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Revised NAFTA will not take effect on June 1, as Trump had hoped

COVID-19 is one of several complications delaying the implementation of the revised North American trade agreement beyond June 1 — when the Trump administration wanted the new deal to take effect.

In order to proceed on the White House’s preferred timeline, all three partners needed to notify each other by March 31 that they had finished their respective ratification processes and were ready to comply with the new agreement. 

The text of the Canada–U.S.–Mexico Agreement (CUSMA) says it will take effect on the first day of the third month after the final country gives this notice.

Canada rushed through a deal to pass its implementation legislation on March 13, as Parliament suspended amid fears that it was no longer safe for the full House of Commons and Senate to meet during the pandemic.

While that legislation was an important step toward making the necessary changes to laws and regulations, Canada’s Parliament does not ratify trade treaties. That’s up to the executive branch — the federal cabinet.

Although Justin Trudeau’s ministers met on Tuesday morning, they have yet to give this notice they’re ready to proceed.

The U.S. and Mexico have already ratified and the Americans have signalled they are prepared to proceed with Mexico alone if Canada does not ratify in a timely fashion.

“Canadian government officials continue to closely coordinate with our businesses, labour and other domestic stakeholders,” said Katherine Cuplinskas, Deputy Prime Minister Chrystia Freeland’s press secretary.

“Canada is working with the U.S. and Mexico on uniform, trilateral regulations which are required before the agreement can enter into force for all three countries.”

For example, Canada formed a working group with Mexico last summer to provide expertise on labour reforms as that country sets up more robust trade unions to protect workers’ rights in industries engaged in North American trade — now a requirement under CUSMA.

June 1 ‘highly aggressive’

Canada’s slow walk to implementation appears in line with the thinking of some Congressional leaders in Washington.

On Monday, a bipartisan group of 19 American senators, including the Republican chair and ranking Democrat on the Senate finance committee, signed a letter to United States Trade Representative Robert Lighthizer urging him to revise NAFTA timelines.

“A long experience of incomplete and inadequate implementation by trade agreement partners has taught us that the United States must do this work on the front end to ensure that the words on paper deliver genuine benefits to Americans, including our farmers, workers and businesses,” it read.

“We urge you to seriously reconsider the proposed June 1 entry into force of USMCA, particularly in light of the significant public health crisis and supply chain disruptions caused by COVID-19.

“Even absent the pandemic, a June 1 deadline would be highly aggressive, and raises questions as to whether businesses have the information they need to adjust to the new rules and comply by that date,” the letter continued. “Entry into force should only happen after all necessary regulations are in place and our industries have had an opportunity to understand and implement them effectively.”

U.S. President Donald Trump has been counting on campaigning for re-election this fall with the new agreement in place — something he could point to as proof of his ability to improve trade deals for Americans.

Both political parties co-operated on ratifying the deal in Washington, but political attention is now focused elsewhere.

Border under pressure from coronavirus

Just last month, Canadian business groups were urging Canadian politicians to swiftly ratify the deal, hoping to end several years of uncertainty for North American supply chains caused by the Trump administration’s protectionist actions.

Now, COVID-19 has amped-up fears that the Canada-U.S. border may be thickening for good, with non-essential travel between the two countries temporarily restricted and calls for essential supplies to be protected for domestic consumption.

Even if the virus wasn’t disrupting business on both sides of the border, implementing the new NAFTA requires changes to how customs are administered. Preparing IT systems at the border for this change is becoming increasingly difficult now that coronavirus concerns are superseding all others for both government officials and industries.

Testimony before the Commons trade committee included some businesses pointing out that they haven’t yet seen the fine print on some of the new regulations that will need to be administered.

Although the revised automotive chapter will be phased-in, the terms of the revised deal require companies involved in all stages of manufacturing to re-evaluate where their materials and parts are sourced in order to comply with new North American content rules and continue to benefit from tariff-free trade.

COVID-19-related factory closures — first in China and now in North America — as well as the retooling of some facilities to contribute to national efforts to make medical equipment have seriously disrupted the industry, limiting its capacity to prepare for the transition to the new NAFTA rules.

Canada’s dairy sector has also called for the deal’s implementation to be delayed until after August 1, the start of that sector’s fiscal year, so that new export limits for Canadian-made dairy products like skim milk powder and baby formula don’t begin to phase in as quickly.

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