Canadian Think Tank's Analysis is Negative on New NAFTA
A pro-free trade think tank in Canada published an analysis of the new NAFTA, known as CUSMA in Canada, and finds it lacking. “CUSMA has little traditional tariff liberalization, introducing only minor changes to market access compared to the NAFTA, and limited improvements in trade facilitation, while at the same time introducing a number of features that promise to be more restrictive of trade,” wrote the authors of the C.D. Howe Institute paper.
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They said raising the de minimis threshold, easing barriers to services trade and expanding U.S. access to Canadian dairy and poultry markets are advancing trade.
“However, the most quantitatively significant effects are the more stringent rules of origin that must be met for products to qualify for duty-free market access under the CUSMA,” they wrote. They said that consumers will be hurt by the auto rules of origin, since it will shift activity to the U.S. from where companies thought it was most economical and efficient. “In addition, more stringent border enforcement promises some border thickening, especially for goods entering the United States,” they wrote.
They said that compared to NAFTA, CUSMA will lower gross domestic product for all three countries, with Canadian GDP falling by -0.4% after adjusting for inflation. Their model projects that Canadian exports to the other NAFTA countries will fall by 0.5% and imports from the region will fall by 0.71%.
When isolating sectors, the Canadian dairy industry will be hurt most, since U.S. producers will have more sales there, and manufacturing will neither gain nor lose. The authors project that a lower volume of metal will be exported to the U.S., but that metal production will pick up since there are rules of origin changes that require North American steel and aluminum in cars. They say there will be 0.6% lower shipments in cars and car parts to the U.S.
The authors noted that the International Trade Commission found the replacement of NAFTA will be a tiny net drag on the U.S. economy, of 0.12%, though the ITC said that would be more than balanced out by the certainty created by codifying free trade flows. These authors said they do not believe the data flow issue will be significant -- given that none of the countries control flows presently -- and modeled a drag of 0.097% on the U.S. economy in the NAFTA rewrite.