Now is the time to improve the Canada-U.S. trade relationship

Now is the time to improve the Canada-U.S. trade relationship
U.S. President Donald Trump’s first official attempts to “Make America Great Again” immediately impacted the Canada-U.S. business community. In his first week in office, the president issued a dizzying number of orders and memoranda to immediately launch his transformative agenda.

He began the week by issuing “presidential memorandum” ordering the withdrawal of the U.S. from the Trans-Pacific Partnership and the intent for his “administration to deal directly with individual countries on a one-on-one (or bilateral) basis in negotiating future trade deals.” He also issued memoranda inviting Alberta-based TransCanada to resubmit its application for approval of the Keystone XL pipeline, but required that all new pipeline in the U.S. be built using materials and equipment produced in the United States. Toward the close of this initial set of announcements, the president issued an executive order to expedite environmental reviews and approvals for “high priority” infrastructure projects, which likely include the Gordie Howe International Bridge in the Detroit-Windsor corridor. Meanwhile, the president issued another executive order fulfilling his campaign promise to build a wall along the U.S.-Mexico border. There are also widely circulated memoranda indicating that the president will order a complete review of all U.S. immigration programs, including business travellers.

By week’s end, the exhausted and anxious Canada-U.S. business community was left to query, “What will become of North American trade?”

The desire for an answer has left cross-border observers to divine the administration’s intent from related actions, visits, past statements and, of course, tweets. Many took comfort that the president did not invoke Article 2205 of the North American Free Trade Agreement, which provides for withdrawal upon six months notice. Instead, the Trump administration stated that it intended to “renegotiate” NAFTA. Senior advisors to the president travelled to Calgary for Liberal cabinet meetings to offer assurances that Canada was not in the cross-hairs of Trump’s trade efforts. Meetings between Trump and Mexican President Enrique Peña Nieto are scheduled for late January and meetings with Prime Minister Justin Trudeau are reportedly going to be held “soon.”

While these early indications regarding the timing and tenor of any NAFTA renegotiation have moved the cross-border community from anxiety to caution, the question remains as to the possible Canadian trade issues on the administration’s renegotiation radar. Wilbur Ross, who will likely be confirmed as the U.S. Secretary of Commerce, has pointed to NAFTA rules of origin and dispute settlement provisions as areas requiring revision. Robert Lighthizer, appointed to be the U.S. Trade Representative, has appeared in NAFTA Chapter 19 proceedings, and he is not a supporter of such dispute resolution mechanisms. Peter Navarro, who will lead the U.S. president’s newly created National Trade Council, has previously cited softwood lumber, country-of-origin labelling and value-added-tax regimes as trade irritants.

The goals of the Trump administration’s renegotiation of NAFTA will require a careful balancing of the parties’ various interests; however, it is imperative that the Canada-U.S. business community not let this once-in-a-generation opportunity pass without making significant enhancements to this agreement (or any possible bilateral Canada-U.S. agreement). The experience of the past two decades demonstrates that the opportunities to adjust trading relationships, even with a willing U.S. president, are often stymied by local politics through the U.S. Congress.

The legal and business communities should insist the NAFTA renegotiation between Canada and the U.S. focus its energies on deploying innovations to the world’s most vibrant and integrated bilateral trading relationship. For example, the Trump administration’s purported starting point for any rules of origin discussion is that a good must be comprised of 100-per-cent content from a NAFTA country in order to qualify for duty-free treatment. For perspective, the current ROO for cars and light-duty trucks require 62.5 per cent of the materials to originate in Canada or the other NAFTA countries to qualify for preferential treatment. An increase to 100 per cent would fundamentally shift North American supply chains that presently source from around the world, potentially raising production costs that are then passed on to the consumer. Additionally, companies already have significant traceability obligations under the current ROO regime — a heightened 100-per-cent content ROO would require greater investments in compliance protocols and technology that would increase the risk of penalties and serve as a deterrent to cross-border activity.

The Canada-U.S. legal and business communities should use the potential ROO negotiation to ensure that the rules reflect the inextricably intertwined nature of cross-border supply chains. With one-third of Canada-U.S. manufacturing trade occurring intra-firm and another one-third occurring in an integrated production chain, the overwhelming majority of cross-border manufacturing involves shipments between suppliers and assemblers that are based in Canada or the U.S. Rather than impose ongoing sourcing and compliance ROO obligations for every shipment, the (re)negotiators should consider a process that certifies a company’s supply chain as “AmeriCan Made.” A model for such certification exists in the U.S. Customs-Trade Partnership Against Terrorism and Canada’s Partners in Protection, which provides companies that demonstrate low security risk throughout their supply chain opportunities for expedited customs clearance on each side of the border. The “AmeriCan Made” process similarly will eliminate regulatory red tape and reduce costs, while encouraging manufacturers to source, where possible, from U.S.- and Canada-based companies.

It is these types of innovative opportunities that the NAFTA renegotiation presents. The time, therefore, is now to make the Canada-U.S. relationship a model for 21st-century trade.
Dan Ujczo is an international trade and customs lawyer with the cross-border law firm Dickinson Wright PLC in its Columbus, Ohio office. He previously served in the U.S. and Canadian governments and is a National Board member of the American Chambers of Commerce in Canada. The views expressed are his alone.

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