Canadian companies that engage in cross-border trade and investments in the United States and internationally should be mindful of several recent cross-border trade initiatives that will have a profound impact on their business strategies. These include the renegotiation of the North American Free Trade Agreement (NAFTA), the implementation of the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) and potentially the Trans-Pacific Partnership (TPP).
Perhaps most notably, Canadian businesses are on alert as NAFTA talks are under way with the United States, Canada’s most important trading partner. The first round started August 16, 2017, in Washington, D.C., the second round of talks was held September 10, 2017, in Mexico, followed by the third round in Canada, from September 23-27, 2017. Canada and the U.S. have by now also revealed their core objectives for renegotiations. While Canadian enterprises may be concerned about the uncertain future of NAFTA, they could leverage this as an opportunity to diversify their ties to international markets. Whether U.S. President Donald Trump’s ambitious proposed changes to NAFTA will eventually be implemented is of course unknown at this point. However, any alterations to NAFTA could have a profound impact on Canadian companies and investors with ties to cross-border trade between Canada, Mexico and the U.S.
As required by U.S. law, the Trump administration released its negotiating objectives on July 17, 2017. They include many controversial proposals, including eliminating the binational Chapter 19 dispute settlement mechanism to resolve trade disputes, limiting opportunities for NAFTA partners to bid for government contracts in the U.S. and stricter rules of origin for tariff-free treatment of goods. In response, Canada’s Minister of Foreign Affairs advanced Canada’s objectives on August 14, 2017.
Significant changes to NAFTA’s current structure — in which there are no tariffs on NAFTA qualifying goods traded between the countries — could have a widespread ripple effect on multiple industries, ranging from the auto sector to the agricultural sector, which could vastly affect North American and even global supply chains. While the outcome of the NAFTA negotiations is still unknown, Canadian companies should be mindful of how the cross-border economic landscape may evolve and should be ready to integrate possible changes to the rules that emerge into their business strategies to remain competitive.
Another key cross-border trade initiative that Canadian businesses need to be cognizant of is CETA, which is coming into force on September 21, 2017. CETA will not only reduce and ultimately eliminate tariffs between Canada and the EU, but also open up vast new opportunities for Canadian businesses in the EU government procurement sector.
Although President Trump recently pulled the U.S. out of the TPP — a new 12-country Pacific Rim trade agreement which includes Canada — which leaves the original deal dead, the remaining signatories have been working to see whether they will go ahead anyway. Canadian businesses should continue to monitor developments on this front.
Changes in trade and investment rules can be disruptive. However, while NAFTA is under renegotiation, Canadian businesses should focus on diversifying their export business toward Europe with the benefit of CETA, and with Asia with the potential of a modified TPP which may be implemented as early as next year.