Please Note: As of October 2018, NAFTA is due to be replaced by the United States-Mexico-Canada Agreement (USMCA), which has been signed by all three countries but not yet ratified. The USMCA does not affect NAFTA visa policies. This page will be updated closer to the ratification with more information.
Is NAFTA going to change?
- The Basics of NAFTA
- What if the US leaves?
- What's good for Canada?
- What will happen to the NAFTA work permit?
In 1994, the governments of North America, Canada, and Mexico negotiated the North American Free Trade Agreement (popularly known as NAFTA). At the time of its implementation, NAFTA bipartisan support in the United States and proved to be economically beneficial for all three countries involved.
Since the election of President Donald Trump, however, there is talk about renegotiation of NAFTA by the U.S. What would this renegotiation mean for Canada? There are eight pages in the trade negotiation input from U.S. companies that outline just that.
October 2018 Update: NAFTA has been renegotiated as the United States-Mexico-Canada Agreement (UMSCA).
The Basics of NAFTA
Negotiated by George W. Bush and implemented under President Clinton, NAFTA was gradually unfurled from 1994 to 2008. The trade agreement combined the power of the developed U.S. and Canadian economies with the growing underdeveloped economy of Mexico. Through the elimination of tariffs on manufacturing, agricultural, and service industries, the agreement was designed to promote the success of all three economies. NAFTA also provided for the removal of restrictions on investing and the protection of intellectual property rights.
Effects of NAFTA
What kind of effects has the North American Free Trade Agreement had?
- Tariffs on engineering, construction, advertising, accounting, architecture, consulting, management, health-care management, tourism, and commercial education were eliminated.
- Certification and export-product inspection times were sped up to facilitate a smoother trade process.
- Toughening of safety, health, and industrial standards occurred to hold all three countries to the same higher standards.
- Commissions were put in place to monitor any labour and environmental concerns arising from inconsistent enforcement of NAFTA laws by any of the three countries.
- Barriers to apparel and textiles were lessened.
- More rights were granted for American companies to bid on Canadian and Mexican procurement contracts.
- Agricultural trade was freed up.
- Delays due to paperwork requirements on exporting goods to Mexico were either eliminated or significantly reduced.
- Insurance markets were opened up.
- Border processing and licensing requirements for entry into Mexico were streamlined.
- The Mexico-US border was opened to US trucking companies.
- Auto parts and vehicles tariff were reduced.
- Intellectual copyright protected was better standardized.
- US telecommunications expanded, partially, into Canada and the US
- Finally, NAFTA implemented rules that allowed citizens of all three countries to work in the other two countries with fewer restrictions (no LMIA in Canada), and provided for intra-company transfers between countries.
October 2018 changes:
- The United States gets access to 3.6% of the Canadian dairy market.
- Canada eliminates "Class 7" pricing provisions on specific dairy products.
- Duty Free limit for US goods entering Canada raised from $20 to $150.
- Automobiles made with at least 75% of their parts manufactured in Canada, Mexico or the US can be sold without tariffs (and increase from 62.5%).
- As of 2020, 30% of the work on these automobiles must be done by works making at least US$16 per hour but this will not rise with inflation. In 2023, the percentage must be 40%.
- Copyright in Canada is extended to life of the author plus 70 years, and life of the author plus 75 years for sound recordings.
- All three countries must notify each other when participating in free trade agreements with other countries not party to the USMCA and the two other countries will be allowed to review those potential free trade deals.
Please note this agreement has not yet been ratified so it is not yet in force.
Why Did Trump Renegotiate?
A major focus of President Trump’s presidential campaign was his goal to “make America great again.” This campaign, although likely well intentioned, comes at the risk of isolating allies and provoking enemies. The renegotiation of NAFTA is just one example of this in action.
According to President Trump, the NAFTA agreement was poorly negotiated and it has caused an increasing number of jobs and more manufacturing production to be shifted to Mexico. This indicates a failing by the commissions built in to NAFTA designed to prevent this type of imbalance. Those who argued against the trade liberalization implicated by NAFTA in 1992 predicted such a shift. Supporters of NAFTA, however, claimed that NAFTA would help to bring the Mexican economy up to standard and create new jobs. So, were those against NAFTA right? Not necessarily. According to CFR the first 20 years of NAFTA resulted in a 0.5% increase in the U.S. gross domestic product. So, is President Trump wrong? Not necessarily! While NAFTA has resulted in a modest increase in the U.S. GDP, it has also shown a shift in the U.S. - Mexico trade balance from a U.S. surplus of $1.7 billion to a deficit of $54 billion.
So, what does this have to do with Canada? The huge shift in the trade balance is no longer beneficial to the U.S. according to Trump
and he demands renegotiation. If renegotiation cannot be made, he intends on withdrawing from NAFTA completely. Such renegotiation or complete withdrawal will obviously have an effect on Canada’s economy. This could mean a decrease in the $236 billion increase in Canadian exports to the U.S. that NAFTA caused, and a decrease in the 300% increase in Canada’s agricultural trade with the U.S that was again caused by NAFTA.
Has Trump Addressed Canada in Renegotiation Talks?
As Trump and his team of senior administrators begin to focus on renegotiations, they reference the National Trade Estimate Report on Foreign Trade Barriers which outlines transgressions in numerous American trade agreements. They are also drawing on input from American companies on issues that need to be addressed in the trade practices of other countries. Obviously, Canada is not the main target of the renegotiation, but it doesn’t go unnoticed as transgressions are addressed.
So, what exactly did Trump and his team intend to target when renegotiating NAFTA and Canadian relations?
- Canada should no longer be able to limit U.S. access to the Canadian market for dry milk proteins.
- Canada should no longer be able to limit the import of chicken, dairy, turkey, and eggs and charge excessive tariffs on import amounts over quotas.
- Canada should not tax Canadians returning from U.S. trips who bring U.S. alcohol with them.
- Canada should be less strict on limitations over what can be considered duty-free items brought home from vacation.
- Canada should also be more lenient on online purchases and increase the import limit at which customs fees are charged.
- Canadian aerospace companies should be monitored.
- Increased enforcement of intellectual property rights needs to be made in Canada, particularly on pharmaceuticals.
- More Canadian Crown corporations should be opened to U.S. product suppliers.
- Canada should increase the 46.7% ownership limit of foreign ownership of major telecommunications companies.
- Canada should no longer prohibit the sale, import, or advertising of seeds for sale to Canadians from the U.S.
- Canada should have more lenient regulations when classifying barley and wheat for milling purposes for U.S. importers.
- Canada should not be permitted to block U.S. cloud-computing services from competing for federal contracts.
As you can see here, most of these goals were not met by the USMCA.
Renegotiation Won’t Be a One-Way Street
Although Trump initiated the renegotiation of NAFTA, that didn't mean that Canada won’t have any requests. In fact, the Canadian government noted a few points that they wished to address in renegotiation discussions.
- Canada wanted to request more certainty on the softwood lumber trade.
- Canada wanted to address their limited access to U.S. public construction projects.
- Lastly, Canada wanted better worker-mobility rights within the US.
Update: To the best of our knowledge, these goals were not achieved.
What if the U.S. Withdraws From NAFTA?
If negotiations don’t go as planned for the U.S. and they withdraw from NAFTA what happens next? It remains to be seen what will become of NAFTA without the U.S.; however, in all likelihood the agreement will be disbanded completely. The balance of power in NAFTA was designed so that two larger economies could assist with the growth of a third, weaker economy. Should the U.S. withdraw from this agreement, the balance would shift and the burden of supporting the Mexican economy would fall solely on Canada, and Canada and Mexico don’t share a border. Additionally, the majority of benefits Canada reaped from NAFTA came from trade with the U.S., without these benefits, there is little incentive for Canada to continue in a trade agreement with Mexico.
Was Renegotiation Against Canada’s Best Interests?
Is it really in Canada’s best interests to renegotiate? U.S. trade lawyer, Alan Wolff, seems to think so. Although many of the points to be renegotiated seem to lean more in the favour of the U.S., Wolff says that he believes that these renegotiations will result in more than one sided benefits. Wolff seems to have been somewhat correct. The deal is not a disaster for Canada, nor is it a major win for the United States. It seems as though it is more of a slight adjustement to NAFTA.
What about work permits?
Update: The NAFTA work permit section was not renegotiated, to the best of our knowledge.