2017 is shaping up to be an extraordinary year for Canadian trade policy, with NAFTA re-negotiation, a rethinking of Asia-Pacific trade policy in light of the demise of the Trans-Pacific Partnership ("TPP"), the implementation of the massive Canada-European Union ("EU") Comprehensive Economic and Trade Agreement ("CETA"), softwood lumber negotiations, and consultations on a possible free trade agreement with China. Risks and opportunities abound. Companies that depend on cross-border supply chains running predictably and smoothly are facing the possibility of real disruptions, increased costs, lost business and uncertain direction. Yet new free trade agreements like the CETA offer new markets and opportunities.
Budget 2017 addresses some of these issues with proposed legislative changes, the allocation of new dollars, and various statements and declarations of principles or the reinforcement of current government initiatives. Overall though, Budget 2017 is thin gruel for those looking for clear guidance and direction on Canada's trade policy.
The Canada-United States Trade Relationship
Negotiations to re-balance NAFTA are expected to start in earnest by third quarter 2017. Issues that are expected to dominate those talks include NAFTA content requirements for automobiles, access to provincial and U.S. state procurement markets, enforcement of IP rights at the border, softwood lumber, access to Canadian dairy markets, and the use of NAFTA panels to settle anti-dumping disputes.
Budget 2017 does not mention the negotiations, and does not allocate funds for any additional government resources that may be needed during the negotiations. It does note the government's commitment to strengthening cross-border ties and its continuing work towards a new softwood lumber trade agreement that is "fair and helpful to consumers and businesses on both sides of the border." Without providing specifics, the government confirmed that it has "reorganized some internal operations and deployed new resources to cross-border files."
Prioritizing Markets in Asia
Budget 2017 declares that Canada is prioritizing trade and investment with Asia and mentions China, India and Japan. As part of that effort, Canada will join the Asian Infrastructure Investment Bank ("AIIB") and proposes to invest $256 million over five years to support "high quality infrastructure projects, including in transportation and energy." Budget 2017 says legislation on this will be introduced in 2017.
Implementing the Canada-Europe CETA
As discussed in more detail elsewhere, CETA is a far-reaching trade agreement that will remove 99 per cent of customs duties, open new markets for investments, offer meaningful opportunities for Canadians to bid on public contracts in Europe, and for Europeans to do the same in Canada, and provide a EU-Canada frame-work to recognise professional qualifications in regulated professions. Canada introduced legislation in October, 2016 to give effect to the CETA (The EU is completing its own process). Budget 2017 states that "virtually all significant parts of this Agreement" will come into force the second quarter of 2017.
The U.K. is Canada's most important European trade and investment partner. Budget 2017 is silent on Canada's intentions to prepare for a post-Brexit UK.
Changes to Canada's Trade Remedy Rules
Canada's trade remedy laws enable domestic industry to seek the imposition of duties on dumped or subsidized imports that cause them injury. Budget 2017 states the government will amend those laws to (i) improve the enforcement of trade remedy decisions; (ii) address circumvention; (iii) better account for alleged market and price distortions; and (iv) provide unions with the ability to participate in trade remedy proceedings. While changes were announced, there are no details of the changes and we will have to wait for proposed legislation to fully understand their impact.
Greater Duty Free Access for Apparel from Least Developed Countries
Rules of origin are local content rules that define how goods qualify for preferential duty treatment. Budget 2017 proposes easing those rules for apparel imported from Least Developed Countries (LDCs) particularly from Haiti. The government estimates these measures will result in some $17 million in forgone tariff revenues. We will have to wait for regulations to see whether the change will apply only to Haiti.
Regulatory Alignment with Trade Partners
Budget 2017 proposes that the Treasury Board Secretariat be provided with $6 million over three years to promote regulatory alignment with Canada's trade partners. Historically, the U.S. has been the focus of alignment, particularly through the Canada-U.S. Regulatory Cooperation Council created in 2011, and those efforts have been directed to agriculture and food, health and consumer products, transport and the environment. With the implementation of CETA, that focus may well shift to regulatory alignment with Europe.
The Canadian Free Trade Agreement ("CFTA")
The Canadian, provincial and territorial governments have been negotiating a CFTA to replace the current Agreement on Internal Trade, with the aim of further liberalizing the cross-province flow of goods, services, investments, and of broadening procurement opportunities. Without providing specifics, Budget 2017 states that CFTA will include (i) goods and services in all sectors including emerging sectors; (ii) a regulatory cooperation process between provinces to align regulations to help reduce business costs; (iii) the alignment of current interprovincial trade rules with free trade agreement rules so Canadian businesses selling between provinces will have as favourable treatment as foreign businesses; and (iv) broader access for Canadian companies to other province's government-procurement contracts. Interprovincial trade liberalization in alcoholic beverages will be left for a later, unspecified, date.
More Trade Commissioners
The 2016 Fall Economic Statement announced that the Government would create an Invest in Canada Hub, a new federal agency dedicated to attracting firms to Canada and committed $218 million over five years to support that initiative by placing more trade commissioners in "strategic markets". Budget 2017 repeats the announcement, but does not say which markets will receive more trade commissionaires.
Where do we go from there?
Given current uncertainties, it is perhaps unsurprising that Budget 2017 is light on specifics. That said, some of the gaps are worrisome. Budget 2017 is silent on an overall Asia-Pacific strategy to replace the now demised TPP. It is also silent on the upcoming NAFTA talks, and Canada's intentions for a post-Brexit U.K. These are significant and major challenges that will have an impact on Canadian business and those wanting to do business in Canada.
Canadian business is in for a period of instability and transition. Flexibility and concerted efforts to keep abreast of the changing trade landscape will be critical. Budget 2017 does not provide a roadmap, and it's main lesson may be that the next few years will be unpredictable, offering challenges and opportunities. Robust monitoring and developing plans to prepare for the changes may mean the difference between being overwhelmed by or able to take advantage of these changes.