Equipment manufacturers grapple with ‘new normal’ in trade
Posted: October 23, 2018 by John G. Smith
Rona Ambrose, who served as an advisor during recent NAFTA talks, stresses the new USMCA trade deal is not yet a done deal.
TORONTO, Ont. – Rona Ambrose didn’t have many comforting words for members of the Canadian Transportation Equipment Association (CTEA).
Offering a keynote address during the association’s annual meeting, the former leader of federal Conservatives and an advisor in recent NAFTA negotiations promised more trade uncertainty to come. As for the new U.S.-Mexico-Canada Agreement (USMCA)? She quoted U.S. sources who give that no more than a “50/50” chance of being passed by Congress.
If Democrats win upcoming mid-term elections, they’ll look to block any agreement that U.S. President Donald Trump introduced, Ambrose said, referring to the opinions of others that she’s talked to. Meanwhile, there’s the threat that Trump could then invoke a six-month timeline to terminate the existing NAFTA trade framework. To compound matters, Democrats can be anti-NAFTA, she reminded the manufacturers. “Where are our friends?”
Perhaps some of the better news came with her assertion that Canada wasn’t hit as hard as Mexico during recent trade negotiations.
“At the end of the day, the Americans had all the leverage. They do,” Ambrose said. “It was pretty clear what President Trump thought a win would look like.”
Hanging in the midst of it all is the ongoing weight of tariffs on steel and aluminum, which she expects to remain until an agreement is secured with China.
“Every week something else is hitting your industry,” Ambrose told the crowd. “Overall trade uncertainty is not going anywhere anytime soon.”
The CTEA continues to review USMCA’s updated rules of origin that govern the minimum amounts of North American content in equipment like heavy trucks and heavy vehicles, noted Don Moore, director of government and industry relations. So far, for example, it hasn’t identified specific references to trailers. But the underlying details will determine exactly how much foreign material can be included if products are to be sold in the U.S.
Livingston’s Candace Sider and Gowling’s Wendy Wagner say manufacturers need to prepare for a new normal when it comes to trade with the U.S.
Manufacturers need to perform their due diligence to determine whether specific materials can be added to finished products, stressed Candace Sider, Livingston International’s vice-president of government and regulatory affairs – North America.
“We’re going to see some very significant differences in rules of origin,” she said during a related panel discussion. “Really take a look and do the research that’s necessary to ensure that you comply … the penalties, the risks are too high.”
Of course, deciding to source materials from somewhere other than the U.S. would be no small matter, either. Each shift could introduce new challenges like different delivery times.
“Global supply chains are not as nimble as we often wish they would be,” she said.
Sider also warned about a pending government crackdown on those who might try to change tariff classifications in name alone, simply in a bid to bypass the related costs. “They’ve already started a monitoring review of all the imports coming into the country that are subject to a surtax,” she said. Regulators who have been “fairly lenient” during the first round of tariffs will likely be issuing penalties in rounds to come.
So, too, did she stress the need to review contracts or any other documents that trigger sales. “Some of the devil is in the details,” Sider said.
Wendy Wagner, a partner in the Ottawa office of Gowling WLG, agreed – especially since purchase orders might not address issues like a sudden shift in duties.
“When you’re trading with the U.S. you’re often not looking at that aspect of a contract,” she said. “A lot of companies are starting to look at their contracts and look at what [they] could do in terms of a price-escalation clause.”
Wagner admitted it was unusual for the U.S. to cite national security concerns when imposing the tariffs on Canadian-made steel and aluminum. But she said the move reflects that government’s common theme of pushing outside established norms.
Even though Canada is raising the issue with the World Trade Organization, the only thing that body can do is approve countermeasures that have already been imposed, she said. “It’s not a body that has any power or jurisdiction to force the U.S.” And while other countries that face the tariffs now find themselves with excess steel and aluminum, the Canadian government is introducing related measures to protect the domestic market against any dumping.
“It’s really a complex environment,” Wagner said. “It’s really important to understand what all those tariffs are, and what the new tariffs are.”
Still, for all the challenges, Wagner believes the USMCA is similar to NAFTA in many respects. “It’s better to have an agreement than none,” she said.
The one thing that does remain likely is continuing flux in the world of trade.
“It’s business as usual,” Wagner said, “until it’s not.”
Trade will remain a top priority for the CTEA in the year to come, said association president Greg Grabinsky, during an address to open the day.
The association is even opening an Ottawa office to be “close to the action,” said general manager Suzy Leveille, referring to fast-moving trade files. It’s hoped the new locale, replacing an office in Windsor, will help to secure timely access to federal officials.
Such connections appear to be more important than ever.
The next annual meeting of the CTEA is scheduled for Sept. 30 – Oct. 2 in Mont-Tremblant.