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Alberta

The USMCA’s self-destruct button: review clause conjures fears of 2018 all over again

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WASHINGTON — It’s been less than three years since the U.S.-Mexico-Canada Agreement replaced NAFTA as the law of the land in continental trade, and there are already hints of the existential anxiety that preceded it.

That’s because of the so-called “sunset provision,” a clause that reflects the lingering working-class distrust of globalization in the U.S. that helped Donald Trump get elected president back in 2016. 

Article 34.7 of the agreement, the “review and term extension” clause, establishes a 16-year life cycle that requires all three countries to sit down every six years to ensure everyone is still satisfied. 

That clock began ticking in the summer of 2020. If it runs out in 2026, it triggers a self-destruct mechanism of sorts, ensuring the agreement — known in Canada as CUSMA — would expire 10 years later without a three-way consensus.

For Canada, the sunset provision “is a minefield,” said Lawrence Herman, an international trade lawyer and public policy expert based in Toronto.

“It is certainly not a rubber-stamping exercise — far from it.”

Of particular concern is the fact that the provision doesn’t spell out in detail what happens if one of the parties indicates that it won’t sign off on extending the deal without significant changes to the terms. 

“The concern is that this could mean, in effect, that we’ll be into a major renegotiation of CUSMA in 2026,” by which time the political landscape in both the U.S. and Mexico could look very different, Herman said.

“What happens then? The government and business community need to be thinking about this and start preparing the groundwork and doing contingency planning now.” 

The deal as it stands is hardly perfect, if the number of disputes is any indication. 

In the 33 months since USMCA went into effect in July 2020, 17 disputes have been launched among the three countries, compared with a total of 77 initiated over the course of NAFTA’s 25-year lifespan. 

The U.S. remains unhappy with how Canada has allocated the quotas that give American dairy producers access to markets north of the border. Canada and Mexico both took issue with how the U.S. defined foreign auto content. And Canada and the U.S. oppose Mexico favouring state-owned energy providers.

The Canada-U.S. disputes are likely to be on the agenda when Prime Minister Justin Trudeau sits down later this week in Ottawa with President Joe Biden, his first official visit to Canada since being sworn in two years ago. 

“The president’s really excited about doing this, about going up there and really going to Ottawa for no other purpose than the bilateral relationship,” National Security Council spokesman John Kirby told the White House briefing Monday. 

Prior meetings between the two have typically been on the margins of international summits or at trilateral gatherings with their Mexican counterpart, Andrés Manuel López Obrador. 

Kirby cited climate change, trade, the economy, irregular migration and modernizing the continental defence system known as Norad as just some of “a bunch of things” the two leaders are expected to talk about.

“He has a terrific relationship with Prime Minister Trudeau — warm and friendly and productive.”

Trade disputes notwithstanding, the overwhelming consensus — in Canada, at least — is that USMCA is vastly better than nothing. 

“I don’t want to be alarmist about this, but we cannot take renewal for granted,” said Goldy Hyder, president and CEO of the Business Council of Canada, after several days of meetings last week with Capitol Hill lawmakers. 

Constantly talking up the vital role bilateral trade plays in the continent’s continued economic health is a cornerstone of Canada’s diplomatic strategy. The message Hyder brought home from D.C.? Don’t stop now.

“We met several senators, we met people from the administration, and their message was, ‘Be down here. Make your case. Continue to remind Americans of the role that Canada has in their economy,'” he said. 

“We’ve got to … be a little less humble in the United States and start reminding Americans just how much skin in the game that they have in Canada.”

That can be a challenging domestic political truth in the U.S., where deep-seated resentment over free trade in general and NAFTA in particular metastasized in 2016 and persists to this day. 

Biden likes to put a blue-collar, Buy American frame around policy decisions. His original plan to advance electric-vehicle sales saved the richest incentives for vehicles assembled in the U.S. with union labour.

Aggressive lobbying by Canada helped avert a serious crisis for Canada’s auto sector; the Inflation Reduction Act that Biden ultimately signed included EV tax credits for vehicles assembled in North America. 

For many, it was a cautionary tale about the importance of arguing Canada’s interests in Washington. 

A strong U.S. depends on a strong Canada, said Rob Wildeboer, executive chairman and co-founder of Ontario-based auto parts supplier Martinrea International Inc., who took part in last week’s D.C. meetings.

“The USMCA and the ability to move goods across borders is extremely important to us, it’s extremely important to our industry, it’s extremely important to this country, and it’s a template for the things we can do together with the United States,” Wildeboer said. 

“In order for the U.S. to be strong, it needs strong neighbours, and Canada’s right at the top of the list.”

This report by The Canadian Press was first published March 21, 2023.

James McCarten, The Canadian Press

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Alberta

Alberta’s fiscal update projects budget surplus, but fiscal fortunes could quickly turn

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From the Fraser Institute

By Tegan Hill

According to the recent mid-year update tabled Thursday, the Smith government projects a $4.6 billion surplus in 2024/25, up from the $2.9 billion surplus projected just a few months ago. Despite the good news, Premier Smith must reduce spending to avoid budget deficits.

The fiscal update projects resource revenue of $20.3 billion in 2024/25. Today’s relatively high—but very volatile—resource revenue (including oil and gas royalties) is helping finance today’s spending and maintain a balanced budget. But it will not last forever.

For perspective, in just the last decade the Alberta government’s annual resource revenue has been as low as $2.8 billion (2015/16) and as high as $25.2 billion (2022/23).

And while the resource revenue rollercoaster is currently in Alberta’s favor, Finance Minister Nate Horner acknowledges that “risks are on the rise” as oil prices have dropped considerably and forecasters are projecting downward pressure on prices—all of which impacts resource revenue.

In fact, the government’s own estimates show a $1 change in oil prices results in an estimated $630 million revenue swing. So while the Smith government plans to maintain a surplus in 2024/25, a small change in oil prices could quickly plunge Alberta back into deficit. Premier Smith has warned that her government may fall into a budget deficit this fiscal year.

This should come as no surprise. Alberta’s been on the resource revenue rollercoaster for decades. Successive governments have increased spending during the good times of high resource revenue, but failed to rein in spending when resource revenues fell.

Previous research has shown that, in Alberta, a $1 increase in resource revenue is associated with an estimated 56-cent increase in program spending the following fiscal year (on a per-person, inflation-adjusted basis). However, a decline in resource revenue is not similarly associated with a reduction in program spending. This pattern has led to historically high levels of government spending—and budget deficits—even in more recent years.

Consider this: If this fiscal year the Smith government received an average level of resource revenue (based on levels over the last 10 years), it would receive approximately $13,000 per Albertan. Yet the government plans to spend nearly $15,000 per Albertan this fiscal year (after adjusting for inflation). That’s a huge gap of roughly $2,000—and it means the government is continuing to take big risks with the provincial budget.

Of course, if the government falls back into deficit there are implications for everyday Albertans.

When the government runs a deficit, it accumulates debt, which Albertans must pay to service. In 2024/25, the government’s debt interest payments will cost each Albertan nearly $650. That’s largely because, despite running surpluses over the last few years, Albertans are still paying for debt accumulated during the most recent string of deficits from 2008/09 to 2020/21 (excluding 2014/15), which only ended when the government enjoyed an unexpected windfall in resource revenue in 2021/22.

According to Thursday’s mid-year fiscal update, Alberta’s finances continue to be at risk. To avoid deficits, the Smith government should meaningfully reduce spending so that it’s aligned with more reliable, stable levels of revenue.

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Alberta

Premier Smith says Auto Insurance reforms may still result in a publicly owned system

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Better, faster, more affordable auto insurance

Alberta’s government is introducing a new auto insurance system that will provide better and faster services to Albertans while reducing auto insurance premiums.

After hearing from more than 16,000 Albertans through an online survey about their priorities for auto insurance policies, Alberta’s government is introducing a new privately delivered, care-focused auto insurance system.

Right now, insurance in the province is not affordable or care focused. Despite high premiums, Albertans injured in collisions do not get the timely medical care and income support they need in a system that is complex to navigate. When fully implemented, Alberta’s new auto insurance system will deliver better and faster care for those involved in collisions, and Albertans will see cost savings up to $400 per year.

“Albertans have been clear they need an auto insurance system that provides better, faster care and is more affordable. When it’s implemented, our new privately delivered, care-centred insurance system will put the focus on Albertans’ recovery, providing more effective support and will deliver lower rates.”

Danielle Smith, Premier

“High auto insurance rates put strain on Albertans. By shifting to a system that offers improved benefits and support, we are providing better and faster care to Albertans, with lower costs.”

Nate Horner, President of Treasury Board and Minister of Finance

Albertans who suffer injuries due to a collision currently wait months for a simple claim to be resolved and can wait years for claims related to more serious and life-changing injuries to addressed. Additionally, the medical and financial benefits they receive often expire before they’re fully recovered.

Under the new system, Albertans who suffer catastrophic injuries will receive treatment and care for the rest of their lives. Those who sustain serious injuries will receive treatment until they are fully recovered. These changes mirror and build upon the Saskatchewan insurance model, where at-fault drivers can be sued for pain and suffering damages if they are convicted of a criminal offence, such as impaired driving or dangerous driving, or conviction of certain offenses under the Traffic Safety Act.

Work on this new auto insurance system will require legislation in the spring of 2025. In order to reconfigure auto insurance policies for 3.4 million Albertans, auto insurance companies need time to create and implement the new system. Alberta’s government expects the new system to be fully implemented by January 2027.

In the interim, starting in January 2025, the good driver rate cap will be adjusted to a 7.5% increase due to high legal costs, increasing vehicle damage repair costs and natural disaster costs. This protects good drivers from significant rate increases while ensuring that auto insurance providers remain financially viable in Alberta.

Albertans have been clear that they still want premiums to be based on risk. Bad drivers will continue to pay higher premiums than good drivers.

By providing significantly enhanced medical, rehabilitation and income support benefits, this system supports Albertans injured in collisions while reducing the impact of litigation costs on the amount that Albertans pay for their insurance.

“Keeping more money in Albertans’ pockets is one of the best ways to address the rising cost of living. This shift to a care-first automobile insurance system will do just that by helping lower premiums for people across the province.”

Nathan Neudorf, Minister of Affordability and Utilities

Quick facts

  • Alberta’s government commissioned two auto insurance reports, which showed that legal fees and litigation costs tied to the province’s current system significantly increase premiums.
  • A 2023 report by MNP shows
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