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Canadian perspective on NAFTA at 20

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.

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Canadian perspective on NAFTA at 20

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  1. 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

  2. Canada’s trade interests

  3. 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)

  4. Reliance on US is declining

  5. Other regions growing in importance

  6. 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

  7. 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%)

  8. 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

  9. Canada - Mexico

  10. Canada – Mexico: FDI

  11. Canada – Mexico: FDI • Mexican FDI in Canada is very small • Ranked 40th in 2012 • Not statistically significant • Why?

  12. 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

  13. 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

  14. 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

  15. 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

  16. 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

  17. 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

  18. 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

  19. 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

  20. 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

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