Good afternoon. Thank you for the invitation to speak with you this afternoon.
The CUSMA review on July 1, 2026, is shaping up to be a potentially critical turning point in Canada's trading relationship with the U.S. How the review turns out could go a long way towards determining if we will continue down the path towards a more integrated North American market or whether the U.S. will go further down the track of going it alone.
No matter what happens in the U.S. election on November 5, Canada will face significant challenges with the U.S. on trade. Both Republicans and Democrats, though seemingly more divided than ever, are both more protectionist and more interventionist than previous U.S. administrations.
The joint review, which is unique among trade agreements, requires that all three parties commit in writing that they want the agreement to continue. If any of the three do not make this commitment, there will be annual reviews until the agreement expires in 2036, or until all three parties agree to extend it for another 16 years.
The review clause is not a good fit in a trade agreement. Trade agreements are intended to last indefinitely so as to give confidence to businesses and investors about the rules of the game. Like NAFTA, CUSMA already has a withdrawal clause and a clause that allows provisions to be added, changed or removed at the agreement of parties. The only reason the review clause is in the agreement is that the U.S. wanted to build in leverage for it to seek changes to the agreement on an ongoing basis, but this undermines confidence in the agreement and introduces ongoing uncertainties.
The review is still more than two years away, but already business communities in all three countries are concerned about it. That uncertainty around the review clause is compounded by elections that will take place in all three countries before the review, and we know that Mexico just finished their election a couple of days ago.
Mexico and Canada will almost certainly support continuation of the agreement, given their reliance on the U.S. market. With the world increasingly trending towards regional markets, it is also in the U.S.'s interest to support a strong North American market. However, both Democrats and Republicans in the U.S. have suggested that the review could be used to renegotiate some elements of the agreement. Both Katherine Tai, the current U.S. trade representative, and Robert Lighthizer, the former U.S. trade representative, have suggested that the review could be used to address the panel decision the U.S. lost on the automotive rules of origin.
Katherine Tai has also suggested that the issue of dairy could be revisited after the U.S. failed to achieve its objectives in two dispute settlement panels. If the U.S. seeks to reverse dispute settlement decisions in the review, it will undermine confidence not only in the dispute settlement process but also in the agreement overall.
There are also various other contentious issues that could be part of the review—more so with Mexico than with Canada—but a better approach would be to focus on common challenges to the North American market. Three weeks ago, the U.S. took action against imports from China of electric vehicles, batteries, critical minerals and some other products, but all three CUSMA parties face challenges from China because of unfair trading practices and security concerns. Rather than all three parties following their own paths on these issues, it would be far better for them to take a more coordinated approach to these challenges.
USTR Tai has also talked about addressing challenges posed by new dynamics caused by the pandemic and by climate change in the review. A North American approach to addressing these kinds of issues would have a positive impact and open up new opportunities for growth.
The review clause in itself creates unwelcome uncertainty for business. More significant impacts will depend on whether or not a fractious review can be avoided, what specific issues may be opened or reopened in the review, and whether the parties can instead pursue a more common forward-looking North American agenda.
Thank you, Madam Chair.