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  March 27th, 2017 | Written by

Canada Trade: Getting the Relationship Right with Trump

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  • Canada is diversifying its trading patterns.
  • Asia and Europe are taking increasing shares of Canada’s merchandise trade.
  • The US still purchases 75 percent of all Canadian exports.

Dentons, the global law firm, recently released its Global Regulatory Trends to Watch in 2017. In this five-part series, we are publishing excerpts from the report focusing on public affairs, anti-corruption, and economic sanctions and trade across the world, including the US, Europe, the UK, China, Canada and Mexico. Authors for these excerpts include: Paul Lalonde, Michael Zolandz, Jorge Jiménez .

Canada’s trade policy priorities will largely be driven by the Trump administration’s actions with respect to NAFTA. While there are indications that Canada is diversifying its trading patterns, with Asia and Europe taking an increasing share of merchandise trade, the US still purchases approximately 75 percent of all Canadian exports. Getting the relationship right with the Trump administration and preserving the crucial advantages of NAFTA is mission critical for the Canadian economy.

The Trump Administration has not specifically targeted Canada in its statements concerning the need to review NAFTA. However, the incoming administration repeats that its priority and focus will be in repatriating manufacturing jobs to the US. Canada will need to work hard to remind US decision-makers of the highly integrated nature of Canada-US supply chains and of the benefits of NAFTA for both countries.

As a trading nation highly dependent on predictable access to foreign markets, Canada is particularly vulnerable to the backlash against globalization that was exemplified in 2016 by the Brexit vote, the difficulties in securing ratifications of the Canada Europe Comprehensive Economic and Trade Agreement (CETA) and the US election. The UK is the main entry point for Canadian investment in the EU and Canada’s third largest trading partner (after the US and China). But the terms of the UK’s exit from the EU, and its impact on the CETA, remain uncertain and are unlikely to be settled in 2017. This presents continuing risks for Canadian traders and investors, and major challenges for policymakers.

With the Trans-Pacific Partnership Agreement likely to fold, and with US-EU free trade talks likely suspended by the Trump Administration, the anticipated landscape for Canadian traders has shifted significantly. This presents some risks but, on the bright side, the successful conclusion of the Canada – EU CETA may present significant competitive advantages for Canadian traders and investors.

The Trump administration’s approach to sanctions is also likely to have a major impact in Canada. If US sanctions on Iran and Russia are radically changed, will Canadian sanctions also be modified or will sanctions imposed by western allies increasingly diverge? If sanctions become very different from one country to the next, this will have a significant effect on the risks and opportunities faced by Canadian companies in competing for a share of Russian and Iranian business. To date, Canada has signaled that it has no intention of relaxing Russian sanctions or of tightening sanctions against Iran. However, Canada may need to qualify this approach as developments unfold in the US.

Trade disputes
Often referred to as the biggest trade dispute on the planet, the softwood lumber wars with the US were re-ignited in 2016 with the filing of a fresh petition targeting lumber exports from Canada to the US. This dispute will work its way through the US anti-dumping and countervailing duty process in the US and will continue to be a major irritant in the Canada-US relationship. Unless the US and Canada can come to a new agreement to manage lumber trade (the prospect of which currently seems remote), it is likely that the US legal process will sprout fresh cases before NAFTA Chapter 19 and WTO Dispute Settlement Body panels. In the interim, US importers of Canadian lumber will likely start paying new countervailing duties in February 2017, and anti-dumping duties in May 2017.

In the last several years, there has been a steady stream of Canadian anti-dumping and countervailing duty cases filed, particularly in relation to imported steel products, with China being the most frequent target of these investigations. This trend is likely to continue in 2017 with a fairly busy docket of new cases and various reviews of existing measures working their way through the Canada Border Services Agency and the Canadian International Trade Tribunal.