CUSMA launch: What you need to know
The Canada United States Mexico Agreement (CUSMA) comes into force on July 1, 2020. It modernizes NAFTA and stands to benefit many sectors of the Canadian economy, including agriculture and agri-food. CUSMA secures gains in GDP of USD 5.1B, according to Global Affairs Canada. Trade concessions involve increased market access to Canada’s supply-managed sectors.
Benefits for Canadian agriculture and agri-food
- Stability: CUSMA brings trade stability to the sector. The U.S. is the largest export market for both agriculture and agri-food exports, accounting for over 55% of Canadian agriculture and agri-food exports and nearly 50% of imports in 2019. Stability is one of the critical factors behind processors and exporter’s decisions to invest.
- Transparency: Dispute resolution mechanisms have been largely preserved. Disagreements are bound to emerge when you trade as much with a single partner country. Ensuring a fair and transparent process when trade disputes arise is an advantage.
- Cooperation: CUSMA establishes working groups on Agricultural Biotechnology and a Sanitary and Phytosanitary Committee to promote trade and science-based regulations.
- Protection: CUSMA provisions involve increased protection for food companies on proprietary formulas and other confidential information. The agreement also recognizes distinctive national products that cannot be produced out of their respective areas. These include products such as Canadian or Tennessee whiskey.
- Facilitation: Collecting information, documenting processes, etc. are costly export activities. CUSMA will cut red tape and modernize the documentation exports need to supply. Lower trade costs should boost exports.
CUSMA could raise competitive pressures in some agri-food markets
U.S. estimates suggest an increase of $607 million CAD in exports to Canada, mainly in dairy and poultry industries. This would represent 2.69% of total dairy and poultry manufacturer’s gross sales in 2019. At the farm level, the milk equivalent tariff-free access for U.S. products will be an estimated 3.6% of domestic production after six years. CUSMA also involves thresholds for Canadian exports of skim milk products and calls for milk pricing reforms. CUSMA market access rules are markedly different than NAFTA for chicken: Specific tariff-free tonnage replaces the previous rule calculating market access as a share of the previous year’s Canadian production.
While the industry has been preparing for the implementation of the trade deal, the increase in imports through CUSMA are likely to be noticed by supply-managed sectors given it occurs at a time when consumption patterns have been significantly disrupted by the COVID-19 crisis.
CUSMA will result in changes to Canadian wheat grading. This will allow for U.S. wheat that is delivered into Canada to receive a grade and the elimination of country of origin statements on inspection certificates.
Resources to support Canadian exporters
James joined FCC as an Agricultural Economics Analyst in 2011 and is now a Senior Relationship Manager in Thornton, Ontario. He also runs a small farm operation with his family. James completed a BSc in Environmental Science and a Masters of Agricultural Economics at the University of Guelph.