The Canada-United States-Mexico Agreement (CUSMA), which came into force in July 2020, has its fair share of drawbacks, including issues with market access and limitations to exports.
So, even though the new treaty offers numerous benefits to Canadians, it has presented a few challenges that every Canadian business should be aware of. Because CUSMA was created to replace the North American Free Trade Agreement (NAFTA), it’s important to understand why NAFTA failed, so that you can understand the areas where CUSMA is working and where it may not be.
Potential Drawbacks of CUSMA
How does CUSMA work? As mentioned above, CUSMA was created as a substitute for NAFTA. Its main purpose was to streamline trade between Canada, the United States, and Mexico by abolishing some of the punitive tariffs and trade barriers that existed under NAFTA. Under NAFTA, the North American market opened up, allowing businesses within the region to grow their international sales.
This treaty ensures that future regulations do not create trade barriers, allowing manufacturers, exporters, and importers in each CUSMA country to claim preferential tariff treatment when exporting or importing goods within the region.
Even with all these benefits, CUSMA presents a few challenges to businesses within the region. Here are some of the potential drawbacks of CUSMA:
Fewer Protections for Certain Key Sectors
By removing tariffs and other trade barriers, CUSMA has reduced safeguards for certain critical industries, like biologics. Previously, the biologics industry was largely dominated by pharmaceutical companies, which ensured that only drugs from recognized and trusted brands entered the market.
With the implementation of CUSMA, the Canadian market has seen an increase in the availability of generic drugs, which are subject to rigorous health and safety regulations. Canada has also recently updated its federal patent regulations, extending the market protection period for new prescription drugs to ensure that all medications, including generics, meet the highest standards of safety and efficacy. This ensures that the introduction of generic drugs is managed carefully to maintain the health and safety of consumers.
Adapting Workforce Dynamics
The introduction of CUSMA has facilitated a more flexible business environment, where Canadian companies have the option to explore operations in Mexico and the United States, benefiting from a diverse labor market. This adaptation aims at enhancing competitive edges on a global scale, while also bringing to light the importance of workforce skill development and innovation in maintaining job stability within Canada.
Moreover, the ability to leverage international labor resources underscores the necessity for Canadian industries to invest in training and upskilling programs. By focusing on enhancing the domestic workforce’s skills and competencies, Canada can foster a resilient job market capable of thriving amid changing global trade dynamics. This approach not only supports job retention but also encourages the creation of high-quality, sustainable employment opportunities for Canadians in the evolving economic landscape.
Increased Competition
CUSMA makes it easy for Canadian professionals to find higher-paying jobs in the US and Mexico, leaving Canadian companies without a qualified labour force. In this case, many Canadian businesses have been forced to review their wages upwards in order to retain their workforce.
The rising cost of labour directly affects the overall cost of manufacturing, resulting in higher prices of goods. This creates an unbalanced competition because Canadian consumers end up buying cheaper products from the other two countries.
Threat to Domestic Sectors
CUSMA presents many issues that go beyond access to markets. For instance, many Canadian businesses have raised concerns about the inclusion of supplementary provisions that limit their export capacity.
They also argue that these provisions restrict the country’s ability to fully control its domestic production of dairy products, threatening the dairy sector’s long-term viability. Unlike NAFTA, CUSMA has significantly destabilized and disrupted the dairy market in Canada.
Restricted Sovereignty
A huge debate has emerged around CUSMA, with some pundits arguing that the new treaty restricts Canada’s sovereignty. One of the hotly-contested provisions in the landmark agreement is Section 31.10, which stipulates that any member state that wants to strike a free trade agreement with a non-market country must notify the other two member countries three months in advance.
This provision further states that if one of the three countries is opposed to a new trade deal struck between a member country and a non-market country, it has the liberty to withdraw from CUSMA.
Although some trade experts don’t see this as a restraint, others maintain that it prevents Canada and Mexico from negotiating with non-market countries like China. So, as a Canadian business owner, it’s important to be aware of these possible drawbacks of CUSMA before you begin accessing the new global market.
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