"There are both more opportunities and more challenges," says Mr. Watt. "Canada has a free trade deal with the EU [Comprehensive Economic and Trade Agreement], is in the process of approving free trade with many Asian nations and now has USMCA as well. Canadian firms have many opportunities to benefit from lower trade barriers. However, they must step up and take advantage. There are still lingering competitive challenges to overcome."
Mr. Watt points out Canada and Mexico will still have a resolution framework for an investor-state dispute settlement mechanism through the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the replacement for the Trans-Pacific Partnership after the US pulled out of the agreement.
However, he believes NAFTA worked better for Mexico compared to USMCA given concessions in some sectors, such as for the automotive industry, under the new rules of origin.
"Nonetheless, reduced trade uncertainty fits well with our view that an investment recovery is likely to contribute positively to overall GDP growth in the remainder of 2018 and 2019, following a contraction in 2017," adds Mr. Watt.
For the US, he says, the newly agreed rules of origin for the auto sector will only start to be phased in from 2020 onwards. As a result, they are not likely to have much impact on production in the near term and will only gradually begin to affect investment decisions as auto manufacturers plan for the future.
In addition, Mr. Watt adds, many of the USMCA intellectual property provisions are closely aligned with CPTPP, such as the extended pharmaceutical patents and longer copyrights which hew closely to CPTPP and the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union.
According to the Canadian government USMCA will reinforce the strong economic ties between the three countries and support well-paying middle-class jobs for Canadians.1
Canada's federal government says the agreement provides key outcomes for Canadian businesses, workers and communities in areas such as labour, environment, automotive trade, dispute resolution, culture, energy, and agriculture and agri-food. It also recognizes the importance of progressive and inclusive trade and includes language on gender and Indigenous peoples' rights. Key points identified by the Canadian government include:2
Facilitating trade in goods
The original NAFTA eliminated virtually all tariffs between Canada, the US and Mexico with very a few exceptions. USMCA maintains these benefits and ensures the vast majority of USMCA trade will continue to be duty-free.
When it comes to disagreements, USMCA continues to offer Canada legal avenues for recourse that are the same as NAFTA including:
The revised automotive rules of origin require higher levels of North American content to incentivize production and sourcing in North America. Specifically:
The Canadian government believesthe new agreement has the potential to generate increased automotive production in North America, including in Canada, as well as additional sourcing opportunities for Canadian parts producers.3
LabourUSMCA includes a robust chapter on labour, which will be subject to dispute settlement. It aims to level the playing field on labour standards and working conditions in the USMCA region and contains commitments to ensure national laws and policies provide protection for fundamental principles and rights at work.
A comprehensive environment chapter, subject to dispute settlement, aims to level the playing field by ensuring parties do not lower their levels of protection to attract trade or investment. It also introduces new commitments to address global environmental challenges such as illegal wildlife trade, illegal fishing and the depletion of fish stocks, species at risk, conservation of biological diversity, ozone-depleting substances and marine pollution.
Canada and the US will retain access to each other's procurement markets, including at the sub-federal level, through their obligations under the WTO Agreement on Government Procurement (GPA).
Parties agreed to an updated, comprehensive chapter on intellectual property, with obligations on copyright and related rights, trademarks, geographical indications, industrial designs, patents, data protection for pharmaceutical and agricultural chemical products, trade secrets, and intellectual property rights enforcement.
USMCA will preserve existing agriculture commitments between Canada, the US and Mexico, and help bring together an already highly integrated industry. While securing several beneficial outcomes for agriculture Canada agreed to some concessions on dairy.
While Mr. Watt says the impact of the USMCA agreement won't likely be felt until 2019, he adds, "We must watch measures of business confidence closely in coming months."
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