Written By Jonathan Fried, Jessica Horwitz, Michael Kergin, John Manley and John Weekes
The first North American Leaders’ Summit in five years brought together Prime Minister Trudeau, U.S. President Biden and Mexican President López Obrador in Washington, D.C. this past Thursday. The outcome carries important lessons for Canadian business going forward.
With the goal of reinvigorating trilateral cooperation within the framework of the Canada-U.S.-Mexico Trade Agreement (CUSMA) that governs some US$1.5 trillion a year in North American trade, the three leaders in public statements spoke in positive terms about their shared interest in an open and competitive North American economy, based on bilateral and trilateral areas of agreement on promoting commercial, environmental and infrastructure interests, as well as their shared commitment to an economy that benefits all segments of society, including labour, youth and others. The Prime Minister held separate bilateral talks with each of his counterparts, and met with Congressional representatives as well.
More specifically, leaders agreed to:
- form a trilateral working group, building on an existing U.S.-Mexico table and Canada-U.S. bilateral work under the “Roadmap” agreed in Trudeau’s first (virtual) meeting with President Biden, to address regional supply chain issues, including a steady supply of critical minerals;
- develop a North American strategy to reduce methane;
- ban imports of goods made with forced labor (with an eye to China’s reported abuse of the Uyghur population in its western Xinjiang region);
- revive a North American working group on violence against Indigenous women and girls, first agreed by Prime Minister Trudeau and President Obama in 2016; and
- donate COVID-19 vaccines to Latin America and the Caribbean.
Bilaterally, the Prime Minister and President Biden agreed to:
- review implementation of the bilateral Roadmap for a Renewed U.S.-Canada Partnership launched in February;
- promote innovation on sensitive and emerging technologies (including artificial intelligence and quantum computing), and shaping global digital policies and governance;
- negotiate a bilateral Science, Technology, and Innovation Agreement in 2022; and
- establish a Strategic Dialogue on the Indo-Pacific to promote regional security, the rule of law and good governance in the region.
Areas of disagreement dominated the discussions, however. Between the United States and Mexico, the stubborn challenge of managing the border in the face of significant migrant flows has long defied easy resolution under successive Administrations. Despite the Biden Administration maintaining the “Remain in Mexico” policies of the previous government, recent numbers of those seeking to cross the border, from Mexico and Central America, have surged, and three times more migrants have been detained by U.S. authorities than in 2020. But no new initiatives resulted from the two Presidents’ bilateral meeting.
For Canada, the tax credit of up to US$12,500 proposed for consumers who buy electric vehicles “made in America” contained in the draft infrastructure legislation, now having passed the House of Representatives, is a clear violation of the terms of CUSMA, which in its automotive provisions requires equal treatment of cars built in the three countries meeting a North American content requirement. The Prime Minister made clear that the measure is “counter-productive” to promoting North American commerce, and stated that he raised directly Canada’s more general concern about Buy America policies. President Obrador echoes the same sentiment, framing a failure to strengthen competitiveness on a North American basis as contributing to an “unacceptable imbalance” of economic power with China. President Biden was non-committal in response, suggesting that the bill will have several changes before taking final form through the Senate and back to the House. For this reason, the Prime Minister and Ministers reinforced their message in meetings with members of Congress, who will have the decisive say in determining the final provisions of the bill to be sent to the President’s desk.
The Prime Minister also raised Michigan’s proposed blockage of Line 5 modernization, that if implemented could halt a significant volume of gas exports to the United States. For its part, the U.S. side has already challenged Canadian implementation of its dairy and cheese quotas under CUSMA, and softwood lumber remains a hardy perennial between the two countries and our respective industries.
According to reports, both President Biden and Prime Minister Trudeau flagged to President Obrador concerns about administrative and regulatory actions being taken against private investors in the energy sector, including major amendments to two energy laws in favour of state-run firms and against private companies.
What Are the Key Takeaways for Canadian Business?
First, the Summit and bilateral leaders’ meetings do confirm that the three governments share a common interest in addressing key challenges, such as supply chain bottlenecks and battling COVID, and share a commitment to worker welfare and an inclusive economy. More broadly, the establishment of a Canada-U.S. strategic dialogue on the Indo-Pacific brings Canada closer to the United States and other Western allies with a view to more concerted engagement to counter growing Chinese economic and political influence in countries of Southeast and South Asia. Even in areas of agreement, however, business should be alert to initiatives that could affect the regulatory environment, and ultimately costs, for example as the proposed strategy to reduce methane emissions unfolds, and as measures requiring compliance with import bans of products of forced labour may impose greater reporting and accountability requirements.
Second, President Biden’s response to Mexican and Canadian complaints about the electric vehicle tax credit confirm the reality that even if former President Trump is no longer in office, the protectionist impulse of “America First” remains more generally. Biden’s overarching priority (as for all U.S. administrations) is not to strengthen trading partnerships or friendships, but rather, to be earn votes in the mid-term elections of 2022 and beyond in the labour-rich, auto and other manufacturing mid-western states, including Michigan and Pennsylvania, and on dairy, the farm vote of Wisconsin.
Thus, unilateral U.S. measures running counter to CUSMA or other treaty commitments remain a continuing risk, and the U.S. Administration and Congress can be expected to continue to be vigorous in seeking tougher enforcement of U.S. interests in areas ranging from agriculture and agri-food to steel and aluminum. Accordingly, while ongoing advocacy with allies in the United States is essential for government and Canadian stakeholders alike, Canada will likely need to pursue formal dispute settlement procedures under CUSMA.
Third, to the extent that the Summit was intended to convey common cause in strengthened North American competitiveness in the face of China, the prospect of increased restrictions on sourcing of Chinese inputs, in high technology or related products, cannot be discounted.
Canadian business and government alike must thus remain proactive with suppliers and customers in the United States as advocates for an open, integrated, North American industrial base. Supporting free trade within Canada, and more actively exploiting opportunities under Canada’s trade agreements in Europe, Asia and the Americas, can improve competitiveness.