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Canadian perspective on NAFTA at 20

2nd Conference on Legal Challenges & Opportunities of Mexico's Increased Global Integration

ABA Section of International Law, November 8, 2013

Paul M. Lalonde, Partner, Heenan Blaikie LLP

Canada’s trade interests

Canada – U.S. Integration

"No two nations match up more closely together, or are woven together more deeply, economically, culturally, than the United States and Canada."

- President Barack Obama

U.S. exports to Canada exceeded total U.S. exports to China, Japan, South Korea and Singapore combined in 2012.

Highly integrated cross-border supply chain – “we make things together”

2012: Canada reliant on exports to US for about 20% of its GDP (35% in 2002)

Reliance on US is declining

Other regions growing in importance

Why US proportion declining?

One-third appreciation in the C$ v. US$ + rising unit labour costs (2002 C$ = 0.65US$)

Emerging market competition: 2003 - China overtook Canada’s position as the most important source of U.S. imports

Diminishing returns to the CUSFTA and NAFTA

Why U.S. proportion declining?

“Thickening” Canada-U.S. border following 9/11

2008/2009 recession

Canadian exporters increased focus on EU and emerging markets (2002-2012: exports to China have more than doubled and exports to Europe are up 83%)

Canada – US: Prospects for deeper integration

Mega integration projects are unrealistic

Get the border right – infrastructure and customs procedures

Continue other important work at the margins Regulatory Cooperation Council North American energy security and sustainability Follow through on commitments in Canada-US

Government Procurement Agreement

Canada - Mexico

Canada – Mexico: FDI

Canada – Mexico: FDI

Mexican FDI in Canada is very small

Ranked 40th in 2012

Not statistically significant

Why?

Canada – Mexico: Prospects for Deeper Integration Huge potential to do more

Trade at an all time high but still much room to grow Outside of mining, investment is modest

Surprising how little has been accomplished

Encouraging sign: 2012 trip by Pres. Peña Nieto to Canada

Canada – Mexico: Recommendations for Deeper Integration

Immediately remove visa requirements Deepen direct bi-lateral relationship EU deal is great but don’t take Mexico for granted Cooperate on TPP and other initiatives Enhance awareness campaigns Increase funding for common anti-crime and anti-

corruption initiatives Increase frequency of bi-lateral contacts at senior

levels

Canada – EU CETA: Game changer?

Comprehensive Economic and Trade Agreement New generation agreement – deep and wide 5 main components:

1. Tariff elimination on 99% of non-ag and 95% of ag 2. Access to subnational procurement 3. Investor protections 4. Strengthened IP rights 5. Services and labour mobility

CETA Rules of Origin

Rules of origin issues generally follow Canadian style of drafting

Derogations (origin quotas) for products with a higher proportion of imported inputs

CETA Rules of Origin

Autos: EU: duties currently range from 3.5% to 22%

(averaging 11.2%), transition periods of three, five and seven years to match Canada’s offer

Canada: duties currently at 6.1%, seven-year phase-out on most sensitive lines

Main rule of origin with a 50% limit on non-originating materials, decreasing to 45% after seven years

Origin quota of 100,000 vehicles under which a more liberal rule of origin applies (70% transaction value or 80% net cost) for non-originating materials

CETA Rules of Origin

Autos (cont’d) Cumulation provision in the case of an EU-U.S. FTA,

allowing auto parts originating in the United States to count towards the originating status of a vehicle produced in Canada or the EU following discussions between the parties on the applicable conditions

0ne year after the implementation of a provision allowing for cumulation with the United States, the origin quota is eliminated and the main rule of origin includes a 40% limit on non-originating materials

CETA Rules of Origin

Other special rules Fish/seafood Textiles and apparel (origin quotas for textiles and

apparel cover Canada’s and the EU’s top exports) High-sugar-containing products Chocolate and confectionery (see separate agriculture

summary) Processed foods Cat and dog food

CETA

Full impact will depend on result of EU-US agreement

Will accelerate diminished reliance on US

Receives 80% approval in Canada

No final text available yet – expected in January

Ratification likely in early 2015

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QUESTIONS?

Paul M. LalondePartner, HEENAN BLAIKIE LLPT +1 416 643.6828 F +1 866 553.4342 C +1 416 414.5833 plalonde@heenan.caP.O. Box 2900, 333 Bay Street, Suite 2900, Bay Adelaide Centre, Toronto, Ontario Canada M5H 2T4 www.heenan.ca