Bumpy road ahead for CUSMA negotiations

TORONTO—Expect Canada-United States trade relations to turn quite ugly between now and July 1, 2026. By that date, under the terms of CUSMA, the U.S., Canada, and Mexico must confirm in writing whether they wish to continue or, over a 10-year period, wind it down. This will bring on tough U.S. demands for change that could further weaken Canada’s ability to pursue its own best course for the future—a country that is free, sovereign, and prosperous. In the U.S., a Trump administration may be quite ready to get rid of CUSMA, and may even want to. A Biden—or other Democratic—administration may want to keep CUSMA, but would nonetheless push hard for more and more concessions by Canada. The big question will be whether Canada will have the backbone to stand up to U.S. pressure, and even walk away from CUSMA if U.S. demands would make us even more of a vassal state. Would it be better to have a bad agreement than no agreement at all? The very question would test Canadian unity. In fact, this process of hard bargaining has already started, with U.S. threats to retaliate against our digital services tax, which forces U.S. big tech companies such as Google, Meta, Amazon, Apple, Uber, Netflix, and others to pay taxes on the substantial profits they earn in Canada. There is also pressure on the Online Streaming Act, which forces U.S. streamers such as Prime, Netflix, Disney, Spotify and others to allocate a modest share of their $6 billion-plus revenues in Canada—most of which is pure profit—to support Canadian content and give it prominence, just as broadcasters are already required to do. Earlier, the Biden administration was quite prepared to ignore CUSMA, and weaken the Canadian and Mexican automotive industries, depriving those two nations of jobs and future investments while disrupting existing supply chains to favour the U.S. It was only through the CUSMA dispute resolution process that one issue was resolved while, in the case of another, it took intense political pressure and threats of Canadian retaliation. As U.S. President Joe Biden says, he wants American motorists to drive U.S.-made cars and trucks. If the U.S. had succeeded, there would have been much less chance of attracting electric vehicle assembly and parts investments or electric vehicle battery investments to Canada or Mexico as companies would have inevitably located new investments in the U.S. Some 80 per cent of vehicles assembled in Canada go to the U.S. At the same time, the U.S. Commerce Department is currently reviewing whether to double its already improper tariffs on Canadian softwood lumber, and the administration is continuing its efforts to weaken our supply management system that limits the ability of the U.S. to dump surplus product in Canada at the expense of our own farmers. An insistence by the Trump administration means this review is taking place. There were two main arguments, as Canada's former chef CUSMA negotiator, Steve Verheul, and U.S. trade expert Joshua Meltzer recall in a Brookings Institution report: “It would provide the U.S. with leverage to make ongoing changes to the agreement,” they said, adding that it would force politicians “to address difficult decisions rather than delay confronting them.” Could Canada and U.S. demands on supply management be an example? The two trade experts point out in the Brookings report—USMCA Forward 2024: Gearing Up For a Successful Review in 2026—that in the CUSMA negotiations the Trump administration proposed that the agreement would terminate after four years. Canada and Mexico argued that a trade agreement lasting only four years would have little value. “The review clause became one of the most contentious issues in the negotiations, and the U.S. came back with several modifications, eventually settling on the review clause in its current form,” they write. “Canada and Mexico continued to dislike the review clause, but eventually conceded to it as part of the overall package to conclude an agreement.” And clearly, the review does give the U.S. leverage to extract concessions. So trade issues will almost certainly intensify through 2025 and into the first half of 2026 as negotiations get underway. An outline of American demands will come before the end of next year, since the U.S. trade representative is required to present a report to Congress by then on CUSMA, including how it is working and identification of areas for upgrading. Congress will almost certainly come up with a long list of its own demands, and lobbyists for American corporate interests will be pushing the case for their clients with the administration and Congress. “It is difficult to imagine an extension without major changes or additions to CUSMA satisfying to all three countries, particularly the U.S.,” trade lawyer Larry Herman wrote in a recent assessment for the C.D. Howe Institute. But without a deal, CUSMA will terminate by 2036, with Herman warning that “the U.S. position in the review will be dominant.” Republican presidential candidate Donald Trump is the bigger wild card. As is argued in the Brookings report, “it seems unlikely that a Trump administration—that pushed so hard for a review clause, and with their leverage the U.S. has as the much larger economy among the three parties—would pass up the opportunity to use the review to negotiate better terms.” But no matter who wins the White House this November, “it is likely that the U.S. will approach the review of the agreement with a list of issues on which it will be seeking agreement with Mexico and Canada.” Canada, then, faces a huge test. Will we conclude that even a further loss of sovereignty and freedom to act is at the end of the day preferable to no CUSMA because of fears the U.S. can hurt us so much? Or can we envision a future Canada without CUSMA, and accept the cost and disruption from moving to a non-CUSMA economy, with short-term pain for long-term gain? We need to develop credible options for the future so that we do have a choice if need be. David Crane can be reached at crane@interlog.com. The Hill Times

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Bumpy road ahead for CUSMA negotiations

Would it be better to have a bad deal than no deal at all? The very question would test Canadian unity.

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