Madam Chair, honourable members, thank you for your invitation to appear before the committee today. In my capacity as the chief economist and director general of the trade analysis bureau of Global Affairs Canada, I am pleased to provide a perspective on the potential economic impact of the Canada—United States—Mexico Agreement, or CUSMA, as we know it in Canada.
Our role at the Office of the Chief Economist is to assess to the best of our ability the potential impacts of a trade agreement. We report the results of our findings in a document called the “Economic Impact Assessment”.
Our internal model is a dynamic computable general equilibrium model with 57 sectors and 140 countries and regions of the world. Such models allow impacts to feed into other sectors of the economy, and for those sectors to adjust over time. We can then evaluate potential impacts on production, exports, imports, and for the first time for a final assessment, the Canadian labour market. However, regardless of the degree of sophistication of our model, it remains a simplification of reality. This means that, unfortunately, we are not in a position to include all the gains from the negotiations in the model.
We approach every assessment the same way. We discuss and consult with all relevant parties within government to understand the provisions and determine what can be included in the modelling approach. This time is no exception.
The CUSMA negotiations were conducted in a very different context from CETA, the trade agreement with the European Union, and the CPTPP, where the starting point was no agreement and the result was a new free trade agreement.
For the task at hand, we had to consider what would happen if the United States were to withdraw from NAFTA, as well as the new agreement called CUSMA. The economic impact assessment is based on the final negotiated text.
The modelling results represent the potential benefits of NAFTA preserved by CUSMA, the avoidance of section 232 tariffs on the Canadian steel and aluminum industries, as well as the incremental impact of an implementation of the CUSMA outcomes.
CUSMA modernizes the agreement, making it easier for Canadian companies to benefit from NAFTA preferences. CUSMA also preserves NAFTA's virtually tariff-free market access for Canadian exports. It strengthens the integration of the North American automotive sector. It reinforces Canada's relative position as a competitive investment destination for automobile and auto parts production, and provides new market access opportunities in the U.S. market, while at the same time preserving Canada's system of supply management. The new agreement also modernizes provisions in line with Canada's more recent FTAs to help reduce red tape and protect the government's right to regulate in the public interest, including for health and safety.
These modernizations would make it easier for Canadian exporters to claim preferential tariff treatment under the agreement. The gains would, however, be partially offset by new market access into Canada's supply-managed sectors and more restrictive rules of origin in the automotive sector.
Some provisions under CUSMA would also help reduce policy uncertainty in certain areas such as services, investment and digital trade, and result in a positive impact on businesses. However, modelling such gains is challenging and relies heavily on the assumptions made. Therefore, these types of benefits were not evaluated in this study. Furthermore, many of these obligations have already been implemented by Canada under CETA and by Canada and Mexico under the CPTPP.
The modelling of quantitative impacts of CUSMA focused on modernized provisions in customs administration, trade facilitation and origin procedures, new market access provisions, automotive rules of origin, and data localisation commitments for financial services. These elements were selected for modelling based on the expected magnitude of their economy-wide impact, data availability and analytical feasibility.
The overall effect of the implementation of CUSMA on the Canadian economy is positive when considered against the consequences of a U.S. withdrawal from NAFTA. The implementation of the CUSMA outcome would secure GDP gains of $6.8 billion or 0.249% of Canadian GDP. With respect to autos, the outcomes are expected to incentivize production in Canada and North America, while leading to the sourcing of more expensive auto parts from within the region.
From a labour perspective, CUSMA secures nearly 38,000 jobs that would otherwise be lost if the United States withdrew from NAFTA, of which 18,708 are for men and 18,853 are for women.
In conclusion, the analytical findings resulting from the economic modelling suggest that the agreement's economic impact on the Canadian economy is positive when compared with the effects of an American withdrawal from NAFTA and the imposition of section 232 tariffs on Canada's steel and aluminum sectors. Importantly, CUSMA preserves Canada's access to the U.S. and Mexican markets and protects Canadian economic gains, jobs and income that would otherwise have been lost.