Canada agreed to amendments of the US-Mexico-Canada-Agreement (USMCA), originally signed by the three countries on November 30, 2018. These amendments were necessary in order to get the deal through the US Congress. This is good news for Manufacturing as it brings us that much closer to USMCA becoming the law of the land.

We learned more details of the amendments Canada has agreed to. Below is a brief summary of these changes. They will affect the following five areas:

  • Automotive Rules of Origin: to meet the 70% USMCA steel content requirement, all manufacturing must occur in North America except for metallurgical processes involving refinement of steel additives. Aluminum appears to be excluded from similar exigences.
  • State-to-State Dispute Settlement: ends the ability of one country to block the formation of an arbitration panel (panel blocking).
  • Labour Chapter: stronger language to enforce new labour standards in Mexico and increased flexibility for parties to pursue violations of those standards.
  • Environmental Protection: gives individual countries the flexibility to implement elements of international environmental agreements it had previously agreed to.
  • Intellectual Property: removes the obligation to provide 10 years of data protection for biologics- Canada will no longer need to amend its domestic regime of eight years in this area.

As mentioned, the deal included a change to a requirement calling for 70% of the steel and aluminum used in auto production to be purchased in North America. Under the newly tweaked rules, steel must be “melted and poured” by primary steelmakers in North America in order to receive preferential tariff treatment. No provision was added for aluminum.

Though the United States and Canada fought hard for the metal to be included in the clause, Mexico would not concede, said Jean Simard, president of the Aluminum Association of Canada.

Bloc leader Yves-François Blanchet called the deal a catastrophe for Quebec’s aluminum workers and accused Trudeau of abandoning the industry. Blanchet said the new deal should include a provision to ensure a high level of aluminum purchased in North America comes from domestic sources, and without that, the Bloc can’t support Canada’s ratification of the agreement. 

Canada is the fourth-largest aluminum producer in the world and by far the largest supplier to the United States, providing 2.8 million tonnes, or just over half of all aluminum consumed south of the border. Nearly all of that comes from Quebec, home to 8 of Canada’s 9 smelters.

By contrast, Mexico has no aluminum smelting capacity of its own and instead relies on imported aluminum scrap and billets, which it melts and recasts into parts for the auto sector.

Asked about the issue during a press conference in Mexico City on Tuesday, Deputy Prime Minister Chrystia Freeland noted that under NAFTA, Canada is the only significant producer of aluminum with tariff-free access to the U.S. market. The new changes retain that access, she added.

“What they do is clear a path for ratification of the new NAFTA in the U.S.,” she said. The United Steelworkers, the largest union representing steel and aluminum workers in Canada, was also disappointed by the new provisions particularly a detail stating that the steel melt and pour requirement will only begin seven years after the signing.

As part of an agreement that saw the Trump administration lift its steel and aluminum tariffs, Canada and Mexico agreed to establish import monitoring systems to prevent the illegal trade of steel and aluminum. Canada’s system, in effect since September, includes more aggressive tracking of imports, inspections and penalties for illegally traded steel. Mexico has yet to establish its own system, Simard said.

“The USMCA is a good agreement and we are glad they got rid of the tariffs,” Simard said. “The next step is to get that monitoring system established in Mexico.”

Canadian negotiators are happy with the changes demanded by the Democrats, especially the decision not to extend patent protection to 10 years for a special class of drugs known as biologics. That protection will remain at eight years. 

Unifor president Jerry Dias said the strengthening of labour standards in Mexico — cited as one factor in the loss of manufacturing jobs from Canada and the United States — was a “key” change. “Unless there was some real detailed language on enforcement, the deal would have been completely useless,” he said.

Agreement on the revised terms will bring relief in Ottawa, where there had been fears that the new deal might have gotten lost in the political turmoil in Washington around impeachment and the election year.

News of the deal was cheered by Canada’s business community, which has been forced to deal with the uncertainty caused by the trade talks. The Canadian Chamber of Commerce called the deal a “crucial milestone.”

As for the USMCA, it’s not yet in port. Approval by the U.S. Senate would be a certainty today, but that body is first going to deal with Mr. Trump’s impeachment. Senate Majority Leader Mitch McConnell says he won’t get to the trade agreement until the new year.

Source: Globe and Mail
Source: Financial Post
Source: The Star
Source: National Post