Jorge Rave
Country Head
Export Development Canada
Expert Contributor

Canadian View on Economic Recovery Through CUSMA

By Jorge Rave | Fri, 09/18/2020 - 09:17

The Canada-United States-Mexico Agreement (CUSMA) [1] became official at a critical time. When the trade agreement came into force on July 1, 2020, the COVID-19 pandemic had already struck the global economy quite hard. With CUSMA helping to foster economic freedom, regional cooperation and democratic principles, it will almost certainly play an important role in supporting economic recovery for North America, post-pandemic. 

CUSMA replaced the North American Free Trade Agreement (NAFTA), which came into force in 1994 and helped create an economically influential and competitive regional market. NAFTA strengthened the rules and procedures governing trade and investment between Mexico, Canada and the United States and provided a solid foundation for prosperity across the North American region. 

Since 1994, NAFTA has helped generate economic growth and raise the standard of living for the people of all three member countries. In particular, NAFTA supported the development of an integrated and competitive North American market by providing manufacturers, producers, investors and consumers with a predictable and secure commercial environment. Data released by the government of Canada shows that total trilateral merchandise trade amounted to nearly US$1.3 trillion in 2019 – more than a threefold increase since 1994! Further, NAFTA partners now represent 18.3 percent of the world’s gross domestic product (GDP) with just less than 6.3 percent of the global population.

The modernization of NAFTA through CUSMA marks an important milestone in Canada’s economic relationship with the US and Mexico. The “New NAFTA” preserves key elements of its predecessor while modernizing provisions to address 21st century trade challenges, reducing red tape at our borders and providing enhanced predictability and stability for workers and businesses across the integrated North American market. 

The new trade agreement is an important tool to support economic recovery post COVID-19, as it will help boost export and investment opportunities for Canada, Mexico and the US, and should provide a sense of economic stability and certainty in the region. 

CUSMA includes updates in key areas, namely rules of origin for automotive manufacturing, agriculture, labor, intellectual property rights, culture and dispute settlement. It also ensures continued duty-free access for NAFTA goods and maintains original outcomes on trade in services and for labor mobility. Furthermore, the agreement reinforces North American supply chains and enables Canada, the US and Mexico to compete as a regional bloc against international competitors. In some areas – notably in the auto sector – we have strengthened rules of origin and provided added certainty for continued market access to incentivize North American production and sourcing and create well-paying middle-class jobs in our countries. 

Another important update is in CUSMA’s digital trade and e-commerce chapter. Provisions there will support businesses in the shift toward a more digital economy while strengthening consumer data protection. For instance, this chapter guarantees exporters will not face any tariffs, custom duties or other discriminatory measures on digital products. It also ensures that digital transactions can be transferred across the border by helping to restrict where data is stored and processed, to better protect the global digital ecosystem. This is particularly important given that the COVID-19 crisis has reinforced the necessity for accelerated digitalization and automation. According to EDC Economics, this shift is expected to create growth in artificial intelligence, Internet of things (IoT), cybersecurity, telecommunications and life sciences.

While CUSMA offers investment opportunities and enhanced policy clarity for businesses, there is always a certain degree of risk in doing business across borders. Fortunately, there are plenty of resources available to help navigate those risks. A good place to start to gain a comprehensive understanding of the CUSMA chapters and business implications is by visiting the webpages of the government of Canada and the government of Mexico. For an industry expert view on key changes between NAFTA and CUSMA and how you can leverage the new agreement to enter new markets, EDC’s recent webinar on CUSMA is a valuable resource. Aside from digital tools, on-the-ground support from my colleagues at EDC, the Canadian Chamber of Commerce (CANCHAM) and the Trade Commissioner Service (TCS), including knowledge, industry contacts and financial solutions, is available to support the international expansion plans of Canadian businesses.

EDC is committed to creating Canadian success stories in Mexico. In 2019, we were responsible for more than C$3.3 billion in business volume in Mexico, of which C$1.6 billion went to financing companies in different economic sectors. That same year, Canadian direct investment in Mexico exceeded C$22.5 billion. In recent years, EDC’s Canadian Direct Investment Abroad (CDIA) strategy has evolved into a powerful tool for increasing and diversifying Canadian trade. Common examples of this strategy in action include providing loans to help Canadian companies open facilities in new markets or participate in joint ventures. These numbers suggest there is a significant opportunity for Canadian companies to succeed in the Mexican market.   

One way of accessing customers in new markets is through EDC’s unique Business Connections program. Under this program, some of the largest Mexican corporations in a wide array of sectors – automotive, ICT, retail and consumer goods, forestry, energy, to name a few – are provided with financing at commercial terms, encouraging them to consider qualified Canadian suppliers for their procurement needs. Latin America continues to be EDC’s strongest market for this program, where we facilitated 354 introductions to Mexican customers with 182 Canadian suppliers in 2019. These all-important introductions are conducted during business connection events held in both Mexico and Canada. Our business connections can help Canadian companies break into new markets and reduce their business development costs. This is not only a win for Canada, but it’s also a win for Mexico as it provides access to innovative products and services. 

While Mexico offers tremendous business opportunity, it is important that Canadian exporters and investors navigate the business environment with eyes wide open, as security and corruption continue to be two of the greatest business challenges in this market. The business dynamics between Mexico and Canada are immensely different. Since the inception of NAFTA, there have been noticeable improvements in the fight against corruption in Mexico and this is expected to continue under CUSMA. Nevertheless, it’s important to remain vigilant when brokering deals anywhere in the world because no jurisdiction is immune to this type of business threat. Considering these challenges, there remains a world of opportunity to grow your business with CUSMA in effect.

Jorge A. Rave’s role is to build and foster relationships between Canadian businesses and Mexican private and public sector partners through EDC’s suite of financial, insurance and knowledge solutions, in support of the very important bilateral trade relationship between the two countries.

[1] CUSMA o USMCA refers to the Canada-United States-Mexico Agreement. Particularly in Canada it is know as the CUSMA trade agreement.

Photo by:   Jorge Rave