Canada should expect 'hostility' with U.S. trade talks less than three months away, trade analysts say

OTTAWA — The review deadline for the Canada-United-States-Mexico-Agreement (CUSMA) is less than three months away, but it remains unclear where Canada stands at the negotiating table.

Canada-U.S. Trade Minister Dominic LeBlanc met with Greer in early March, a meeting that was described as a productive.

In the meantime, Greer and Mexican Secretary of Economy Marcelo Ebrard met in mid-March to launch bilateral technical discussions in advance of the review on July 1. The technical teams on both sides discussed “increased cooperation on economic security, rules of origin, and complementary trade actions.”

That same day, Greer told Fox Business that Canada was behind Mexico on discussions, citing provincial bans on U.S. alcohol as a non-starter for negotiations.

CUSMA came into force in 2020 for a 16-year term, replacing the North American Free Trade Agreement. But it also includes a provision that requires a joint review of the agreement on its sixth anniversary. The trade pact’s language around the review is vague, which presents uncertainty around how the process will play out.

When asked this week when Canada should expect to enter its own bilateral talks with the U.S., LeBlanc said in “due course” noting that the Canadian negotiating team is now in place with the appointment of businessman Mark Wiseman as Canadian ambassador to the U.S. and longtime public servant Janice Charette as chief trade negotiator.

Duncan Wood, a visiting fellow for North America at the Woodrow Wilson International Center for Scholars, said Canada’s position in negotiations remains “nowhere for now” as the U.S. positions itself for bilateral talks ahead of the trilateral meeting that will take place in the summer.

“Going to the bilateral route, which the United States has done with Mexico, does speed things up, because you’re no longer talking about three countries at the table, you’re talking about just two,” he said.

“And the Mexicans and the Americans have been building a relationship since President Trump won the election, and there are quite high levels of trust right now on the economic portfolio,” he added.

Wood said right now there is an enormous amount of “hostility” towards Canada as a negotiating partner in Washington.

Prime Minister Mark Carney’s recent agreement with Beijing that will allow market access to Chinese electric vehicles in Canada, in exchange for lowered Chinese tariffs on Canadian canola exports, is also viewed negatively by members of the U.S. administration.

“What I’ve heard directly from people within the administration is that they think Canada is absolutely shooting itself in the foot,” said Wood. “They believe that this will result in the hollowing out of the Canadian auto industry, and they don’t, weirdly, they don’t seem to understand how something like canola can be a fair trade for access to the auto sector.”

Carney has pushed a trade diversification agenda for Canada’s economy, with the goal of doubling non-U.S. exports. Part of that is a reset in diplomatic and commercial trade relations with China and also India, Asia’s two largest economies.

This week, Greer tabled the annual report on U.S. trade barriers. The list of trade irritants levied against Canada included the dairy supply management system, the Online Streaming Act, the “Buy Canada” policy, certification of U.S. aircraft under Transport Canada Civil Aviation and the digital services tax, which LeBlanc noted has been cancelled.

Separate from that list in upcoming discussion will be rules of origin in North American auto manufacturing, but also supply chain integrity in general.

“We have actually developed technology that allows us to track supply chains a lot better than we used to we used to with paperwork,” said Wood. “Now there are companies and software out there that do exactly that.”

Goldy Hyder, president and CEO of the Business Council of Canada, said it’s important to separate the noise from the process, noting that the technical aspects of discussions with the U.S. remain on track.

“I would say that trade negotiations, by their very nature, have a rhythm, but it’s not always the same,” said Hyder, who met with Greer a few weeks ago in Washington.

“I think we’re in that period here, trying to figure out which part of that rhythm we’re in, which part of that cycle we’re in.”

Hyder said the U.S. list of trade issues with Mexico is longer than the one with Canada.

On Wednesday, LeBlanc was asked by a reporter why Canadians are learning more about that state of trade discussions from the American side than from their own government.

“I reject the premise of your question,” he said, during an announcement in Oromocto, N.B.

“We’re working through constructively, as we have been for months with the Americans, the bilateral issues they raise with Canada,” he added.

Canada and the U.S. trade nearly $3.5 billion worth of goods and services every day. CUSMA has also been important in ensuring Canadian exports have retained tariff-free access to the U.S. market, with 85 per cent of Canadian goods now compliant under the agreement and receiving an exemption status.

However, U.S. sectoral tariffs remain in place on Canadian steel, aluminum, autos and lumber.

Last month, U.S. President Donald Trump’s tariffs that he imposed under the International Emergency Economic Powers Act were struck down by the U.S. Supreme Court. Since then, Greer has launched investigations into 60 economies under Section 301(b) of the U.S. Trade Act of 1974, including Canada’s, to determine whether they have failed to impose or enforce bans on imports produced with forced labour.

Wood said these investigations will surely result in more U.S. tariffs.

In the meantime, LeBlanc has been adamant that the upcoming review does not represent a full renegotiation, but Greer has floated that it could also be an opportunity for the U.S. to renegotiate or even exit the trade pact altogether.

Wood said all three parties are late in getting these negotiations started, which could mean the talks go beyond this summer.

He also said the U.S. likely wants to retain its leverage by extending negotiations.

“That’s what the agreement would suggest, is that if there is no agreement to extend the agreement this summer, then we move to annual reviews of the agreement, which means that this whole process drags on until probably the end of the Trump administration,” he said.

“And I think there’s a logic to that, which is that the administration here gets ongoing leverage in its relationship with Canada and Mexico, and so why give it all away right now?”

Hyder said that’s not the outcome the business community would like to see.

“We can’t let this lapse into what is in the agreement, which is we would go into an annual review cycle,” he said. “An annual review cycle is perpetual uncertainty for an investment climate that is desperately seeking certainty.”

National Post

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