Ottawa-Canada needs to start preparing now at both political and business levels for the 2026 operations review of the CUSMA trade agreement because the U.S. certainly is, says Lawrence L. Herman, a senior fellow at the C.D. Howe Institute.

The Canadian private sector is starting to pay closer attention to the implications the review could have for trade with the U.S. and the need to resolve some issues prior to its start, Herman said in a report published by the Institute. The review’s purpose is to see whether Canada, the U.S. and Mexico can agree to extend the treaty for another 16 years.

All indications are the U.S. will seek changes under the deal that affect Canadian dairy, digital tax and other issues while Mexico will be under pressure on labor, energy, and agriculture issues. “Even with agreement to somehow fence in the scope of the review, the American list is likely to be a long one.”

The current and former American Trade Representatives have said the U.S. should use maximum leverage over Canada and Mexico throughout CUSMA’s remaining term. The Commons trade committee will resume hearings on CUSMA when Parliament returns in mid-September.

Herman said one issue needing resolution is whether the possible 16-year extension is to run from CUSMA’s formal end date in 2036 or from the time when and if the three governments agree to such extension – which could be at any time before 2036.

The trade ministers of the three countries are expected to continue exchanging and discussing positions on possible changes to CUSMA during the coming months that could lead to an opening up of the agreement as part of the 2026 review.

It is highly desirable for the three governments to resolve these uncertainties now to help ensure the process doesn’t get bogged down and become paralyzed as it enters these uncharted waters, Herman said. 

Canada also has a list of concerns and grievances related to the preferential elements of President Biden’s industrial policies in the Inflation Reduction Act, automotive rules of origin and a whole slew of American protectionist measures. Mexico will have its own list. 

The three countries could work on a common objective for the review that “might cover things such as digital trade, environmental goods and services, decarbonization issues, supply chain facilitation, critical minerals, improved border and customs clearance procedures, human rights and forced labour and even matters of national security.

“Going into the review with this kind of positive menu wouldn’t prejudice tough bargaining, but at least there would be a set of less contentious areas that could bear fruit as post-2026 events unfold. A set of three-party initiatives aimed at modernizing trade rules in individual sectors could form the basis for an updated CUSMA down the road.”

Uncertainty about the CUSMA review process combined with the treaty’s formal 2036 termination date make it important for the three governments to resolve these matters before the 2026 review begins, he said. “It’s vital to ensure that the process unfolds on a well-orchestrated basis and avoids adding uncertainty over the rules governing North American cross-border business.

“At the end of the day, whatever emerges from the forthcoming review, a proper, stable treaty framework is needed to govern the three-country trading relationship. This should be the ultimate goal of the three governments as they prepare for the review process.”

Canadian business needs to be prepared for some potentially tumultuous re-negotiations and it is a positive sign that the private sector “is waking from its relative complacency and looking at contingency planning. Much work lies ahead.”

Herman’s comments are available at www.cdhowe.org. 

This news item prepared for National Newswatch