No NAFTA means higher prices, lower prof­its, $20B in lost pro­duc­tion: Re­port

Northern News (Kirkland Lake) - - BUSINESS - JESSE SNY­DER js­ny­der@na­tion­al­post.com

OT­TAWA — The shred­ding of the North Amer­ica Free Trade Agree­ment would re­duce Cana­dian GDP growth by one per cent over five to 10 years, a prospect that looks in­creas­ingly likely as the White House slaps hefty du­ties on some Cana­dian ex­ports, a new re­port says.

An­a­lysts at Royal Bank of Canada es­ti­mate that shred­ding the trade pact would re­sult in a four per cent across-the-board in­crease in tar­iffs for Cana­dian ex­ports to the U.S., pri­mar­ily im­pact­ing the petroleum in­dus­try, auto man­u­fac­tur­ers, pri­mary and fab­ri­cated metal man­u­fac­tur­ers, and the plas­tics in­dus­try.

“The im­plied an­nual im­pact of 0.1 per cent to 0.2 per cent might not ap­pear all that large, but it adds up to a sub­stan­tial amount of fore­gone pro­duc­tion po­ten­tial — about $20 bil­lion (in to­day’s dol­lars) of an­nual out­put over time,” RBC econ­o­mists Nathan Janzen and Mathias Hart­pence said.

The ab­sence of NAFTA could also lead to lower prof­its for com­pa­nies and “prob­a­bly higher prices for con­sumers,” apart from di­min­ish­ing Canada’s com­pet­i­tive­ness rel­a­tive to off-shore pro­duc­ers.

“In­deed, in the medium to longer run, lim­it­ing the tar­iff ad­van­tage for lo­cat­ing auto man­u­fac­tur­ing ac­tiv­i­ties within North Amer­ica could, per­versely, sim­ply ac­cel­er­ate the move­ment of mo­tor ve­hi­cle pro­duc­tion off­shore,” the an­a­lysts said.

Ob­servers have spec­u­lated for months over which trade rules would re­place NAFTA. Ini­tially it is ex­pected to trig­ger a fall back to the ear­lier Canada-U.S. Free Trade Agree­ment or, more likely, to World Trade Or­ga­ni­za­tion rules.

The snap-back to WTO pro­vi­sions would raise tar­iffs on many ex­port-de­pen­dent in­dus­tries, com­pared to the mostly tar­iff-free or low-tar­iff rules cur­rently en­joyed un­der NAFTA. U.S. tar­iffs un­der WTO on tex­tiles av­er­aged 12 per cent in 2016, the RBC re­port said. The av­er­age tar­iff on agri­cul­tural prod­ucts was 5.2 per cent over the year, while petroleum prod­ucts av­er­aged 6.5 per cent. Cana­dian and Mex­i­can petroleum ex­ports to the U.S. aren’t cur­rently charged du­ties un­der NAFTA.

Even if Canada and the U.S. man­age to sign their own trade deal, the an­a­lysts wrote, “a bi­lat­eral ar­range­ment may not safe­guard Canada from on­go­ing puni­tive trade ac­tions—con­sider re­cent U.S. moves to levy tar­iffs against Cana­dian soft­wood lum­ber and Bom­bardier-man­u­fac­tured jets.”

The U.S. Com­merce De­part­ment has re­cently slapped a 20 per cent tar­iff on some soft­wood lum­ber ex­ports, as well as a 300 per cent duty on Bom­bardier Inc.’s CSeries jets fol­low­ing a deal with Euro­pean plane man­u­fac­turer Air­bus SE.

The RBC re­port comes as NAFTA talks seem in­creas­ingly likely to im­plode, af­ter the U.S. be­gan in­tro­duc­ing hard-nose de­mands to scrap a key dis­pute res­o­lu­tion mech­a­nism and put an end to the Cana­dian dairy in­dus­try’s sup­ply man­age­ment sys­tem. The fifth round of NAFTA rene­go­ti­a­tions will be held in Mex­ico City be­gin­ning Nov. 17.

The most vul­ner­a­ble in­dus­try by share of GDP was oil and gas ex­trac­tion, ac­cord­ing to the re­port. Next most vul­ner­a­ble was petroleum and coal man­u­fac­tur­ing.

In­deed, in the medium to longer run, lim­it­ing the tar­iff ad­van­tage for lo­cat­ing auto man­u­fac­tur­ing ac­tiv­i­ties within North Amer­ica could, per­versely, sim­ply ac­cel­er­ate the move­ment of mo­tor ve­hi­cle pro­duc­tion off­shore.” RBC econ­o­mists Nathan Janzen and Mathias Hart­pence

THE CANA­DIAN PRESS

Ob­servers have spec­u­lated for months over which trade rules would re­place NAFTA. Ini­tially it is ex­pected to trig­ger a fall back to the ear­lier Canada-U.S. Free Trade Agree­ment or, more likely, to World Trade Or­ga­ni­za­tion rules.

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