Canada contemplates on a world without NAFTA

With the United States threatening to leave NAFTA, it is necessary to analyze what would happen to the North American nation

Canada contemplates on a world without NAFTA

Leer en Español: Canadá piensa en un mundo sin el TLCAN

The termination of NAFTA would certainly disrupt the Canadian economy, but the exact effects will be unclear until a trade replacement is created. A bilateral trade deal between Canada and the U.S. could replace NAFTA, but that wouldn’t necessarily solve all problems.

If the United States sticks to the regulations set by the World Trade Organization (WTO), the Royal Bank of Canada (RBC) predicts that the Canadian GDP could drop by a total of one percent in up to 10 years. Regulations from the WTO, which the U.S. has previously agreed to, would set an “across-the-board” tariff of about 3.5 percent between the two countries.

Nathan Janzen, a senior economist over at RBC, explained that all three countries who are part of NAFTA are also part of the WTO deal. “So, if NAFTA were to be fully eliminated, Canada, the U.S., and Mexico would all be subject to WTO tariff rates.

Even if the tariff increase is small, the RBC report estimates that 500,000 Canadian jobs in “highly trade-sensitive sectors” will be affected if NAFTA eradicated. Higher tariffs will impact dozens of other manufacturing industries such as household appliances, electronics, and cleaning products.

While the possible cancellation of the NAFTA is a main concern for Canadian officials. US lawmakers stated that renegotiating NAFTA is not the country’s biggest economic priority. It’s the latest blow to Canadian and Mexican officials who’ve been working to keep it alive. United States president Donald Trump has sustained, throughout the trade talks, that the country will leave the deal if things don’t go the way they want.

Canadian Embassy spokeswoman Christine Constantin told the Washington Examiner that the US was still hopeful for a "win-win-win" conclusion to the talks. But she added, "We will not accept any changes to the agreement that are not in our country’s interests. We are looking for a good deal for canada, and one that makes North America as a whole more competitive for years to come. Canada will continue to negotiate in good faith and present pragmatic solutions".

It’s possible that the Trump will demand tighter bilateral rules-of-origin restrictions as a condition of continued U.S. participation in an FTA. This would mean tougher restrictions on Canada using imports from third countries in the production of goods destined for the U.S. market.

 

Latin American Post | Carlos Eduardo Gómez Avella

Copy edited by Susana Cicchetto

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