Half of Canadian executives say old NAFTA better for our economy than USMCA

It took Canada 17 months of grinding, teeth-gnashing, often round-the-clock negotiations to hammer out a new trilateral trade deal with the United States and Mexico, but that doesn’t mean Canadian business leaders have warmed to it.

Half the executives surveyed for the inauguralFP500/Forum Research Business Barometer pollsay they think the original North American Free Trade Agreement was better for the Canadian economy.

“The perception is that there were a lot of concessions made to the U.S. on dairy, on drug patents and things like that,” said Lorne Bozinoff, president of Forum Research. “People are sensitive to those concessions and I don’t know that there was enough promotion of the deal’s benefits. So we gave up this, but what did we get? And I don’t think it’s enough to say it could have been a lot worse.”

The survey of 48 randomly selected executives of FP500 companies took a broad look at subjects ranging from emerging technology to the #MeToo movement and cannabis legalization. Trade, however, was a big area of concern.

A little more than half (52 per cent) of the executives said they viewed the 24-year-old NAFTA deal as better for the economy than the new deal, branded the United States-Mexico-Canada Agreement, or USMCA, by U.S. President Donald Trump. Just five per cent believed the new agreement was better for the economy, while a third of respondents viewed the two deals as the same.

Asked to evaluate just the USMCA’s effect on the Canadian economy, nearly 40 per cent said it would be positive, while 36 per cent believed it would be negative.

“It’s possible that what they are saying is that NAFTA is technically a better agreement than the USMCA, but, at the end of the day, it’s not going to make much difference overall,” Bozinoff said.

A range of factors, including exchange rate fluctuations, fiscal policy changes, shifting consumer preferences and offshore competition make measuring the economic value of a trade deal “a very hard thing to do,” said Robert Wolfe, professor emeritus at Queen’s University’s School of Policy Studies in Kingston, Ont.

The maturity of both the U.S. market and the U.S.-Canada free-trade relationship also means any impact from a revamped deal is bound to be “incremental,” he added.

“When business looks at USMCA versus NAFTA, the real thing to consider is USMCA versus nothing,” Wolfe said. “Nothing would have real impacts on productivity and efficiency, because anything that disrupts North American supply chains can’t be good.”


President Donald Trump, Canada’s Prime Minister Justin Trudeau, right, and Mexico’s President Enrique Pena Nieto, left, participate in the USMCA signing ceremony, Friday, Nov. 30, 2018 in Buenos Aires, Argentina.

Pablo Martinez Monsivais/AP Photo

Many of the new elements in the USMCA draw heavily on the Comprehensive and Progressive Trans-Pacific Partnership, the 11-country Asia-Pacific free trade deal abandoned by the Trump administration in 2016. Among the similar elements are stronger intellectual property protections, new labour and environment obligations, and rules for digital trade and e-commerce.

Some of the biggest changes were in the automotive industry, where new minimum wage and regional content requirements were established. Higher de minimis thresholds or duty free limits for online shopping, which were fought by Canadian retailers — are also part of the agreement.

“It’s a mixed bag as with any trade deal,” Wolfe said. “Some people will win, some people won’t. It doesn’t surprise me that some (executives) see it as a little better, some see it as a little worse. Because the truth is, that’s about right.”

Despite volatile negotiations in which Trump officials publicly criticized Prime Minister Justin Trudeau and the U.S. slapped tariffs on Canadian steel and aluminum, almost three quarters of executives surveyed (70 per cent) said they saw the U.S. as a reliable trading partner, with 27 per cent describing it as “very reliable.” About 20 per cent said the U.S. was not reliable.

What’s more, half the executives said the amount of U.S. business they do had stayed the same over the past six months while 18 per cent said it grew, suggesting the strained relations between Canada and the U.S. had little impact on established trade flows.

And though the federal government has renewed efforts to diversify trade, the uncertainty of the negotiations drove only 23 per cent to look for trade opportunities outside the U.S.

It’s a mixed bag as with any trade deal. Some people will win, some people won’t

Robert Wolfe, professor emeritus at Queen’s University’s School of Policy Studies

“North America is a mature economy. A good portion of our businesses should be looking for diversification into higher-growth regions like Asia and increasingly Africa,” said Dan Ciuriak, a senior fellow at the Centre for International Governance Innovation.

Through rules of origin requirements and other measures, the new trade agreement is “designed to fence in activity into North America,” he said, adding that other features still favour production inside U.S. borders.

“The place to look for the impact of the new NAFTA is not in trade directly, but in investment,” Ciuriak said. “The uncertainty about future market access into the United States promises to lower foreign direct investment aiming to serve the North American market coming to Canada.”

Financial Post

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