Consulting Canadians on the operation of the CUSMA

Submission to Global Affairs Canada as part of its public consultations to gather Canadians’ views on the Canada-United States-Mexico Agreement (CUSMA).

Please accept this letter as the Business Council of Canada’s (BCC) submission in response to Global Affairs Canada’s consultations on the operation of the CUSMA. Since coming into force four years ago, the CUSMA has benefited Canadians and the Canadian economy significantly. It has provided the certainty, stability, and predictability necessary for Canada’s large job creators and employers to make long-term investments needed to enhance our country’s productivity and prosperity.

The CUSMA has proven to be an effective successor to both the North American Free Trade Agreement (NAFTA) as well as the original Canada-U.S. Free Trade Agreement. The continuity afforded by these agreements has improved the lives and livelihoods of Canadian families and solidified Canada’s place as one of the world’s great trading nations. Despite a rising tide of protectionism and deglobalization, CUSMA remains the gold-standard of free trade agreements.

Given its existential importance to our economic security, the Government of Canada must do everything in its power – between now and July 1, 2026 – to ensure the successful review of the CUSMA. To be clear, there is much that Canada can do on its own initiative which would improve the likelihood of all three countries agreeing to extend the life of the CUSMA beyond 2036. Most of these actions can be taken immediately, pre-empting and preventing disruptive renegotiations.

For the past three years, the BCC has urged the government to take a ‘clean hands’ approach to the CUSMA review. Put simply, the government must ensure Canada both is and is seen to be complying with all its commitments. Where issues and irritants exist between Canada, the United States and Mexico – whether they are covered by the CUSMA or are collateral to the Agreement – the government should proactively, on an expedited basis, propose solutions to address them.

There are three key areas where the government must act. First, it must respond to U.S. concerns with regards to Canadian digital policies. After CUSMA was signed, the federal government introduced a series of digital policy changes which the U.S. government insists are inconsistent with our CUSMA commitments. The two most frequently cited by the Biden-Harris Administration and Congress are the Online Streaming Act (C-11) and the unilateral digital services tax (DST).

In late August, at the strong urging of Congressional officials in both the House of Representatives and U.S. Senate, the U.S. Trade Representative (USTR) formally requested dispute consultations on the DST. If no agreement is reached between Canada and the U.S. before mid-November, the USTR will seek to establish a dispute resolution panel. Canada cannot allow this dispute to escalate in the immediate aftermath of the U.S. elections as a new Administration comes to office.

The BCC had repeatedly called on the government to delay imposing the DST until the multilateral OECD global tax framework negotiations were concluded. Yet, the government chose to proceed unilaterally. Consequently, the BCC has had no choice but to call on the government to revoke the DST, remit any amounts paid to date, and recommit to the multilateral OECD negotiations alongside the United States. This can be done in the Fall Economic Statement or in Budget 2025.

To be clear, senior Biden-Harris Administration and Congressional officials have been explicit with the BCC and other Canadian stakeholders that if the DST issue is not resolved before the formal CUSMA review process begins, they would use their authority to prevent the Agreement from being extended. This includes many who will retain their positions regardless of the outcome of the upcoming U.S. elections. Opposition to Canada’s DST is a rare area of bipartisan consensus.

While the BCC has not intervened on Bill C-11, we note the broad consensus among trade policy experts that Canada’s triggering of the cultural exemption under the CUSMA as its justification for enacting the Online Streaming Act now enables the U.S. to take retaliatory measures of equivalent commercial effect immediately, should it choose, without first requiring dispute resolution proceedings as in the case of the DST or other disputes. This would have a devastating impact.

The second irritant between Canada and the U.S. which the government should address promptly relates to the allocation of the tariff rate quota (TRQ) for dairy. In the short time the CUSMA has been in force, the U.S. has established two dispute resolution panels on TRQ. Not only has the USTR expressed dissatisfaction with the outcome of those proceedings, she made clear she will seek to leverage the CUSMA review to force a solution on what she views as a ‘political’ problem.

The ‘political’ nature of the TRQ allocation issue has been exacerbated in recent months by the Parliamentary debate on C-282 – the Private Members’ Bill amending the Department of Foreign Affairs, Trade and Development Act. While there are different perspectives on what impact C-282 would have if enacted without amendment, the BCC is among those who have raised concerns that it risks complicating the CUSMA review absent a mutually acceptable resolution on the TRQ.

The third irritant between Canada and the U.S. which has the potential to frustrate a successful review of the CUSMA is not a market access issue but, rather, the government’s continued refusal to honour Canada’s commitment to invest the equivalent of two per cent of our GDP on defence. A number of U.S. officials, including some who sit on the Congressional and U.S. Senate Committees with oversight over the USTR and trade policy, have privately pointed to linkages with the CUSMA.

More specifically, U.S. officials have warned that Canada’s refusal to honour its two per cent defence commitment calls into question our reliability and dependability as an economic security partner. This includes our failure to invest sufficiently in our integrated defence industrial base, stockpiles of strategic resources (e.g. critical minerals), protection of cross-border critical infrastructure and networks, procurement of military and/or dual-use goods, as well as research and development.

This underscores an important consideration for the government. The CUSMA review is not seen in the United States as occurring in a strictly legalistic trade policy vacuum, but instead within a much broader geopolitical context. There are a number of extraneous factors that could either help or hinder the successful review and extension of the Agreement. The government cannot discount or dismiss how domestic political trends in the U.S. will influence or determine outcomes.

Canada has a choice: It can do nothing between now and the launch of the formal review process in the United States next October or it can take proactive steps to eliminate the obstacles to the successful review and extension of the Agreement. If the government does nothing, it will increase the risk of full-on renegotiation. If the review becomes a renegotiation, the certainty, predictability, and stability afforded by the CUSMA will be undermined resulting in less investment in our economy.

For more than 35 years, Canada has championed a strong, integrated North American economy. At a time when we are facing growing supply chain disruptions, increased global insecurity and pervasive protectionism, it has never been more important for us to reinforce the resilience of our continental partnership. A successful CUSMA review, resulting in the extension of the Agreement beyond 2036, is essential to our collective prosperity. Canada must do all it can to make it happen.

The CUSMA and Canada’s economic future are at risk because of certain domestic policies, and those risks are too great to ignore.

Yours very truly,

Goldy Hyder