The New Canadian Trade Agreement, USMCA, and Its Effects on Retail

• January 15, 2019
• Topics:
  • Marketsupport

The old Canadian trade agreement, NAFTA is out, and the new, USMCA, is in.

In October of 2018, the Canadian and U.S. governments renegotiated the North American Free Trade Agreement (NAFTA) and formed a new one: the U.S.-Mexico-Canada-Agreement (USMCA).

Here are the implications for Canadian manufacturers and retailers:

• Canada may increase its de minimis level.

Under NAFTA, the Canadian de minimis level — the value of out-of-country product consumers can buy online without being forced to pay import duties or taxes — was only $20. With the new USMCA, it may rise to $150 for custom duties and $40 for sales taxes.

This could make pricing more competitive within Canada if more consumers start shopping online abroad.

Critics are saying this will have the biggest impact to Canadian brands, especially lower-end retailers.

• American farmers will have access to about 3.6% of the Canadian dairy market.

We will see slightly more American cheese, milk, and yogurt products in grocery stores. Consumers may see a price drop in dairy products as competition increases.

In comparison, the Asia-Pacific nations get about 3.25% under the Trans-Pacific Partnership agreement.

The USMCA also states that Canada must ensure milk class 6 and milk class 7, including associated milk class prices, are eliminated six months after entry into the agreement.

• There will be a tariff exemption on up to 2.6 million passenger vehicles exported from Canada to the U.S. on an annual basis.

Auto parts amounting to U.S. $32.4 billion in declared customs value are also exempt.

Currently, Canada produces just under 2 million light vehicles for its domestic and export markets, and just over $20 billion in auto parts.

• Prescriptions may be become more expensive.

Canada agreed to extend patent protections for pharmaceutical drugs from eight to 10 years. Generic producers will have to wait two more years to get data needed to produce a similar drug at a lower cost.

Critics say this will drive up the cost of some prescription drugs.

• Canadian interest rates will likely keep increasing.

The NAFTA agreement was one of the Bank of Canada’s main concerns with increasing interest rates further, but now that it is resolved we will likely see higher rates hitting the market throughout 2019 and 2020.

The USMCA will last for 16 years. A mandatory joint review will take place at the six-year mark where countries could renegotiate or continue the agreement.

How to Stay Competitive

This can be an opportunity for growth and positive change for Canadian retail. Consider:

• Playing up local credentials. Many Canadians still prefer products that are made in Canada and shipping within Canada can still cost less than importing products.

• Creating a frictionless retail experience — both in store and online. Invest in technology and make sure e-commerce websites provide a quick, easy customer experience that happens without any roadblocks.

• Don’t ignore the bricks-and-mortar retailers. Many Canadians are still shopping in store. Create a true interactive experience to bring customers in.

• Research ecommerce. If you’re not currently selling online, it’s time to join the digital age. If you are currently online, research price points, shipping costs, the customer experience, and more to stay competitive.

Worried about the impacts of the USMCA agreement? Marketsupport Canada can help. We optimize the in-store and online shopping experience.

Contact us today. Call 1-877-421-5081 or visit www.storesupport.ca.