Canadian Chamber of Commerce Advocates for Enhanced North American Economic Cooperation in Response to CUSMA Review Study

On June 21, the Canadian Chamber of Commerce submitted a comprehensive response to the International Trade Committee’s study on the pending 2026 review of the Canada-United States-Mexico Agreement (CUSMA).

Emphasizing the importance of identifying and resolving trade irritants, the Chamber advocated for enhancing North American economic cooperation. Key concerns highlighted included potential ‘Buy America’ policies, digital services taxes, labour disruptions, defense spending and regulatory harmonization.

Read the full submission below.

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Sent via email to CIIT@parl.gc.ca

June 21, 2024
Sophia Nickel,
Clerk, Standing Committee on International Trade

RE: CIIT Study Regarding CUSMA 2026 Review and Related Trade Irritants

Dear Ms. Nickel,

The Canadian Chamber of Commerce welcomes the International Trade Committee’s study on the pending Canada-United States-Mexico Agreement (CUSMA) review that will take place in 2026. We are particularly supportive of the study’s focus on identifying any trade irritants that currently exist between Canada, the U.S. and Mexico that could potentially create issues in advance of the review process.

The Canadian Chamber of Commerce is Canada’s largest business association, comprised of a network of 400 chambers and representing nearly 200,000 businesses of all sizes and in all sectors and regions of our country.

For Canadian businesses, North American economic cooperation and a successful CUSMA review are a top priority. Since last fall, the Canadian Chamber has launched a new U.S. engagement initiative to create opportunities for our members to voice their insights on the upcoming review as well as many other aspects of the North American economic relationship. Notably, this has included three business-led trade missions to the U.S. on key areas where there are significant opportunities for growth and synergy with the U.S. economy. These missions have focused on critical minerals, life science supply chain resiliency, and North American economic security. A fourth mission on artificial intelligence is planned for the fall. Through these missions, Canadian businesses are proactively engaging with the U.S. government, legislators, businesses, and the wider U.S. public policy community in order to strengthen North American economic cooperation.

CUSMA and the coming 2026 Review

Canada, the United States, and Mexico share one of the largest trading relationships in the world, jointly comprising almost a third of global GDP. This critical economic partnership between the three North American economies is underpinned and enabled by CUSMA.

CUSMA is arguably the most important trade agreement for all three parties. According to the Brookings Institution, over 17 million jobs are supported by exports across North America. Moreover, since CUSMA took effect in 2020, there has been a 47% increase in North American trade, as well as an additional 4 million new jobs supported by this trade. Notably, in 2023, Canada exported 78% of its goods to the U.S., and imported nearly half of its goods from the U.S.

In spite of its immense economic importance for all three countries, the future of CUSMA is increasingly uncertain as we approach the 2026 review of the Agreement.

According to the CUSMA review clause in article 34.7, Canada, the U.S., and Mexico must decide whether or not to continue the Agreement on July 1, 2026. Unless each party agrees to support the continuation of the Agreement for a new 16-year term at a joint review by the Free Trade Commission (FTC), there will be annual reviews until the Agreement expires 16 years after the date of its entry into force (i.e. July 1, 2036).

Worryingly, there is a growing bipartisan consensus in the U.S. on ‘Buy America’ protectionist policies that are at odds with the goal of North American economic cooperation expressed in CUSMA. Katharine Tai, the U.S. Trade Representative, as well as Robert Lighthizer, the former U.S. Trade Representative, have both suggested that the CUSMA review could be treated as an opportunity to reevaluate the Agreement and also address existing trade irritants and disputes.  

Irrespective of the outcome of the U.S. Presidential election in November, it is clear that there is a real possibility that the CUSMA review could lead to changes to the Agreement that are detrimental to the interests of Canada and Canadian businesses.

The CUSMA review should be viewed as an opportunity to validate and reaffirm the critical importance of North American economic cooperation, rather than a means of radically shifting the terms of the Agreement and relitigating disputes. The latter is counterproductive and would introduce a significant degree of uncertainty for businesses in all three countries that rely on a predictable and stable trading environment.

Additionally, in the current geopolitical moment, the mutual prosperity and economic security that is enabled through CUSMA is especially important for all three parties to the Agreement.

Recently, the Canadian Chamber of Commerce, in partnership with the Center for Strategic and International Studies (CSIS), hosted a series of private and public events in Washington D.C. on the importance of CUSMA and its future as a mechanism for North American economic integration and security. Throughout these engagements, it was clear that CUSMA plays a vital role in building North American economic security. A summary of these conversations can be viewed here.

Governments and companies alike are looking to reduce their reliance on non-market economies for inputs in critical supply chains. Notably, consider the recent U.S. decision to impose significant tariffs on electric vehicles (EVs) and key inputs in the EV supply chain from China, including batteries, semiconductors, magnets, critical minerals, and other related products. Canada should work closely with the U.S. to identify continental supply chain vulnerabilities, Chinese overcapacity, and other risk points in our trade relationships with China, and encourage Mexico to take action in a similar and coordinated manner. All three parties to the Agreement should work to coordinate their approaches to such challenges with the aim of preserving and strengthening North American economic security.

Addressing key bilateral irritants

To ensure that the CUSMA review is constructive and oriented towards strengthening North American economic cooperation, it is important that steps be taken immediately to address key irritants that are likely to hinder a smooth review process.

For the Committee’s consideration, we have highlighted a number of such key irritants that are of particular concern to the business communities in Canada as well as the U.S. These issues may be considered ‘low hanging fruit’ as they are shared areas of concern for the business communities on both sides of the border and are also issues that the Government of Canada can influence directly.

• Digital Services Tax (DST): The Canadian government’s intention to press ahead with a unilateral Digital Services Tax (DST) via Bill C-59 is of concern to Canadian and U.S. businesses. Specifically, Canada’s DST is at odds with CUSMA’s Digital Trade Chapter which states: “…that the Parties will not discriminate against or impose custom duties or other charges on online digital products.” Several senior Congressional leaders, as well as U.S. Trade Representative Katherine Tai, have cautioned that the DST unfairly impacts U.S. businesses and could lead to trade retaliation from the United States. Moreover, moving forward with Canada’s current DST proposal runs counter to Canada’s longstanding commitment to a multilateral approach on related issues, including the OECD/G20 Inclusive Framework. Many businesses across sectors of the Canadian economy are seriously concerned about the potential impacts of DST-related trade retaliation on the affordability and availability of their products and supply chains.
• The Artificial Intelligence and Data Act (AIDA): The AIDA component of Bill C-27, in its current form, has provoked concern from businesses who question the impact that its perceived lack of interoperability with other AI regulatory regimes could have on businesses that operate or seek to operate in Canada. Specifically, passing AIDA would put Canada on a differing path from the approach being taken by its key trade partners: the U.S., U.K., Japan and Australia. Many businesses have conveyed to us that AIDA is viewed by their U.S. partners as being unnecessarily broad and punitive, and that it would likely dampen opportunity for investment in our economy.
• Frequent labour disruptions: Recurring labour-related supply chain disruptions are inflicting damage to Canada’s economy and straining our trading relationships. As trade accounts for more than two thirds of Canada’s GDP, our ability to get goods to and from market is of critical importance for the success of the Canadian economy. In addition to the cost of disrupted trade for businesses and consumers, the reputational cost of these ongoing disruptions is particularly worrisome with regard to our principal trading partner, the U.S. The prevalence of these disruptions is undermining our credibility as a reliable trade partner, and also runs counter to the government’s Team Canada engagement efforts. The government should consider providing new dispute resolution tools, including the authority for the federal cabinet to compel binding arbitration for the resolution of labour disputes that disrupt Canada’s critical supply chains, including those related to railways and ports.
• Defence spending: Canada’s failure to meet the NATO defence spending target of 2% of GDP has come under increased scrutiny from the U.S., particularly in relation to Arctic security and the modernization of the North American Aerospace Defense Command (NORAD). This scrutiny is likely to further intensify as we approach the 2024 NATO Summit in Washington D.C. in July, and also as threats to the transatlantic alliance continue to grow. The government needs to prioritize developing a credible plan for meeting the 2% defence spending commitment. This should include a commitment to renewing the continental defence industrial base, focusing in particular on leveraging the industrial development opportunities that can stem from the once-in-a-generation modernization of NORAD.
• Valuation for Duty Regulations. The Canadian government’s proposed regulatory amendments to the Canada Border Services Agency (CBSA) Valuation for Duty (VFD) Regulations aim to “level the playing field” by modifying how duties are calculated to disadvantage Non-Resident Importers. In effect, the proposed VFD regulatory amendments would introduce considerable legal ambiguity and unpredictability to how duties are calculated, result in increased duties for some Canadian resident importers, and would increase the lack of uniformity in valuation methods within North America as well as among Canada’s major international partners. If implemented, the regulatory amendments could also lead to legal challenges or potential punitive trade measures from our trade partners. The government should withdraw or modify its proposed regulations to ensure that Canada’s VFD regulations are in line with CUSMA, World Trade Organization (WTO), and World Customs Organization (WCO) obligations. Additionally, the government should ensure that the unintended consequences of the changes are addressed, and that companies are provided with a significant amount of time (at least 12-18 months) before the coming into force of the regulations in order to comply with the regulations.
• Commitment to the CUSMA dispute resolution process. Canada, the U.S., and Mexico should, whenever possible, aim to resolve outstanding disputes by using formal CUSMA mechanisms, and should also reaffirm their commitment to compliance with dispute settlement findings. Failure to comply with the outcomes from CUSMA dispute settlement mechanisms reduces confidence in the Agreement and will make a more fractious CUSMA review more likely. The three parties to the Agreement should avoid viewing the coming 2026 review as a means of addressing disputes. Key disputes include those related to Mexico’s protectionist energy policies, Mexico’s restrictions on genetically modified corn, and the U.S. method for calculating the rules of origin for vehicles.

Taking proactive action to strengthen economic cooperation

In addition to addressing existing irritants, Canada should also take proactive steps to strengthen North American economic cooperation. As the three countries will soon begin the review process, it is important that Canada is recognized as a meaningful contributor to North American economic security.

To this end, the government should leverage the existing joint priorities identified in the Roadmap for a Renewed Canada-U.S. Partnership, focusing in particular on areas where Canada has the ability to play a leadership role within North America. For instance, given our immense resource wealth, Canada can and should prioritize bolstering our critical minerals capacity to strengthen the resilience of North American critical mineral supply chains. This needs to be a full ecosystem approach that includes the rapid-permitting and buildout of new mines, capacity development and support for midstream refining, as well as downstream operations which build on recent investments in domestic EV and battery manufacturers. Similarly, Canada needs to be viewed as a strategic partner with the U.S. to mitigate vulnerabilities in global semiconductor supply chains.

Finally, the government should prioritize bolstering regulatory harmonization between Canada and the U.S. The recent commitment by both countries to reaffirm the importance of taking action on regulatory cooperation, through the Regulatory Cooperation Council (RCC), is a positive development. The RCC can deepen trade relations by providing a shared platform for reducing technical barriers, aligning standards, and enhancing public health and environmental outcomes. However, it is important to recognize that meaningfully addressing regulatory harmonization requires ongoing commitment and engagement from the U.S. side, including the Office of Management and Budget. As officials on both sides look to identify opportunities to streamline processes and ensure that regulations are suited to modern business realities, the Canadian Chamber stands ready to support these efforts and to identify challenges and opportunities for regulatory harmonization.

Thank you for the opportunity to share our comments for the Committee’s consideration. We look forward to continuing to engage with the Committee on this important issue and would be pleased to provide further information.

Sincerely,

Catherine Fortin LeFaivre
Vice President, Strategic Policy & Global Partnerships
Canadian Chamber of Commerce

Gaphel Kongtsa
Director, International Policy
Canadian Chamber of Commerce

CC:

Hon. Judy A. Sgro, M.P., Chair, Standing Committee on International Trade

Kyle Seeback, M.P., Vice-Chair, Standing Committee on International Trade

Simon-Pierre Savard-Tremblay, M.P., Vice-Chair, Standing Committee on International Trade