The new North America Free Trade Agreement (NAFTA) deal has been reached and signed by the US, Mexico and Canada during the G-20 Summit.
While it still needs to be ratified by all three governments, there are many changes in the agreement that will affect trade and business in all three countries. The US has renamed the deal, the United States-Mexico-Canada Agreement, or USMCA but in Canada it is referred to as the Canada-United States-Mexico Agreement, or CUSMA.
While all sides have come to an agreement, the new provisions are not as favourable to Canada. In order to protect the auto industry in Canada from the automobile taxes that were threatened by the US, the country had to give up the access to the dairy market. Prior to these negotiations, there were protections and restrictions on US dairy farmers selling their wares, like milk and cheese, in the Canadian market. Canada had strict import quotas and tariffs to protect their own dairy farmers. The stiff tariffs remain but through CUSMA, Canada has agreed to set new quotas that will allow US dairy farmers greater access to the Canadian market.
Other big changes coming out of the deal are country of origin rules and labour provisions concerning automobile manufacturing. Seventy-five percent of automobile components must be manufactured in Mexico, the US, or Canada to qualify for zero tariffs. This has increased from the previous amount of 62.5% under NAFTA. In terms of labour, 40-45% of the workforce making these parts must earn at least $16 an hour by 2023.
During the negotiations, the US placed tariffs on steel (25%) and aluminium (10%) from both Canada and Mexico. It was inferred that these tariffs would be removed once the deal was signed but these tariffs are still in place. This has caused countermeasures from Canada with the addition of tariffs on items coming into the country from the US, such as bourbon.
One aspect of the deal that is positive for Canada is the "sunset clause". The agreement adds a 16-year expiration date to CUSMA. This means that the trade deal will remain enacted for this period of time. Having the stability of defined and long-lasting rules will help increase investment into Canada. When international companies look to invest into a new jurisdiction, they want to know that the rules are certain and will not be changing every few years. Having this clause in CUSMA will help businesses know that when they plant their roots in Canada, there will be stability in the trade rules with the US and Mexico.
It can be very complex to understand how the new trade deal can affect your current business in Canada as well as how it will affect your new investments in the country. Our team of local experts can provide assistance to companies looking to sell their products to the US market. We can also help with full administrative support, including entity incorporation, local directorship services, escrow, HR and payroll and accounting & tax services for local and global companies.
Contact our experts in Canada to find out how we can help you stay compliant and grow your business.
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