Much of Canada's Trade Prospects Hinge on US Action; CPTPP, CETA Seen as Major Opportunities

The future for international trade with Canada is closely aligned with what will happen in the U.S. on several fronts, Canada-based law firm Bennett Jones said in its spring 2019 economic outlook report. The likelihood of passing an updated NAFTA recently got a boost through the end to U.S. tariffs on steel and aluminum from Canada and Mexico and the retaliatory tariffs from those two countries, the law firm said. Still, the U.S. said it expects monitoring and surge prevention related to steel and aluminum, though it remains unclear exactly how this will occur. "It is not unlikely that difficult bilateral discussions still lie ahead, although it is to be hoped that the Americans would not readily reimpose these tariffs," the firm said.

While Canada has started the legislative process for approving the deal (see 1905280033), "the government has indicated that Canada will proceed in tandem with the United States and Mexico in implementing CUSMA, suggesting that Canada will not complete the legislative process until the United States is also well engaged," the firm said. "Of course, little time is left for new parliamentary business before the fall election."

At the same time, the U.S. relationship with China is also affecting trade through Canada, the firm said. "The current furor concerning Canadian canola exports to China is a good starting point for thinking about how to proceed," the law firm said. "The assumption in Canada has been that our canola exports have stopped because the Chinese government has decided to punish Canada for its arrest of Huawei executive Meng Wanzhou, pursuant to an American extradition request." Despite the issues, "we should not lose sight of the fact that China is our second largest trading partner and that it is an important market for many Canadian products, particularly in the agricultural sector," it said.

The absence of the U.S. in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Comprehensive Economic and Trade Agreement (CETA) could be beneficial to Canadian trade, the firm said. "Canada now has preferences in Europe, Japan and other CPTPP markets that are not enjoyed by our American competitors. We should be moving now as a top priority to take advantage of these opportunities and to consolidate our position in those markets. It may be some years before the United States negotiates equivalent market access, particularly in Europe. In Japan, our preferences may be eroded more quickly but even so we should work hard to ensure that Canada gets its share of benefits from the new liberalization of the Japanese market." Some work is still needed to figure out where the best opportunities are, but "further effort now should pay dividends for years to come," it said.