CUSMA exports top 80% as Canadian companies rush to make their goods compliant
The ratings agency this week said 81 per cent of goods exported to the U.S. from Canada were compliant with CUSMA, up from just 56 per cent in May, according to its calculations.
Some companies had to complete or obtain additional paperwork to document the origin of their supplies and production, while others had to shuffle their supply chains to meet thresholds set for goods obtained and produced using North American materials and facilities.
'If something is largely made (and) sourced in Canada or the U.S., it seems like it was just a matter of paperwork,' Douglas Porter, chief economist at Bank of Montreal, said. 'However, if a great deal of the value added was, say, from China … that's where the 'changing supply chains' will come into force.'
He said Fitch's data suggests enough goods are now in compliance with the trade pact so that non-sector-specific tariffs — those outside hard-hit industries such as steel and automotive — won't have much impact on the Canadian economy.
'The reality is that if something can't be made (CUSMA)-compliant, then it obviously has a very high non-North American content that can't be switched … but that also means that it wasn't adding that much to Canadian (gross domestic product) in any event,' Porter said.
Fitch, which has been monitoring the effective U.S. tariff rate since Trump's administration began rolling out a series of sector-specific and broader levies around the world, said Canadian and Mexican exporters to the U.S. have responded similarly to the hikes on levies hitting non-CUSMA-compliant goods.
In June, 77 per cent of Mexican imports met the trade pact's country of origin criteria, up from 42 per cent in May, Fitch said.
'Fitch now projects peak compliance rates of 89 per cent for Canada and 83 per cent for Mexico, well above previous estimates of 74 per cent and 63 per cent, respectively,' it said, adding that this also lowers the blended rate of all tariffs hitting the countries. 'These revised assumptions reduce Fitch's estimated effective tariff rates to 5.9 per cent for Canada and 5.2 per cent for Mexico.'
Though the Bank of Canada estimates that 100 per cent of energy and 95 per cent of all other goods should be covered by CUSMA, it has been difficult to pin down the compliance figures and who is affected by the levies.
A 25 per cent tariff on non-CUSMA-compliant goods was imposed by Trump in March, then delayed until early April, and then raised to 35 per cent on Aug. 1, when Canada and the U.S. failed to reach an interim agreement to lower or remove the tariffs.
All three member countries are scheduled to jointly review CUSMA next year, potentially leading to changes in the trade agreement that was intended to last through 2036.
Trump hiked Canada's tariff rate to 35%, but just who's paying it remains a mystery
Canada's trade diversification push will only 'partially offset' decline in U.S. trade
Porter said he views the approaching review with 'extreme caution,' given that Trump has shown little regard for the pact, including during a meeting in Washington earlier this year with Prime Minister Mark Carney.
'The president has partly ignored (CUSMA) with some of the tariffs and the many threats of additional tariffs,' he said. 'And in his Oval Office meeting with Prime Minister Carney, he openly questioned whether (CUSMA) would survive. Perhaps it could limp along in some form, but it seems that Canada and Mexico are going to have to make major concessions to keep it alive.'
• Email: bshecter@postmedia.com
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