Dairy farmers angry in wake of NAFTA replacement deal
Manufacturers relieved, but dairy producers say they’ve been ‘sacrificed’ and their industry will end up shrinking
TORONTO — Canada’s automakers appear to be the big winners from a renegotiated trade pact between Canada, the United States and Mexico, while steel and aluminum makers and dairy producers have less to celebrate.
The breakthrough deal reached Sunday night, that U.S. President Donald Trump said he plans to call the United States Mexico Canada Agreement, exempts a percentage of eligible auto exports from tariffs, one of the biggest wins in the new deal, said David Adams, president of Global Automakers of Canada.
“One of the largest things is just having certainty now in terms of what the trading relationship is, and what the business environment is going to be going forward, because business desperately needs certainty and uncertainty is anathema to getting things done.”
The new deal makes enough Canadian auto exports tariff-free to be a de facto exemption, and gives hopes that metal tariffs could be reversed, said Frederic Bastien, an analyst at Raymond James, in a note.
“This a victory for Canada because that amount is actually well above what we currently send south of the border. That gives us confidence a side deal on Canadian steel and aluminum can also be reached before the new NAFTA is ratified.”
The terms reached between the U.S. and Mexico on higher wage thresholds will also be positive for Canadian producers, said Unifor president Jerry Dias, who welcomed the deal.
“The threat of capricious auto tariffs has been lifted, stabilizing future investment,” said Dias in a statement.
Prime Minister Justin Trudeau said in a press conference that the auto sector was a key priority in negotiations.
“Protecting our auto industry was one of the core concerns that Canadians had about getting to a deal, and we’re glad to say that we have significant protections.”
Steel and aluminum producers, however, came away disappointed with no deal in place to lift the tariffs the U.S. imposed on their products at the end of May.
“Certainly disappointed because they didn’t agree on a solution on the 232 sanctions regarding aluminum and steel,” said Jean Simard, CEO of the Aluminium Association of Canada.
United Steelworkers Canadian director Ken Neumann was more direct, saying Canada “sold out” steel and aluminum workers by not getting the 25 per cent steel tariffs and 10 per cent aluminum tariffs removed.
“It appears Canadian steel and aluminum workers are among those being sacrificed in the concessions made by the Liberal government in this deal,” he said in a statement.
Most critical of the deal was the dairy industry, which railed against expanded U.S. access to the domestic dairy market and the elimination of competitive dairy classes.
Bruno Letendre, head of the association that represents Quebec’s milk producers, said the concessions are the equivalent of 13 days fewer production for his members.
“We’ve been sacrificed,” he said
in an interview. “There’s no doubt about that. Supply management has been sacrificed.”
The measures will have a “dramatic impact” on dairy farmers and cause the industry to shrink, said Pierre Lampron, president of Dairy Farmers Canada, in a statement.
Ontario and Quebec premiers criticized the dairy concessions as a bad deal for farmers, though Foreign Affairs Minister Chrystia Freeland said at a press conference Monday that they would be made whole.
“Our supply managed producers will be fully compensated, because that is the fair thing to do,” she said without providing details on planned compensation.
For the general manufacturing sector, the sentiment is one of relief, said Dennis Darby, president and CEO of Canadian Manufacturers & Exporters.
“It removes that uncertainty that was hanging over the sector, in terms of our access to this North American market, in terms of the rules related to our integrated North American supply chain.”
He said he hopes the aluminum and steel tariffs can be resolved shortly, but that the manufacturing industry didn’t lose anything in the new deal.
“At a minimum, we haven’t lost any ground. Versus a very unpredictable and protectionist U.S. administration, I think Canada did as well as it could.”
Markets took the news of the deal in stride, with the S&P/TSX composite index closing 0.2 per cent higher while the loonie posted an average gain of 0.86 of a US cent over Friday.
“The markets are reacting positively and with relief, but they’re certainly not euphoric by any means. They’re happy but not delighted,” said Doug Porter, chief economist at the Bank of Montreal.
The new trade pact is significantly better than an all-out trade war but won’t be a game changer for Canadian growth, said CIBC chief economist Avery Shenfeld.
“For the most part, this was a defensive deal for Canada,” he said in an interview.
“We had a NAFTA deal that was working reasonably well so we will call it a win because we were able to retain the key parts of the existing NAFTA deal in terms of our access to the U.S. market.”
The lifted uncertainty could be enough to prompt more business investment, said RBC senior economist Nathan Janzen in a note.
“While it’s possible to conclude that the deal consists largely of tweaks to the old agreement, we believe reduced uncertainty about the U.S.-Canada trade relationship could prompt businesses to put more investment dollars to work and will support exports.”
TORONTO — Canadian shoppers who like to buy products from the U.S. online have reason to rejoice about the revised NAFTA deal, but some homegrown retailers could be in for a struggle, say experts.
Under the renegotiated North American Free Trade Agreement, Canada may increase its de minimis level — the value of product consumers can buy online without being forced to pay import duties or taxes — to $150 for custom duties and $40 for sales taxes. The U.S. had been pushing for Canada to raise their threshold from $20 to $800.
The new threshold will mean Canadians will get a break on lower-cost U.S. goods that they order online, said Walid Hejazi, a University of Toronto associate professor specializing in international trade.
“This is fantastic,” he said. “Canadians should be thrilled at the idea that they can now buy things from the U.S. and other countries and bring them in without paying the duties . . . Canadians should celebrate.”
He considered the change a win for shoppers because the previous $20 de minimis level was among the lowest around the globe and had been set long before the rise of e-commerce.
He said that raising the limit would boost competition between retailers, perhaps even causing prices at Canadian stores to drop as retailers try to deter shoppers from looking abroad for items.
Larry Rosen, the chief executive officer of luxury menswear brand Harry Rosen Inc., said the high prices of the men’s suits and other products his company sells means it is “fairly immune” to the impact of de minimis, but he worried other retailers selling less expensive goods would see some negative affects.
Under the new de minimis levels, he said if shoppers buy something from an online U.S. retailer for $39 with free shipping it will be cheaper than if you buy the item at a Canadian retailer at the same price and have to pay the harmonized sales tax.
Rosen expected the deal could also cause “funny behaviour” because if you want to buy three $39 T-shirts from across the border, he said, shoppers and retailers could get crafty and realize that they can save if they buy and ship the products separately to avoid the taxes.
“It is not ideal and it is not perfect. It is going to hurt some low-price retailers,” he said. “There’s definitely going to be an advantage for U.S. online retailers selling lower priced items into Canada . . . I am heaving a sigh of relief and saying it could have been a lot worse.”
Karl Littler, the vice-president of public affairs at Retail Council of Canada, said he didn’t expect the de minimis threshold to have a significant impact on Canadian consumers because the threshold wasn’t raised as high as the Americans wanted.
However, he felt the level created “an uneven playing field” between merchants operating within Canada and people shipping products in from outside.
“If the federal government wants to increase the benefits for consumers, what it could do is take the customs duties off the products that Canadian merchants import,” he said. “That would make a difference.”
The council has long been pushing for such a measure and on Monday, Canadian Tire Corp. released a statement prodding the government to extend the same relief to homegrown retailers.
The council was intently watching NAFTA negotiations because a 2017 study it took part in found that if Canada increased its threshold to US$200, it would cause 286,224 retail or retail-related job losses, a $8.8 billion dip in labour income and an $11.5 billion drop in gross domestic product (GDP) by 2020.
If the threshold was raised to US$800 as the U.S. hoped, the study said it would cause the loss of 300,244 retail or retailrelated jobs, $9.2 billion in labour income and $12 billion in GDP by 2020.
NPD Group, a research firm, also previously released a study that found that increasing de minimis levels to $150 will make U.S. prices “more attractive” for Canadians because many products Canadians buy online are well over the previous level.
“Canadian retailers will need to continue to offer a greater breadth of assortment online to give themselves the best chance at winning over the Canadian e-commerce consumers,” said Armin Begic, the NPD Group’s retail business group director, in an email to The Canadian Press.
He said his company’s study also found that over the last few years, more Canadians are choosing to make online purchases from retailers shipping from within the country, while cross-border shopping has declined.