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Business As We Know It

The key negotiators for Mexico, Canada and the U.S. announce details of the USMCA.

At the beginning of October, a landmark trade deal was announced between the nations that made up NAFTA: Canada, the United States and Mexico. The free trade agreement came after months of intense, sometimes fiery, negotiations between the three countries, particularly concerning Canada and the U.S. As the details emerged, there were some clear wins for Canada and Alberta, in particular, that could change how we do business in the future.

USMCA will replace the decades-old NAFTA once it is ratified by the three nations. While some small changes are likely to be made during that time, much of the document is all but set and Canada’s Minister of Foreign Affairs, Chrystia Freeland, is happy with the end result. “We hung together. We stayed strong. And we succeeded,” she said in a recent statement, and largely this seems to be the case.

“We went into the new NAFTA renegotiations with the idea of doing no harm and I think we emerged out of that mostly unscathed,” says Daryl Hanak, executive director of international trade policy at Alberta’s Ministry of Economic Development and Trade. “In terms of the big changes, for the most part, it’s going to be business as we are familiar with, especially with the U.S.”

While representatives from Alberta were not directly involved in the negotiations, the early hopes of large-scale changes eventually gave way to preserving what was already in place with NAFTA. “There were hopes for some improvements as negotiations went along, but the idea that we preserve what we have became the main objective,” says Hanak. “Things like the tariff levels that faced Canadian goods are essentially unchanged [and] big chunks of it are ensuring that we have continued market access.”

That said, some new passages in USMCA are good for Alberta in multiple ways, with some cleanup of rules that were bureaucratically causing small problems. The oil and gas industry, in particular, will see changes for shipping bitumen that makes it cheaper. In NAFTA, a small fee was charged on diluent, a product that helps bitumen flow more freely in pipelines. The fee no longer exists under USMCA, saving roughly $60 million per year.

That said, there was initial worry a new provision could interfere with Alberta selling oil to China. USMCA now states that all three nations must approve new free trade negotiations between one of the participants and “non-market economies” like China. Hanak, however, says the new rule is unlikely to cause issues. “That provision is in there to give notice of entering negotiations for a free trade agreement, which are extremely complicated documents,” he explains. “There are plenty of other ways to enter trade agreements between nations that are not to that degree. No one in Canada or the U.S. thinks this new provision will stop ongoing trade between us and China.”

More than likely, the anxiety surrounding that clause is less about a potential and unprecedented exclusive free trade agreement between Canada and China and more about a potential impact on the Trans Mountain pipeline. The oil going through the troubled pipeline is theoretically bound for China but Hanak insists USMCA cannot impact domestic projects like the pipeline or the destination of its products. “The USMCA doesn’t change anything with the pipeline or domestic projects like that,” he says.

Not all industries – especially dairy – are excited by USMCA, however. Canada’s supply management system has given domestic dairy farmers a stable, predictable economy for decades. While the proposed 3.59 per cent access to the Canadian market by American farmers seems like a small amount, it can actually mean a large difference for Canadian farmers.

Canada’s dairy system is regulated differently from most other industries, where farmers are given quotas for production based on market estimates. They cannot, like their fellow farmers south of the border, overproduce with the hopes of exporting. Instead, they make their quota and can produce more if the market estimates allow. It makes for a stable income for the farmers while causing little impact on the actual cost of milk and milk products at the grocery store. The Canadian average price for milk is $1.22 per litre. In the States, it is almost identical at $1.21, and most estimates say Canadians won’t see a change in price at the till.

The 3.59 per cent access for American dairy farmers, who have a glut of product that needs to be exported due to overproduction, is yet another instance of trade agreements slowly chipping away at dairy farmer quotas over the years. According to Alberta Milk chairman Tom Kootstra, the amount taken up by foreign interest in Canadian dairy is a “death by a thousand cuts” with over 10 per cent in the past few years. “We need to recognize that this is the third trade impact on the dairy industry. Under CETA, we granted some three per cent. With the CPTPP, an additional 3.25 per cent was given away and now, under this USMCA, another 3.59 per cent,” says Kootstra. “Cumulatively, Canadian producers have lost the opportunity to at least 10 per cent of the Canadian market. When we lose the potential to produce for the Canadian market, that harms our business.”

Kootstra was quick to point out USMCA is already causing problems in Alberta’s dairy industry. A potential deal for dairy processing in Alberta was put on hold just days after the announcement. “The dairy industry in Canada is about more than just us farmers, it impacts everyone who works in the industry,” he says. “We were really close to getting processors to invest in Alberta and then the USMCA came up and the parties became hesitant to invest. This agreement is potentially already putting a stall in economic development in Alberta.”

Kootstra also worries about the next generation of dairy farmers, who are seeing the changes and wondering if the industry can offer a viable long-term career. “The USMCA means more uncertainty and that the growth in the market won’t be there,” he says. “These types of changes make it a less secure investment and it may mean people like my sons, who work on our farm, may have to look elsewhere to make their living.”

By contrast, grain farmers in Alberta are happy with the new agreement, saying the deal promises continued access, another instance of managing to mitigate potential damage to the Canadian economy by a new deal. “The renewed agreement is excellent news for Canada’s barley farmers,” said Jason Lenz, Alberta Barley chair. “We are extremely appreciative to both Minister Freeland and [Minister Lawrence] MacAulay for recognizing the needs of farmers who rely on exports.”

While the new NAFTA still has some wrinkles to iron out, the deal means some wins for Albertans and Edmontonians, and some losses. As Hanak mentions, it will largely be business as usual for many industries, while some Canadians could feel major changes to their livelihoods.