude and refined canola oil.
“It doesn’t sound like a lot, but in our industry we’ve got processing plants on both side of the border and an integrated market where product can flow back and forth,” said Brian Innes, vice-president of public affairs with the Canola Council of Canada.
“That (would be) a significant impact on the competitiveness of our processing industries.”
Canada exported about $2.1 billion worth of canola oil to the U.S. last year. A tariff of 6.4 percent would represent a duty of $134.4 million.
Canada, the U.S. and Mexico will meet in Mexico City Nov. 17-21 for the fifth round of negotiations to modernize the 23-year-old NAFTA.
Previous rounds have been unproductive and many observers are worried that President Trump is determined to nix the deal.
U.S. negotiators have put forward proposals that are untenable for Canada and Mexico, such as changing rules of origin around automobile manufacturing so half of all content comes from the U.S.
If Trump and his team are determined to destroy NAFTA, it’s possible that Canada and the U.S. could reinstate the 1989 free trade agreement between the two nations.
However, some trade experts say it’s more likely that Canada and the U.S. would revert to global trade rules.
“I think you have to assume if we’re going to do a demolition so we can do a re-construction, then we’re demolishing right down to the studs,” said John Masswohl, director of government and international relations with the Canadian Cattlemen’s Association.
“Which probably means bringing in the WTO (World Trade Organization) provisions.”
Under those rules, the U.S. could impose tariffs on agricultural goods from Canada. It would be 6.4 percent for canola oil but much less on canola seed and meal.
“For seed and for meal, the tariffs are actually cents per kilogram,” Innes said. “If you worked it out to dollars per tonne, you’re roughly $6 per tonne on seed, and seed is $500 a tonne, so you’re one percent essentially of a tariff.”
The duty is even less for canola meal — about $1.70 per tonne.
U.S. tariffs would likely apply to pork exports, but Canada’s pork sector isn’t focused on such a scenario. If NAFTA does dissolve, industry leaders are more worried about an uncertain business climate and what that could mean for Canadian pork prices.
“If U.S. and/or Canada lose access to a NAFTA partner market due to a sudden lack of co-operation or market access issue, our domestic price will drop, ” said Gary Stordy, public relations manager with the Canadian Pork Council.
Without NAFTA, officials of Canada and the U.S. may continue to co-operate on trade, or one country could get irritated and provoke a trade spat.
“Any retaliation usually involves restricting market access for an agriculture product,” Stordy said.
It’s unlikely the border would close, but a lack of rules for trade across the border could affect business relationships.
“The uncertainty about shipping animals may cause prices to drop or contracts to be cancelled for a short period of time,” Stordy said.
The canola trade, along with the rest of Canada’s agri-food industry, is also worried about the uncertainty around NAFTA.
That’s why representatives of the Canadian Agri-Food Trade Alliance have attended every round of negotiations for NAFTA.
Innes, who is president of CAFTA, said there’s anxiety around the future of NAFTA in Ottawa and Washington, but there is also hope.
Representatives from the three countries are still at the table, and they will continue to meet into the New Year.
“The addition of more negotiating rounds is a sign that the countries want to come to an agreement.”
WTO tariffs on beef:
Following the World Trade Organization’s Uruguay Round Agreement in 1995, the U.S. adopted a system of tariff rate quotas for imports of beef. There is one rate of tariff below the quota and a higher rate above quota.
- The tariff is 4.4 cents per kilogram in-quota.
- The tariff is 26 percent above quota.
Source: U.S. Department of Agriculture
U.S. imports of Canadian canola in 2016:
- Seed: 505,000 tonnes, worth $273.8 million
- Oil: 1.9 million tonnes, worth $2.1 billion
- Meal: 3.6 million tonnes, worth $1.2 billion
Source: Canola Council of Canada