The shredding of the North
America Free Trade Agreement would reduce Canadian GDP growth by one per cent over five to 10 years,
a prospect that looks increasingly likely as the White House slaps hefty duties
on some Canadian exports, a new report says.Analysts at Royal Bank of Canada
estimate that shredding the trade pact would result in a four per cent
across-the-board increase in tariffs for Canadian exports to the U.S.,
primarily impacting the petroleum industry, auto manufacturers, primary and fabricated
metal manufacturers, and the plastics industry.
“The implied annual impact of 0.1 per cent to 0.2 per cent might not appear all
that large, but it adds up to a substantial amount of foregone production
potential—about $20 billion (in today’s dollars) of annual output over time,”
RBC economists Nathan Janzen and Mathias Hartpence said.The absence of NAFTA could also lead to lower profits for companies and
“probably higher prices for
consumers,” apart from diminishing Canada’s competitiveness relative to
off-shore producers.
“Indeed, in the medium to longer run, limiting the tariff advantage for
locating auto manufacturing activities within North America could, perversely,
simply accelerate the movement of motor vehicle production offshore,” the
analysts said.Observers have speculated for months over which trade rules would
replace NAFTA. Initially it is expected to trigger a fall back to the earlier
Canada-U.S. Free Trade Agreement or, more likely, to World Trade Organization
rules.
The snap-back to WTO provisions would raise tariffs on many export-dependent
industries, compared to the mostly tariff-free or low-tariff rules currently
enjoyed under NAFTA. U.S. tariffs under WTO on textiles averaged 12 per cent in
2016, the RBC report said. The average tariff on agricultural products was 5.2
per cent over the year, while petroleum products averaged 6.5 per cent.
Canadian and Mexican petroleum exports to the U.S. aren’t currently charged
duties under NAFTA.
Even if Canada and the U.S. manage to sign their own trade deal, the analysts
wrote, “a bilateral arrangement may not safeguard Canada from ongoing punitive
trade actions—consider recent U.S. moves to levy tariffs against Canadian
softwood lumber and Bombardier-manufactured jets.”The U.S. Commerce Department has recently slapped a 20 per cent tariff
on some softwood lumber exports, as well as a 300 per cent duty on Bombardier
Inc.’s CSeries jets following a deal with European plane manufacturer Airbus
SE.
The RBC report comes as NAFTA
talks seem increasingly likely to implode, after the U.S. began introducing
hard-nose demands to scrap a key dispute resolution mechanism and put an end to the Canadian
dairy industry’s supply management system.
The fifth round of NAFTA renegotiations will be held in Mexico City beginning
Nov. 17.The most vulnerable industry by
share of GDP was oil and gas extraction, according to the report. Next most
vulnerable was petroleum and coal manufacturing.
Trump’s approval of the Keystone XL pipeline soon after taking over the White
House implies that oil and gas exports could be exempt from higher tariffs.“That
support suggests energy trade isn’t high on the list of current grievances,”
the report said. “But in the current environment, it is difficult to rule out
any potential outcome entirely.”Scrapping the NAFTA deal could also hurt labour
mobility, RBC warns, noting that “it’s likely that a minority of the
half-million Canadians working in highly trade-sensitive sectors would be
affected.”“A more extreme scenario, in which the U.S. ignored WTO commitments
and implemented larger tariff hikes, would be much worse for the Canadian
economy.”
Source: CNBC Africa, U.S.A Tuesday, 14 November 2017