Canadian perspective on USMCA

The U.S.-Mexico-Canada Agreement (USMCA) entered into force on July 1, 2020. It replaces the 1994 North American Free Trade Agreement (NAFTA), presents opportunities to expand soybean sales and improve on intellectual property, labor protections and biotechnology provisions first laid out in NAFTA.

The USMCA is largely touted as a win for U.S. agriculture; exports of U.S. soybean products are expected to grow in the years to come. Canada is currently the fourth-largest purchaser of U.S. soybean meal and seventh-largest buyer of U.S. soybean oil, according to the American Soybean Association. Mexico is the second-largest market for whole soybeans, soybean meal and soybean oil from the United States.

But what does the USMCA mean for Canada? The Iowa Soybean Association (ISA) sponsored a Young Professionals in Iowa virtual event recently, learning more from Bob Freisen, trade and transportation policy analyst for the Canadian Federation of Agriculture.

“When the original discussion started on a NAFTA renegotiation, we didn’t think it was necessary at all,” Freisen said.

Ninety percent of the Canada’s population lives within 100 miles of the United States; NAFTA had supported market access and the flowing of goods to and from the countries. One example is the integration of U.S. and Canadian crop, livestock and food industries.

Canada buys soybeans from Iowa, feeds the soybeans as part of a ration to their livestock, and exports live animals to the state for processing. Iowa processors then ship processed beef and pork back to Canada to sell in grocery stores.

“We have very integrated industry, and for NAFTA to collapse would be serious on both sides of the border,” Freisen said.

During the consultation process with ag organizations in the United States, Freisen said it became clear that they wanted the premises of NAFTA to survive, too.

“It became more of an administration back and forth between Canada, the United States and Mexico to make sure we could keep NAFTA intact,” Freisen said. 

Benefits of USMCA 

The USMCA broadened Canada’s access to export sugar into the United States. While that impacts only about 250 farmers in Alberta, Freisen said it’s an important win for the country.  

The United States also provided new access to Canada for dairy, peanuts, processed peanut products, and a limited amount of sugar-containing products. 

In the agreement, the countries committed to being more transparent on the domestic support (i.e. subsidies) their producers receive. 

“In consulting and having discussion on domestic supports, we want to make sure that whatever support countries provide to their farmers is least trade distorting,” Freisen said.  

Drawbacks of the deal 

Freisen said the USMCA expanded access for U.S. exports of dairy, poultry and eggs, which will affect Canadian agriculture. 

Also, as part of the agreement, Canada agreed to cap its dairy exports around the world and pay an export tariff on exports above those quotas. Freisen said it was agreed to because the United States didn’t want to compete against Canadian exports.

“We think it’s a dangerous precedent because we think it’s a tri-lateral trade agreement actually imposing restrictions on international trade because one part in that agreement (the United States) demanded it,” Freisen said.

Efforts to “thin the border” between Canada and the United States by reducing reinspection restrictions were unsuccessful, Freisen said. This means that any meat that Canada exports into the United States goes to a reinspection station within the United States before it’s sold.

“We believe our health and food safety protocols are very similar, so we don’t think there’s any need for reinspection which adds additional costs and delays,” Freisen said.

More U.S. soy exports? 

The Iowa Soybean Association asked Freisen the likelihood of expanding U.S. soybean exports into Canada.

“Increasing soybean exports to Canada is simply a competitiveness issue,” Freisen said.

The United States competes with Brazil and Argentina for market shares globally, and Canada is no different: at the end of the day, the country with the lower price wins.

“Soymeal is used a lot in the feeding livestock and poultry in Canada but done on a least cost basis. So, if there’s another source for protein, the feed manufacturers might go to that lower cost protein. It’s strictly a lower cost issue.”