A rather ironic sequence of events as Canada formally requests to renew the USMCA (CUSMA) trade agreement for 16-years, followed a day later by the U.S. announcing additional tariffs toward 60 countries including Canada.

On Tuesday, Dominic LeBlanc, the trade minister from Canada assigned to USMCA negotiations, traveled to Washington DC for a meeting with U.S. Trade Representative Jamieson Greer.

LeBlanc, reflecting the obtuse nature the Canadian trade delegation is now well known for, seemed oblivious to the friction points in the U.S. position and formally requested the trade deal be renewed for another 16 years. {Citation}

LeBlanc called the agreement “highly beneficial” to all three countries. From the Canadian position this may be true, but that’s not even remotely what the U.S. team has presented in private and public comments.

Additionally, over the past two weeks the shift in Canadian strategy has become clearer.   While Carney’s administration previously seemed to be targeting Democrats in the U.S. congress to support retaining a trade agreement with Canada, that approach ended abruptly after several key Democrat senators began taking the position of influential U.S. labor unions who want the deal scrapped.  Canada now seems to be relying on pressure from the U.S. Chamber of Commerce and corporate republicans to support their position.

The day after news reports of Dominic LeBlanc’s expressed position, USTR Greer announced a new round of 301 tariffs against 60 countries who participate in third-party trade agreements with countries who use forced labor. {Citation} Suddenly, Canada’s embrace of China becomes even more serious.

USTR – “The U.S. Trade Representative today has determined that the failure of each of the 60 investigated economies to impose and effectively enforce a forced labor import prohibition is unreasonable or discriminatory and burdens or restricts U.S. commerce, and thus is actionable under Section 301(b)(1) of the Trade Act. In particular, the U.S. Trade Representative determined:

The following 54 economies have failed to impose and effectively enforce a prohibition on the importation of goods produced with forced labor:
Algeria; Angola; Argentina; Australia; the Bahamas; Bahrain; Bangladesh; Brazil; Cambodia; Chile; China, People’s Republic of; Colombia; Costa Rica; Dominican Republic; Egypt; El Salvador; Guatemala; Guyana; Honduras; Hong Kong, China; India; Iraq; Israel; Japan; Jordan; Kazakhstan; Kuwait; Libya; Malaysia; Morocco; New Zealand; Nicaragua; Nigeria; Norway; Oman; Peru; the Philippines; Qatar; Russia; Saudi Arabia; Singapore; South Africa; South Korea; Sri Lanka; Switzerland; Taiwan; Thailand; Trinidad and Tobago; Türkiye; United Arab Emirates; United Kingdom; Uruguay; Venezuela; and Vietnam.

The following six economies have failed to effectively enforce a prohibition on the importation of goods produced with forced labor: Canada; Ecuador, the European Union; Indonesia; Mexico; and Pakistan.

Therefore, all of the investigated economies have failed both to impose a forced labor import prohibition and to effectively enforce such a prohibition.” (more)

The 54 countries with forced labor imports directly will face 12.5% additional tariffs. The six countries, Canada included, who have failed to enforce the prohibition on goods produced with forced labor now face an additional 10% tariff.

Both the EU and Canada reacted to the 301 investigative outcome and USTR announcement by saying they would immediately step up enforcement of child labor and forced labor standards within their trade agreements.  However, given that both the EU and Canada have recently begun new trade agreements with China, and the fact that China has some of the worst labor practices in the world, the ability of Canada and Europe to actually enforce the standard is highly unlikely.

The manipulation of labor in third-party trade agreements becomes another irreconcilable issue within the USMCA, and the labor leveling tariff applies to both Mexico and Canada, regardless of USMCA trade status.

Once again, the U.S. approach toward a reciprocal trade agreement highlights the almost impossible task of maintaining a trilateral North American trade pact.  This labor issue is not coincidentally at the heart of the number one complaint by U.S. labor unions, including the United Auto Workers.

President Trump and USTR Greer are aligned with U.S. labor unions on this issue of wages and benefits.  Corporate Republicans, multinational corporations, the U.S. Chamber of Commerce and Canadians are not.

Then on Thursday President Trump signed an executive order to give the USTR section 301 labor tariffs more strength. {SEE HERE} The new rules for external “Importers of Record” or IORs now requires registration and identification of assets to better help U.S. customs authorities track and ultimately trace the source of imports from other trade partners.

IORs now have to provide proof of assets or a substantial surety bond, so that if they cheat, violate customs duties or U.S. trade parameters, there is a method to hold them financially accountable. As noted in Section ii:

[…] This is in part due to the substantially higher volumes of low-value articles that are imported by foreign individuals and companies that are less familiar with U.S. customs and trade laws and that face lower penalty amounts and financial consequences for noncompliance where penalty amounts are correlated to value.  It is critically important that the United States be able to counter these challenges through meaningful and effective enforcement actions.  The United States faces substantial barriers when seeking to enforce U.S. customs and trade laws against foreign actors like foreign IORs, particularly when assets, operations, and key individuals are located overseas. (link)

What does this mean for Canada?

Every Canadian company shipping to the US must now:  ♦Post much higher per shipment bonds; ♦Be CTPAT validated by US customs; ♦Disclose beneficial ownership & domestic assets; ♦Provide foreign tax IDs & detailed supply chain data, and they lose access to “informal entry” for low value shipments.

Why?  Because the USTR investigation has revealed that foreign importers can’t be trusted to comply with US law.

What triggered this for Canada? Canada’s documented failure to enforce its own forced labor ban; including a Canadian ban on imported products that used unfair labor practices in the shipment of component goods that were final assembled in Canada for delivery into the United States.  It’s one of those downstream consequences of not manufacturing or producing the product internally.

Now, pause for moment, step back and look at the big picture.

Does all of this sound like something that would underpin a continued or renewed USMCA?

These forced labor tariffs are in addition to any pre-existing tariffs, and they apply toward any nation who has not enforced the labor section of any trade agreement with the United States, including goods from Canada and Mexico that are not covered by the USMCA.

Back to USTR Jamieson Greer:

A separate, ongoing 301 probe into industrial overcapacity is “a matter of weeks” from completion, Greer said. “It’s on a little bit of a different time schedule” given its complexity, he said.  

“With all the deals the president has struck over the past year, these are historic deals — our view is we want to stick to these deals,” he said. “We want to make sure that those countries, whether Japan or anyone else, we want to make sure that they are responding to the types of unfair practices that were identified.”

Greer said China received advanced notice on the forced-labor announcement and that consultations will continue.

“We’re being very responsible about the relationship,” Greer said of talks with Beijing, “We have to protect our economy, we have to have a certain level of tariffs — and our expectation is that as we go through these Section 301 investigations we’ll continue to have conversations with China to try to mitigate the challenges we identify at the same time having an appropriate tariff level as part of that mitigation.” (more)

Posted in Canada, Economy, Mexico, NAFTA, President Trump, Trade Deal, Uncategorized, USMCA
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