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North American Trade Fact Sheet
Saskatchewan Trade Balance with the US by State
Total Saskatchewan Exports to US by Product
 

Introduction

Saskatchewan is one of the most trade-oriented provinces in one of the most trade-oriented countries in the world.  As many as one in three jobs in this province are associated with exports, and the United States of America is our biggest customer.

On January 20, 2017, President Donald Trump became the 45th President of the United States.  President Trump campaigned on a largely protectionist platform including a commitment to negotiate or terminate the North American Free Trade Agreement (NAFTA).  After14 months of negotiations Canada, the United States, and Mexico reached a new trilateral agreement entitled the “United States, Mexico, and Canada Agreement” or USMCA on September 30th, 2018.  The text of the agreement includes 34 chapters and 8 bi-lateral “side letters”.

While some issues remain, including the irrational U.S. tariffs on steel and aluminum, the agreement maintains preferred access for Saskatchewan exports to the U.S. and Mexico.  The dispute mechanisms outlined in the previous Chapter 19 of NAFTA have also been maintained. The full text of the agreement can be found here:

https://ustr.gov/united-states-mexico-canada-agreement-text

Additional information from Global Affairs Canada can be found here:

https://international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/usmca-aeumc/index.aspx?lang=eng

Initial Observations[1]

Structure

The USMCA text preserves significant components of the existing NAFTA, and more than two-thirds of the chapters can be traced to the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP). In many chapters, the text avoids the original organization of the NAFTA and mirrors the CPTPP.

Rules of Origin

The USMCA text preserves most of the original NAFTA’s rules of origin (ROO) methodologies but incorporates CPTPP principles. Improvements on rules of origin for margarine and diluents used in heavy oil shipments are positive for the province.  The new rules of origin for margarine allows for the blending of palm oil and other edible oils not produced in North America for duty free access.  The rules of origin changes for diluents will allow for the use of diluents in oil shipments to the U.S. to enter duty free.  Under the original NAFTA, shipments that used diluents would not meet the rules of origin, resulting in tariffs being applied.  As a result, $60 million in savings is expected under the improved rules of origin.

All companies will need to review these changes to ensure existing and planned operations comply with the likely ROO. Autos, textiles, agriculture, polymers, and chemicals all have heavily revised ROO warranting close inspection.

Customs Duty

There is an interesting definitional change to “customs duty” that is not found in the original NAFTA nor CPTPP that potentially will provide the US with greater flexibility to impose import restrictions (e.g., tariffs).

Supply Management / Dairy

Canada’s supply management/dairy concessions go beyond CPTPP and equate to a 3.58% to 3.75% market access concession (CPTPP was 3.25%), as well as the elimination of Class 6 & 7 dairy pricing schemes that were an alleged source of injury to US dairy farmers. Additionally, there are restrictions on the amount of dairy powders that Canada can export into the global market and greater transparency/consultations required before Canada can make any further changes to supply management. Moreover, there appears to be greater access provided to the US on poultry (turkey) and eggs.

Intellectual Property

Canada made concessions on data protection for biologics (10 years) and copyrights (75 years) that went beyond any CPTPP proposals. Additionally, Canada agreed to stop in-transit IPR violations, a key US request over the past several years. Further, Canada agreed to a notice-and-takedown provisions that it previously was unwilling to adopt as part of CPTPP.

Express Shipments

The US requested that Canada and Mexico raise its de minimis threshold for small package/express shipments to USD 800. Mexico agreed to USD 100, where no package would be assessed duties nor sales tax at or below that amount. The US-Mexico provision was global in scope (as opposed to applying to only North America). Canada agreed to a $150 with the following components: (a) Canadian dollars; (b) only $40 is sales tax free (meaning $110 is subject to sales tax); and (c) applies only to North American shipments.

Modernization

Companies operating in the three countries will benefit from innovative customs and trade facilitation (e.g., borders), digital, and a series of red-tape cutting measures throughout the agreement. The agreement also includes for the first time in a US trade deal currency manipulation and state-owned enterprises chapters.

Immigration

The original NAFTA’s temporary entry (immigration) system is largely preserved with a few minor enhancements.

Autos Tariffs

The US-Canada side letter largely mirrors the US-Mexico letter, with caps at $2.6 million in vehicles and $180B in auto parts. It is important that this side letter only comes into play for non-conforming autos AND the imposition of tariffs. Vehicles and auto parts that conform with the USMCA auto ROO will not be exposed to future auto tariffs. The parties also agree to consult for 60 days before imposing any new tariffs of this kind.

Next Steps

  • Consultations will continue with the private sector in all three countries and the respective legislative bodies (e.g., US Congress) for 60 days.
  • The parties will sign the agreement in late November (60 days from now).
  • The parties will begin preparations for ratification by their domestic processes. In the US, this will require a series of analyses—including a large-scale review by the International Trade Commission—to examine economic impact, labor market impacts, etc. These will be completed, if on schedule, by late February/March.
  • The process will continue with the draft legislation presented to US Congress in Spring 2019 for an up and down vote.
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[1] With appreciation to Dickinson Wright PLLC