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September 22, 2017

NAFTA: What Canadians should watch for (Part 2)

As Canada, the U.S. and Mexico renegotiate the North American Free Trade Agreement (NAFTA), here’s what Canada and the U.S. are asking for.

The North American Free Trade Agreement (NAFTA) first went into effect over 20 years ago, on January 1, 1994. Since then, technology has revolutionized how we work, shop and do business. Experts say it's time the agreement reflected that. “When NAFTA was ratified, no one envisioned that the supply chains would be so intricately integrated,” says Chhad Aul, Vice-President of Portfolio Management at Sun Life Global Investments Inc. “The advent of e-commerce was also something not envisioned, so the agreement needs to be updated.”

NAFTA and e-commerce: Cheaper online purchases?

As Aul notes, e-commerce companies such as Amazon and eBay have transformed from niche sites to retail behemoths in the last decade. Canadians love to shop online, but according to the current rules, you have to pay the goods and services tax on any purchase worth over CAN $20. If what you’re buying wasn’t manufactured in Canada, the U.S. or Mexico, you may also have to pay a duty, the amount of which varies according to the type of product. As part of the renegotiations, the U.S. has asked that Canada increase the tax-free threshold to US$800 (C$978 as of Sept. 18, 2017). This change would save Canadian shoppers some cash, but could cost the Canadian government quite a bit of money in lost revenue.

How does Canada want NAFTA to change?

Foreign Affairs Minister Chrystia Freeland outlined Canada's key demands for renegotiating NAFTA in August 2017.

Here are 10 of Canada’s major demands for NAFTA 2.0:

  1. A new chapter on labour standards
  2. A new chapter on environmental standards
  3. A new chapter on gender rights
  4. A new chapter on indigenous rights
  5. Reforms to investor-state dispute settlement (chapter 11). This part of the agreement lets investors sue the government of a NAFTA country if that country breaches the treaty’s rules. Canada wants to improve this process so that the rules are clearer and cases are dealt with impartially.
  6. Freer movement of professionals. Global companies want to expand the list of professionals who can move freely across borders to work, since many vital tech-based jobs didn’t exist when the agreement was signed. “More individuals work in service industries than in the past... so it’s important that the new agreement addresses that,” says Aul.
  7. Enhanced and continued protection for Canada’s supply management system for dairy and poultry. Special protection is currently in place for Canada's dairy and poultry markets, but the U.S. wants to gain more access to these markets.
  8. Expanded procurement. Ottawa wants to give Canadians the ability to bid for construction projects in the U.S. at the state and local level.
  9. Protected cultural exemptions. The original agreement includes a rule that protects Canadian cultural industries such as broadcasting. The U.S. wants to amend this regulation to gain more market access, but the Canadian government wants to keep it intact.
  10. Maintenance of a process to regulate anti-dumping and countervailing disputes such as Canada's ongoing softwood lumber dispute with the U.S. government.

NAFTA 2.0: What are the next steps?

The next round of NAFTA renegotiation talks happens in Ottawa between September 23 and 27. The talks have faced some hurdles so far, but a recent trilateral statement says all 3 nations have “the shared goal of concluding the process towards the end of this year.”

In spite of the controversy and risk, Canada stands to gain a lot from a modernized trade agreement, says Aul: “Despite what the headlines may say at the end of the day, each country has benefited from NAFTA. But modernization [of the agreement] makes sense because looking into the future, certain areas such as services are going to become much bigger drivers of trade.”

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