Here’s everything you need to know about CUSMA, the upcoming review process and what it could mean for the agriculture sector.

WHY IT MATTERS: The review of CUSMA could set the stage for a new era of trade and tariffs between Canada and the U.S.

CUSMA replaced the North American Free Trade Agreement (NAFTA), which was active from 1994 to 2020. The current trilateral agreement allows producers in all three countries to trade with each other in a mostly tariff-free environment.

U.S. President Donald Trump has consistently expressed his displeasure with CUSMA despite the fact that it was negotiated during his first administration.

Prime Minister Mark Carney has also claimed the relationship Canada thought it had with the U.S. is over, signalling a possible new era in North American trade.

According to Patrick Leblond, a professor at the University of Ottawa’s Graduate School of Public and International Affairs, it is unlikely the three countries will return to the original mode of tariff-free trade under CUSMA.

“It sounds like the Americans are not in a compromising mood,” Leblond said. “It sounds like, ‘Okay, we’re going to put the gun to your head, and you’re going to give us what we want’.”

U.S. could abandon CUSMA with minimal legal consequences

Any of the three parties may leave the agreement as long as they provide six months’ notice, but Leblond said nothing is stopping the U.S. from taking more drastic action.

He also said there is nothing forcing the parties to start negotiating on July 1, the official start of the review.

“The reality is … the U.S. can just pull out and say, ‘Yeah, as of tomorrow, we are not applying (CUSMA) anymore,” said Leblond. “We’re pulling out and we don’t care about the six months’ notice’.”

“The sort of attitude would be, ‘well, just sue us’.”

If Canada and Mexico were to sue, a panel of arbitrators would likely rule the U.S. at fault and give permission for the two countries to retaliate with tariffs.

It would still be on Canada and Mexico to decide how to react.

“It’s a bit of a moot point where yes, the U.S. legally has to give notice, but in practice, they can do what they want.”

It leaves Canada in a precarious place, especially as the terms of the agreement may not feel permanent.

“The Trump administration ultimately cannot be trusted,” Leblond said. “And therefore, yes, we can negotiate, we can try to come to a deal, but we have no guarantee whether that deal will be respected. And even existing deals are not being respected.”

U.S. may split Canada and Mexico to weaken negotiating leverage

Leblond said the U.S. could push for bilateral negotiations instead of trilateral, meaning individual meetings with Canada and Mexico.

This could weaken the leverage Canada and Mexico would otherwise have working together.

Leblond said there are three likely options.

“One is really trilateral negotiations, comprehensive,” he said.

“There’s the (option) we renew CUSMA, but the U.S. negotiates bilaterally with Canada, bilaterally with Mexico, and then they try to fit that within the existing CUSMA.”

Or the countries could make bilateral deals outside of CUSMA.

There is precedent for this, as the U.S. recently negotiated a new deal with South Korea which goes against the countries’ existing agreement. The free trade agreement is still there, but it’s superseded by the new deal.

“Is that what the Americans are going to try to push with Canada on the one hand and Mexico and the other? It’s very possible,” Leblond said.

The ever-present possibility of the U.S. pushing more tariffs on Canada should be motivation for the government to seek other trade deals in the interim, he added.

Carney and other government officials have recently taken several trips to countries like India and Vietnam.

Longer-term, reducing dependency on the U.S. is a good idea, Leblond said.

“Even if we have a deal, let’s say some kind of renegotiation, a deal that we reach with the U.S., what’s the guarantee that that deal is going to hold? There is none.”

Congressional approval could limit Trump’s options

Michael Harvey, executive director of the Canadian Agri-Food Trade Alliance (CAFTA), said it’s unlikely Trump will pull out of the agreement completely.

Under the American system, the president would need congressional approval for major changes. Harvey said this could be a problem for Trump, who is already seeing pushback on his tariffs including a recent Supreme Court challenge.

“Significant changes to the treaty would require going to Congress, and we haven’t seen the administration be all that interested in going to Congress with trade agreements,” Harvey said.

There could also be disagreement within the administration’s base. Harvey said in the two trade missions it took to Washington, D.C., last year, CAFTA started to see increased doubt about the tariff agenda amongst Republicans, particularly in agriculture states.

U.S. producer groups have also shown support for a CUSMA renewal.

“That’s really positive, because first, it’s our direct counterparts in the United States,” Harvey said. “Second, the agri-food sector, let’s face it, they tend to be supporters of President Trump. So, it’s a positive thing for supporters of President Trump to be so in favour of the agreement.”

“Tariffs mean increased cost for consumers, for producers,” he said. “We’ve been working hard at making sure that decision-makers understand that, and what we’ve seen in Washington is that they do, and it’s great to see the U.S. ag sector being sold about it.”

Trump has also protected the agri-food elements of the agreement. When the president imposed tariffs on Canada, CUSMA-compliant agri-food goods were exempted.

Full renewal with minor tech updates is best outcome for Canada

Harvey said the best-case scenario for Canada would be a full renewal with some minor updates on agricultural technology, but “just renewal with no changes at all would be a great-case scenario.”

The deal works well for the agri-food sector.

“It’s one of the best agreements in the world,” Harvey said. “We’ve got three countries working together, highly integrated supply chains, highly integrated markets. That’s something that we need to protect.”

It’s still likely Trump will hardball in the initial negotiations.

“He has a style that attracts attention to his demands,” Harvey said. “His demands are often quite high at the beginning of a negotiation and often change quickly.”

Leblond also called it a best-case scenario for Canada to maintain the current terms, but suspected the U.S. would continue to push for more access in Canada, particularly in supply-managed sectors.

“If we can play for time and try to maintain the status quo, to me that would be the best option for now for Canada,” he said. “And hopefully then, … for a lot of the agricultural goods that we export to the U.S., they will continue to be exported without tariffs because we meet the rules of origin.”

That’s why both sides seem to be pushing for “just don’t make things worse,” Leblond said.

“Talk, engage, negotiate, but don’t look for a quick deal,” he said. “That that would be my view.”

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CUSMA replaced the North American Free Trade Agreement (NAFTA), which was active from 1994 to 2020. The current trilateral agreement allows producers in all three countries to trade with each other in a mostly tariff-free environment.

WHY IT MATTERS: The review of CUSMA could set the stage for a new era of trade and tariffs between Canada and the U.S.

U.S. President Donald Trump has consistently expressed his displeasure with CUSMA despite the fact that it was negiotiated during his first administration.

Prime Minister Mark Carney has also claimed the relationship Canada thought it had with the U.S. is over, signalling a possible new era in North American trade.

According to Patrick Leblond, a professor at the University of Ottawa’s Graduate School of Public and International Affairs, it is unlikely the three countries will return to the original mode of tariff-free trade under CUSMA.

“It sounds like the Americans are not in a compromising mood,” Leblond said. “It sounds like, ‘Okay, we’re going to put the gun to your head, and you’re going to give us what we want.’”

Can the U.S. pull out of CUSMA?

Any of the three parties may leave the agreement as long as they provide six months’ notice, but Leblond said nothing is stopping the U.S. from taking more drastic action.

He also said there is nothing forcing the parties to start negotiating on July 1, the official start of the review.

“The reality is, … the U.S. can just pull out and say, ‘yeah, as of tomorrow, we are not applying (CUSMA) anymore,” said Leblond. “We’re pulling out and we don’t care about the six months’ notice.’”

“The sort of attitude would be, ‘well, just sue us.’”

If Canada and Mexico were to sue, a panel of arbitrators would likely rule the U.S. at fault and give permission for the two countries to retaliate with tariffs.

It would still be on Canada and Mexico to decide how to react.

“It’s a bit of a moot point where yes, the U.S. legally has to give notice, but in practice, they can do what they want.”

It leaves Canada in a precarious place, especially as the terms of the agreement may not feel permanent.

“The Trump administration ultimately cannot be trusted,” Leblond said. “And therefore, yes, we can negotiate, we can try to come to a deal, but we have no guarantee whether that deal will be respected. And even existing deals are not being respected.”

U.S. could face challenges in leaving the agreement

Michael Harvey, Executive Director of the Canadian Agri-Food Trade Alliance (CAFTA), said it’s unlikely Trump will pull out of the agreement completely.

Under the American system, the President would need congressional approval for major changes. Harvey said this could be a problem for Trump, who is already seeing pushback on his tariffs including a recent Supreme Court challenge.

“Significant changes to the treaty would require going to Congress, and we haven’t seen the administration be all that interested in going to Congress with trade agreements,” Harvey said.

There could also be disagreement within the administration’s base. Harvey said in the two trade missions it took to Washington D.C. last year, CAFTA started to see increased doubt about the tariff agenda amongst Republicans, particularly in agriculture states.

U.S. producer groups have also shown support for a CUSMA renewal.

“That’s really positive, because first, it’s our direct counterparts in the United States,” Harvey said. “Second, the agri-food sector, let’s face it, they tend to be supporters of President Trump. So, it’s a positive thing for supporters of President Trump to be so in favor of the agreement.”

“Tariffs mean increased cost for consumers, for producers,” he said. “We’ve been working hard at making sure that decision-makers understand that, and what we’ve seen in Washington is that they do, and it’s great to see the U.S. ag sector being sold about it.”

Trump has also protected the agri-food elements of the agreement. When the President imposed tariffs on Canada, CUSMA-compliant agri-food goods were exempted.

What’s Canada’s best-case scenario?

Harvey said the best-case scenario for Canada would be a full renewal with some minor updates on agricultural technology, but “just renewal with no changes at all would be a great-case scenario.”

The deal works well for the agri-food sector.

“It’s one of the best agreements in the world,” Harvey said. “We’ve got three countries working together, highly integrated supply chains, highly integrated markets. That’s something that we need to protect.”

It’s still likely Trump will hardball in the initial negotiations.

“He has a style that attracts attention to his demands,” Harvey said. “His demands are often quite high at the beginning of a negotiation and often change quickly.”

Leblond also called it a best-case scenario for Canada to maintain the current terms, but suspected the U.S. would continue to push for more access in Canada, particularly in supply-managed sectors.

“If we can play for time and try to maintain the status quo, to me that would be the best option for now for Canada,” he said. “And hopefully then, … for a lot of the agricultural goods that we export to the U.S., they will continue to be exported without tariffs because we meet the rules of origin.”

That’s why both sides seem to be pushing for “just don’t make things worse,” Leblond said.

“Talk, engage, negotiate, but don’t look for a quick deal,” he said. “That that would be my view.”

Bilateral vs. trilateral negotiations

Leblond said the U.S. could push for bilateral negotiations instead of trilateral, meaning individual meetings with Canada and Mexico.

This could weaken the leverage Canada and Mexico would otherwise have working together.

Leblond said there are three likely options.

“One is really trilateral negotiations, comprehensive,” he said.

“There’s the (option) we renew CUSMA, but the U.S. negotiates bilaterally with Canada, bilaterally with Mexico, and then they try to fit that within the existing CUSMA.”

Or the countries could make bilateral deals outside of CUSMA.

There is precedent for this, as the U.S. recently negotiated a new deal with South Korea which goes against the countries’ existing agreement. The free trade agreement is still there, but it’s superseded by the new deal.

“Is that what the Americans are going to try to push with Canada on the one hand and Mexico and the other? It’s very possible,” Leblond said.

The ever-present possibility of the U.S. pushing more tariffs on Canada should be motivation for the government to seek other trade deals in the interim, he added.

Carney and other government officials have recently taken several trips to countries like India and Vietnam.

Longer-term, reducing dependency on the U.S. is a good idea, Leblond said.

“Even if we have a deal, let’s say some kind of renegotiation, a deal that we reach with the U.S., what’s the guarantee that that deal is going to hold? There is none.”

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Finance Minister Chrystia Freeland on Thursday laid out a federal budget with about $452.3 billion in total expenses against $408.4 billion in expected revenues from taxes and other sources, for a projected total 2022-23 deficit (after net actuarial losses) of $52.8 billion, down from $113.8 billion in 2021-22.

Canadians, she said, “know that fighting COVID and the COVID recession came at a high price” but “our ability to spend is not infinite. The time for extraordinary COVID support is over.”

Freeland’s budget projects increases in both federal revenue and expenses over the following four fiscal years, gradually narrowing its projected annual budget deficit to $8.4 billion by 2026-27.

This year, with federal-provincial discussions still underway on the Next Policy Framework — the new five-year ag policy funding agreement due to replace the current Canadian Agricultural Partnership in April 2023 — new ag-specific programming in the 2022 budget instead comes mainly from the announcements made last week.

With that new framework deal still pending, “we don’t have any indication of commitments to increase funding for most of our essential programming,” Ian Boxall, president of the Agricultural Producers Association of Saskatchewan, said Thursday in a separate release. “In other areas, we have to wait and see if there is going to be more progress on agricultural priorities.”

The program pledges from last week’s Emissions Reduction Plan affirmed in Thursday’s budget include:

• $329.4 million over six years to triple the size of the Agricultural Clean Technology Program;
• $469.5 million over six years to expand the Agricultural Climate Solutions program’s On-Farm Climate Action Fund;
• $150 million for a “resilient agricultural landscape” program, to support carbon sequestration and adaptation and to address other “environmental co-benefits,” with details still to be discussed with provinces and territories; and
• $100 million over six years to federal granting councils to support post-secondary research in developing technologies and crop varieties that “will allow for net-zero emission agriculture.”

Potato probe

One ag sector, the Prince Edward Island potato industry, can expect a bit of indirect additional funding in 2022-23, over and above previous support programs announced during the recent closure of the U.S. border to P.E.I. table stock potatoes.

The budget calls for $16 million over two years for the Atlantic Canada Opportunities Agency toward “long-term investments and (to) assist in stabilizing the Prince Edward Island potato sector and supply chain.”

It also adds $12 million over two years for the Canadian Food Inspection Agency to “accelerate the investigation into the latest detection of potato wart (in P.E.I.) to help prevent its spread and to allow for full trade to resume with the United States as soon as possible” — a reference to the continuing U.S. ban on P.E.I. seed potatoes.

CUSMA compensation

Meanwhile, supply-managed producers in Canada’s dairy, poultry and egg sectors who have been waiting on details of compensation for “incremental” market access concessions made under the Canada-U.S.-Mexico Agreement (CUSMA) — the successor deal to NAFTA — will have to wait longer.

Those sectors in recent years have received federal compensation for concessions granted under the Canada-E.U. (CETA) and Trans-Pacific Partnership (CPTPP) trade deals.

Thursday’s budget, however, pledges instead to announce “full and fair compensation for the supply managed sector related to the new NAFTA” in the government’s 2022 fall economic and fiscal update.

Dairy Farmers of Canada, in a separate statement Thursday, thanked the government for the “clarity” it provided by giving a timetable for a compensation announcement. However, DFC added, “in tabling Budget 2022 without details, the government missed an opportunity to provide predictability to the industry.”

‘Surplus stripping’

Thursday’s budget also pledges a new round of consultations on federal income tax law to address changes made by Bill C-208, a 2021 private member’s bill from Manitoba MP Larry Maguire meant to standardize the tax treatment for sales of farms and other small businesses.

C-208, which took effect with the new tax year on Jan. 1, 2022, was passed in response to a rule in the Income Tax Act meant to prevent people from converting dividends into lower-taxed capital gains using certain “self-dealing transactions” referred to as “surplus stripping.”

C-208, according to Thursday’s budget, set up an exception to that rule “in order to facilitate intergenerational business transfers. However, the exception may unintentionally permit surplus stripping without requiring that a genuine intergenerational business transfer takes place.”

The consultations announced Thursday are to look at how existing rules could be strengthened to “protect the integrity of the tax system while continuing to facilitate genuine intergenerational business transfers.”

The government said it’s “committed to bringing forward legislation as necessary to address this specific issue,” noting such legislation could be included in a bill to be tabled in the fall after consultations wrap up.

Supply chain support

Among other new spending expected to benefit the broader ag sector, Freeland’s budget calls for the creation of a new Canada Growth Fund, to be initially capitalized at $15 billion over the next five years, to help attract private investment toward several policy goals, including “the restructuring of critical supply chains in areas important to Canada’s future prosperity.”

For Transport Canada, the budget also calls for $450 million over five years to support supply chain projects through the National Trade Corridors Fund, “which will help ease the movement of goods across Canada’s transportation networks.” That fund, in place since 2017, is due to be renamed “to reflect the government’s focus on supply chains.”

The transport department will also get $136.3 million over five years to develop “industry-driven solutions to use data to make our supply chains more efficient” and $16.9 million over five years “to continue making Canada’s supply chains more competitive by cutting needless red tape, including working to ensure that regulations across various modes of cargo transportation (e.g., ship, rail) work effectively together.”

“The budget does have some interesting initiatives and we’ll wait to see how they apply to the agricultural sector,” APAS’ Boxall said Thursday. “One of those initiatives is infrastructure funding for road and rail to the Port of Vancouver, and there is also funding to improve supply chains for essential industries, and we need governments to recognize our needs for better access and pricing for inputs.”

Foreign labour

The budget also lays out funding for several measures meant to help improve protections for temporary foreign workers (TFWs) coming to Canada to work in agriculture and other sectors. Those include:

• $48.2 million over three years to set up a new foreign labour program specifically for agriculture and fish processing, “tailored to the unique needs of these employers and workers;”
• $29.3 million over three years to set up a “Trusted Employer” model that reduces red tape for repeat TFW employers who “meet the highest standards for working and living conditions, protections, and wages in high-demand fields;”
• $14.6 million in 2022-23 for “improvements to the quality of employer inspections and (to) hold employers accountable for the treatment of workers;” and
• $64.6 million over three years for increased capacity to “process employer applications within established service standards.”

On the plan for a new foreign labour program targeting ag processing, Canadian Cattlemen’s Association president Reg Schellenberg said Thursday in a separate release that “one of the largest factors limiting our ability to grow Canada’s beef industry and our contributions to Canada’s economy is access to labour… We have long been advocates to create agriculture-specific solutions to address challenges related to labour and we are pleased to see this continue to advance.”

Also, among other emission reduction programs seeing a funding boost, the existing federal Nature Smart Climate Solutions Fund — which supports projects that “conserve, restore and enhance wetlands, peatlands and grasslands to capture and store carbon” — will now get $780 million over five years, starting in 2022, up from the $631 million over 10 years announced in 2021. — Glacier FarmMedia Network

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The U.S. Trade Representative’s office said its complaint alleges that Canada was improperly allocating CUSMA tariff-rate import quotas on 14 dairy products, diverting a portion of them to Canadian processors and unfairly limiting export opportunities for U.S. dairy farmers and processors.

USTR first requested consultations with Canada on the matter in December, when former president Donald Trump’s administration was still in office. USTR officials said that Canada had been “responsive” in discussing the U.S. concerns but that the dispute was not resolved.

CUSMA, which took effect in July 2020, replacing the North American Free Trade Agreement, granted some additional limited access for U.S. dairy farmers and processors to Canada’s largely closed domestic dairy market, via tariff-rate quotas on 14 products from milk powder to ice cream and cheese.

USTR claims Canada is illegally reserving a portion of those quotas for Canadian processors.

“Canada is disappointed that the United States has requested a dispute settlement panel,” Canadian Trade Minister Mary Ng said in a statement, adding the country is confident its policies “are in full compliance” with its tariff-rate quota obligations.

A dispute panel will take about 30 days to form under CUSMA’s dispute settlement system, and is due to file an initial report within about 120 days, with a final report 30 days after that — about late November.

USTR officials said that a ruling in the United States’ favour would lead to further consultations with Canada to resolve the matter but could ultimately lead to punitive tariffs imposed on imports from Canada.

“A top priority for the Biden-Harris administration is fully enforcing the USMCA and ensuring that it benefits American workers,” U.S. Trade Representative Katherine Tai said in a statement, referring to the trade agreement by its U.S. name.

“Launching the first panel request under the agreement will ensure our dairy industry and its workers can seize new opportunities under the USMCA to market and sell U.S. products to Canadian consumers.”

— David Lawder is a Reuters correspondent covering international economic and trade issues from Washington, D.C.; additional reporting by David Ljunggren in Ottawa.

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The Liberal government, most recently in its Sept. 23 speech from the throne, has told Dairy Farmers of Canada (DFC) compensation is coming for three major trade deals: the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Canada-U.S.-Mexico Agreement (CUSMA).

“There were some hints at something coming, but we have heard nothing,” DFC vice-president David Wiens said at an Oct. 10 press conference. “We’re concerned because a lot of the time, there are these kinds of commitments that are spoken to but there is no action and that’s causing a lot of concern in the dairy community.”

Prior to the 2019 election, a $345 million payment was made to the industry, which carries a heavy influence in Quebec politics. That money was part of the federal government’s commitment to pay the industry $1.75 billion over eight years for giving away market share during CETA and CPTPP talks.

By 2024, roughly 18 per cent of the domestic milk production market will have been sacrificed to recent trade negotiations, according to DFC.

Agriculture Minister Marie-Claude Bibeau is non-committal on providing any more timelines, particularly as to when compensation could be coming for CUSMA, the successor pact to the North American Free Trade Agreement (NAFTA).

“During the new NAFTA negotiations, we protected supply management from American efforts to dismantle it. We are delivering on our commitment to full and fair compensation and we will do the same thing now that the new NAFTA has been ratified,” Bibeau said in a statement.

Now dairy farmers are calling on the government to provide a schedule of payments for the balance of the compensation owed under CETA and the CPTPP, while also announcing details of the CUSMA compensation.

“We feel that the government had made it very clear that they had already set funds aside, in terms of budget, over the next seven years. At this point in time we feel they really need to come back to honour the commitments that they made to us,” said Wiens.

Bibeau said her government is committed to making another payment before the end of the fiscal year, which differs from the end of the calendar year.

During a media availability with reporters, Prime Minister Justin Trudeau recognized many dairy farmers have been hit hard by the pandemic.

“We are right now working with (DFC) and others on compensation for NAFTA. We will continue to make this a priority,” he said.

Wiens said meetings had been held with government, but “we have not heard back from them on what compensation for CUSMA may look like.”

The pandemic has required the federal government to entirely rearrange its budgeting in an attempt to stabilize the economy, which has resulted in billions of dollars in support for industries.

Dairy farmers haven’t been exempted from the support, which included the federal government permanently increasing the borrowing capacity of the Canadian Dairy Commission by $200 million and launching a $50 million food recovery program to buy goods that would otherwise be spoiled.

DFC expressed an understanding of the government’s situation, but also frustration with its decision to ratify CUSMA in the midst of the pandemic and at a time that did not jibe with the dairy year.

“Dairy farmers have not asked for compensation as a result of the pandemic, so just to be very clear, it has had a negative impact on dairy farms, but we believe that our supply management over the long run will always keep us afloat,” Wiens said.

“But at the same time, when part of our markets are being given away to foreign producers, that requires compensation because that is a direct hit on every dairy farm family across the country.”

— D.C. Fraser reports for Glacier FarmMedia from Ottawa.

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“In the face of the economic hardships of COVID-19, it is timely and welcome that the new NAFTA enters into force, providing the continuation of economic stability for our rural communities food systems, and the broader North American economy,” said Alberta producer Bob Lowe, president of the Canadian Cattlemen’s Association.

In addition to preserving duty-free trade in live cattle and beef, the agreement maintains existing rules of origin and “vital dispute settlement provisions,” the CCA said.

Under NAFTA, Canadian beef exports to the U.S. grew 67 per cent in volume and 338 per cent in value from 1995 to 2019, it said.

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As the deal kicks in, the Trump administration is threatening Canada with new aluminum tariffs, and a prominent Mexican labour activist has been jailed, underscoring concerns about crucial labor reforms in the replacement for the 26-year-old North American Free Trade Agreement.

The Canada-U.S.-Mexico Agreement includes tighter North American content rules for autos, new protections for intellectual property, prohibitions against currency manipulation and new rules on digital commerce that did not exist when NAFTA launched in 1994.

Trump had lambasted NAFTA as the “worst trade deal ever made” and repeatedly threatened to end it.

CUSMA launches as the coronavirus has all three countries mired in a deep recession, cutting their April goods trade flows — normally about $1.2 trillion annually — to the lowest monthly level in a decade (all figures US$).

“The champagne isn’t quite as fizzy as we might have expected — even under the best of circumstances — and there’s trouble coming from all sides,” said Mary Lovely, a Syracuse University economics professor and senior fellow at the Peterson Institute for International Economics in Washington. “This could be a trade agreement that quickly ends up in dispute and higher trade barriers.”

Issues dogging CUSMA include hundreds of legal challenges to Mexico’s new labour law championed by President Andres Manuel Lopez Obrador to ensure that workers can freely organize and unions are granted full collective bargaining rights.

A ruling against it would harm Mexico’s ability to deliver on provisions aimed at ending labour contracts agreed without worker consent that are stacked in favour of companies and have kept wages chronically low in Mexico.

Democrats in the U.S. Congress had insisted on the stronger labour provisions last year before granting approval, prompting a substantial renegotiation of terms first agreed in October 2018. The arrest of Mexican labour lawyer Susana Prieto in early June has fueled U.S. unions’ arguments that Mexican workers’ rights are not being sufficiently protected.

“I remain very concerned that Mexico is falling short of its commitments to implement the legislative reforms that are the foundation in Mexico for effectively protecting labor rights,” U.S. Representative Richard Neal, chairman of the House ways and means committee, said on Tuesday, adding that CUSMA’s success “truly hinges” on its new labour enforcement mechanism.

On Wednesday, U.S. Trade Representative Robert Lighthizer in a video touted CUSMA as the “most far-reaching, beneficial and modern trade agreement in our history,” adding that it would create tens of thousands of new U.S. manufacturing jobs.

But Lighthizer has also said he will file dispute cases “early and often” to enforce CUSMA provisions, citing Mexico’s failure to approve U.S. biotech products.

That could lead to increased tariffs on offending goods, such as products from individual factories where labour violations are found. Former USTR general counsel Stephen Vaughn, a legal architect of the Trump administration’s “Section 301” tariffs on Chinese goods, was appointed on Wednesday to a U.S. roster of panelists to settle state-to-state dispute cases under CUSMA.

Carlos Vejar, a former Mexican trade negotiator, said it was in the country’s interest to uphold pledges made to strengthen unions and end child labour.

“If Mexico isn’t mindful of this, there will be cases against Mexico, and Mexico will lose them,” Vejar said.

Aluminum tariffs redux, automotive burdens

U.S. national security tariffs on imported steel and aluminum — including from Canada and Mexico — were a major irritant during CUSMA negotiations until a deal for exemptions was reached last year. But now, USTR is considering domestic producers’ request to restore the 10 per cent duty on Canadian aluminum to combat a “surge” of imports.

Another source of disputes may be the energy sector, where the main U.S. oil and gas lobby has complained that recent actions by Mexico favouring state oil company Pemex already violate CUSMA’s protections for private investors.

Canada has also complained about new Mexican rules formally threatening investment in renewable energy.

CUSMA will put new compliance burdens on the region’s automotive manufacturers as the coronavirus craters consumer spending and auto production. Within three to five years, vehicles’ minimum North American content rises to 75 per cent from 62.5. Automakers must also produce 40 per cent of their vehicles’ content in “high wage” areas — effectively the United States and Canada.

A U.S. International Trade Commission study found this would draw more auto parts production to the United States, but may curb U.S. vehicle assembly and raise prices, limiting consumer choice in cars. The same panel found that after 15 years, the deal would add $68.5 billion annually to U.S. economic output and create 176,000 jobs compared with a NAFTA baseline.

— Reporting for Reuters by David Lawder in Washington, Dave Graham, Anthony Esposito and Daina Beth Solomon in Mexico City and David Ljunggren in Ottawa; writing by David Lawder.

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With the Canada-United States-Mexico Agreement (CUSMA), the successor trade deal to NAFTA, taking effect, new regulations addressing long-standing complaints from U.S. grain growers will kick in starting Wednesday (July 1).

Amendments to the Canada Grain Act and related regulations — which were covered in Bill C-100, CUSMA’s implementing legislation — will, on that date, allow grain grown in the U.S. to receive an official Canadian grade, if it’s of a variety registered in Canada.

C-100 also removes the requirement for a country-of-origin statement on inspection certificates for grain grown in the U.S., also starting July 1.

Statements of origin for phytosanitary or customs requirements “will not be affected,” according to the Canadian Grain Commission (CGC).

Toward those ends, the CGC will soon also require anyone — and that includes growers in both Western and Eastern Canada, growers in the U.S., and licensed grain companies — to complete a declaration of eligibility when selling grain to a CGC licensee.

That requirement will take effect with the start of the 2020-21 crop year on Aug. 1.

U.S. producers who deliver grain to Canada will have the same obligations as Canadian producers, the CGC said, and the declarations requirement “will help accommodate U.S. grain by ensuring reliable information on seed registration is provided.”

The declarations will also ensure producers “receive the appropriate grain grade and payment for deliveries,” the CGC said Tuesday in a release.

The declaration rules will “build” on the process already used across much of the grain sector in Western Canada, the CGC said.

In Eastern Canada, where delivery declarations haven’t previously been in use, the CGC said producers and licensees will have until July 1, 2021 to comply with the rule — and the commission will “work with grain sector stakeholders” to phase it in during the coming crop year.

“Delivery declarations will protect Canada’s quality assurance system while allowing American grain producers to receive an official grade,” CGC chief commissioner Patti Miller said in Tuesday’s release.

‘Small volumes’

U.S. growers and grower groups have, over the years, voiced concerns about “discriminatory treatment” of U.S.-grown wheat, the CGC said, “particularly as it relates to statutory grading.”

Until now, any type of imported grain has been prevented from receiving statutory Canadian grades based on origin, so U.S.-grown grain delivered to a primary elevator in Canada couldn’t get an official Canadian grade, even if the grain was of a variety registered in Canada.

The U.S. has “perceived this as a barrier to trade with Canada and a trade irritant,” the CGC said.

Agriculture and Agri-Food Canada, in a May 31 statement, said past levels of U.S. producer deliveries into Canada’s grain handling system have had more to do with market conditions — such as delivery distances or currency exchange rates — than any regulation or policy on the Canadian side.

The regulations being changed for CUSMA “will not change how Canadian grain is delivered in the primary elevator system in Canada, and will have minimal impact on the Canadian grain sector,” AAFC said last month.

“Small volumes of U.S. grain regularly move through the Canadian licensed elevator system, and this agreement is not expected to significantly influence this trend.”

As for grain quality and end uses, the changes coming up “will not impact Canadian consumers,” the CGC said.

U.S.-grown grain delivered into Canada “will need to meet the same rigorous quality standards as Canadian grain” and consumers “can continue to expect grain and milled products that are dependable and safe.” — Glacier FarmMedia Network

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In a statement, Lighthizer said both Mexico and Canada had taken measures necessary to comply with their commitments under the U.S.-Mexico-Canada Agreement (CUSMA), which replaces the 26-year-old North American Free Trade Agreement (NAFTA).

Some industries, including automakers, had been arguing for a delayed implementation because of the difficulties they are facing from the coronavirus pandemic.

Mexico had asked the U.S. and Canada for a longer transition period for the auto industry to certify that it was meeting new, more stringent North American content rules.

Lighthizer said his office would work to ensure a smooth implementation of the new trade rules.

“The crisis and recovery from the COVID-19 pandemic demonstrates that now, more than ever, the United States should strive to increase manufacturing capacity and investment in North America,” Lighthizer said in a statement, calling CUSMA’s entry into force “a landmark achievement in that effort.”

The accord includes tougher rules on labour and automotive content but leaves US$1.2 trillion in annual U.S.-Mexico-Canada trade flows largely unchanged. U.S. President Donald Trump had been a critic of NAFTA.

— Reporting for Reuters by Andrea Shalal and David Lawder.

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Canada was the last of the three signatories to formally adopt the pact, prompting congratulations from the United States and Mexico.

The House of Commons lower chamber, which had weeks of deliberations left, agreed the instant approval on Friday after opposition legislators dropped their objections. The upper Senate chamber backed the pact later in the day, Deputy Prime Minister Chrystia Freeland told reporters.

“(This) was entirely within the power of Canadian legislators to do, something we were able to do to help the Canadian economy at this challenging time, and I would like to thank legislators from all parties,” she said.

Governor General Julie Payette — as representative of Queen Elizabeth, Canada’s head of state — formalized the implementation bill with royal assent later Friday. The Commons agreed Friday to adjourn until April 20.

CUSMA was designed to replace the North American Free Trade Agreement (NAFTA), which U.S. President Donald Trump strongly opposed on the grounds it had cost hundreds of thousands of American jobs.

“Now that the USMCA has been approved by all three countries, an historic new chapter for North American trade has begun,” U.S. Trade Representative Robert Lighthizer said in a statement, referring to the same pact by a re-ordered name.

In a letter to the U.S. Congress on Wednesday, Lighthizer sent notice of an in-force date of June 1 for CUSMA, according to a spokesman for the Senate finance committee, which oversees tax and trade issues.

Mexican President Andres Manuel Lopez Obrador said the approval was good news for Mexico at a time of economic and financial instability.

“With the Parliamentary suspension due to the spread of COVID-19, Canadian beef producers are grateful to all Parliamentarians for working together” to pass the bill, Bob Lowe, president of the Canadian Cattlemen’s Association, said in a statement Friday.

The CCA noted the bill continues “reciprocal duty-free trade” between the signing countries and includes a section “highlighting the commitment to not disrupt trade through labelling” — a reference to mandatory country-of-origin labelling (COOL) legislation which the United States put in place in 2009 and scrapped in 2015 under threat of retaliatory tariffs.

Apart from continued tariff-free access for many ag exports, the Canadian Agri-Food Trade Alliance (CAFTA) on Friday also noted CUSMA provides for “meaningful progress on regulatory alignment and co-operation” and continued “fair and transparent dispute resolution provisions.”

CUSMA also provides for improved market access by way of increased quotas for refined sugar and sugar-containing products, as well as gains for some oilseed products, CAFTA said.

— Reporting for Reuters by David Ljunggren in Ottawa; additional reporting by David Lawder in Washington. Includes files from Glacier FarmMedia Network staff.

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