One year into the implementation of the United States-Mexico-Canada Agreement (USMCA), the new trade deal has been mired in the fallout from COVID-19 and ongoing disputes over content rules, auto industry experts say.
That makes trying to determine the trade pact’s impact on the Canadian sector to date difficult.
“This has been an unprecedented year because of COVID-19, the pandemic and associated [plant] shutdowns, so it is nearly impossible to make a judgment on whether the agreement has had any noticeable impact on trade flows,” said Brian Kingston, president of the Canadian Vehicle Manufacturers’ Association (CVMA), which represents the interests of the Detroit Three in Canada.
“There’s simply too much noise in the data.”
Brendan Sweeney, managing director of the London, Ont.-based Trillium Network for Advanced Manufacturing, concurred.
“We don’t know anything. There’s very little at this point in time that could really give us any indication of whether this is working or not. “And not just because plants are idle; we’ve got this other stuff. We’ve got COVID. We’ve got semiconductors [shortage].”
Other factors complicating the picture, Sweeney said: “We have aspirations now from Ford and General Motors to potentially move up their electrification investments. We have a government that is increasingly focused on not only assembling vehicles but making batteries, and all this stuff tangled up has given us a pretty lean year for data.”
CLEARLY SOME BENEFITS
But it’s not all opaque. Automakers and parts makers alike are optimistic that the USMCA will benefit Canada’s auto industry.
“The free-trade agreement was good for the tooling and the automation companies, particularly those that are working in automotive manufacturing,” said Jeanine Lassaline-Berglund, president of the Canadian Association of Moldmakers (CAMM).
Her members report that the ability to say no tariffs are in place on Canadian molds for U.S. importers — and likely won’t be for the foreseeable future — has been critical in attracting new customers south of the border.
The USMCA, which went into effect July 1, 2020, is “a critical piece” of the plans of GM, Ford and Stellantis to reinvest $5.7 billion into Canadian manufacturing, Kingston said.
“If we did not have a trade agreement in place, if the USMCA negotiations were not successful, and we were suddenly facing tariffs into that market, it becomes far more challenging to make the case to be exporting from Canada,” he said. “Absolutely, dutyfree access into the U.S. is key to ongoing automotive investments right here.”
In the context of the country’s electrification mandate, Flavio Volpe, president of the Automotive Parts Manufacturers’ Association (APMA), said Canada has a chance to be the “battery capital of North America” if it can figure out the metals processing piece of the equation and the role of government funding.
“I think we can land one or two of these massive giga-battery plants in Ontario or Quebec and then make those examples be the best selling point for us around the world,” Volpe said. “We only have a couple years to get this done. There is a real chance — it’s a coin flip — that we miss that opportunity.”
Opportunity aside, areas of friction over parts of the trade deal have become apparent during its first year. The Trillium Network’s Sweeney said questions remain over how the US$16-an-hour minimum-wage requirement is meant to be calculated.
“Are they only counting the individual people who make that much money, or are they averaging it out over the plant or over the company?” he said. “Who are they including? Because by this measure, no one in Mexico gets included. No one.”
Similarly, David Adams, president of Global Automakers of Canada (GAC), has concerns about the complexity of reporting requirements for automakers.
“For the manufacturers, it means a lot more compliance just because the agreement is more complex, and it’s a completely new sort of reporting process, he said. “I think there’s certainly a lot more administration associated with the new agreement.”
Adams also highlighted an ongoing dispute between Canada and the United States over interpretation of the content rules. The disagreement must be resolved before anybody can determine the deal’s impact on the Canadian sector, he said.
“All vehicle manufacturers are looking to find the best suppliers at the highest quality with the lowest possible costs,” Adams said. “To the extent that you have to rejig that to meet North American content requirements to secure the preferential tariffs, then yeah, that does add cost.”
Overall, the USMCA “is not a cost-reducing trade agreement,” Adams said. “If anything, it’s probably going to add cost to vehicles as a result.”
It will likely take about five years of trade data to get an accurate reading of the USMCA, Kingston said. “We already had duty-free access, so it [USMCA] was effectively reconfirming our duty-free access to the United States,” he said. “You may not see, even when you look over data for a number of years, a big bump that you could relate to the deal because, of course, we already had that access. It just protected it.”
