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Canada and the United States reached an agreement on the renegotiation of the North American Free Trade Agreement (NAFTA) on September 30, 2018 which was the deadline imposed by the United States. This new agreement, now called the United States-Mexico-Canada Trade Agreement1 (hereafter the “USMCA” or the “Agreement”), changes the legal framework that has been in place for the last twenty years. Some concerns have already surfaced since the negotiations ended: How will the USMCA affect Canadian businesses? Pending further analysis of the USMCA, which is expected to come into force in 2020, here is a short summary of the changes made to NAFTA by the new Agreement. Wider American access to Canadian dairy, egg and poultry markets American complaints about access to the dairy market go back long before the Donald Trump presidency since the United States have been in a chronic surplus situation for many years. With respect to dairy products: 1) After having lost access to 3.25% negotiated under the Trans-Pacific Partnership (TPP) when it withdrew from it in 2017, the United States obtained an opening of 3.6% of the Canadian market. For Canadian producers, this means an increase in market access by American producers. 2) Canada has agreed to dismantle the Class 7 price agreement concluded in 2016, which limited American exports of ultra filtered milk used to produce dairy products. The USMCA will also have an impact on other food sectors: Canada has granted the United States greater access for eggs, turkey, poultry, hatching eggs and chicks, a measure that will take effect when the USMCA comes into force. However, the Canadian Government has announced that it will compensate producers for the increased import quotas. In return for these concessions, Canada has gained greater access for its exports of refined sugar and sweetened products, as well as for certain dairy products. American tariffs justified by national security (Section 232): no end in sight Although this was a central concern for Canada, the United States did not agree to lift the tariffs on steel and aluminum imposed in the name of national security. The United States indicated that these discussions were independent of the USMCA and will be addressed separately in the indefinite future. That being said, the USMCA provides for an exemption from automobile tariffs for any future tariff that the United States may impose in this sector (subject to certain limits). Intellectual property: new standards The USMCA largely adopts the requests made by the United States during the TPP negotiation: 1) Copyright protection will be extended twenty years, from 50 to 70 years. 2) Data protection relating to drugs manufactured from biological cells has been extended two years, from eight to ten years, which will have an impact on manufacturers of generics. 3) Protection of certain geographical names. Sales tax and customs duties: de minimis levels will be increased The de minimis level in force at the moment for sales tax and customs duties is $20, an amount that has not changed in fourty years and above which Canada could impose tariffs. With the new Agreement, the de minimis threshold will now rise to $40 for sales tax to be imposed and $150 for customs duties to be applied. This is a Canadian “victory” over the initial demand of the United States to raise this threshold to $800, which would have dramatically disrupted the retail trade in Canada. Preservation of the cultural exception A “victory” for Canada, the cultural exception remains. Therefore, no foreigner will be able to acquire Canadian media, whether written, radio or television. However, its application to digital content remains uncertain. Dispute resolution mechanisms: victories and defeats Chapter 19 is retained, providing the possibility for Canada to seek arbitration if tariffs and quotas were to be imposed for dumping or subsidizing in a manner contrary to American legislation and to the rules applied in international trade. Stability in this area was of vital importance to Canada. This chapter has historically enabled Canada to win major victories against the United States , particularly in the softwood lumber sector. However, Chapter 11 on the settlement of investor-State disputes, protecting investment in other member States of the free trade area, has almost entirely disappeared; it will now only apply to certain investments made prior to the entry into force of the USMCA. However, the dispute settlement mechanism between investors and the State will remain in force with Mexico under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The automobile sector: refocusing on North America Canada has obtained an exemption of tariffs for vehicles it will export to the extent that vehicle exports do not exceed 2.6 million units per year (about 1 million more than current production) and USD $32.4 billion in parts. In return, the United States has obtained a change in the rules of origin: vehicles free of tariffs must henceforth comprise not 62.5% of parts manufactured in North America but 75%. With this, fewer foreign parts will be able to be included in assembling vehicles manufactured in the area, which could mean an increase in demand for Quebec’s automotive parts industry. In addition, eventually 40% of the parts will have to come from plants paying at least USD $16 per hour. In parallel, the agreement provides that the process for unionization of workers will have to be easier. Although this element will not have a great impact on Canada, Mexico on the other hand will be greatly affected. The sunset clause: an American concession A contentious and insistent demand by the United States concerned the adoption of a sunset clause providing for renegotiation or termination of the agreement every five years. Such a provision would have created uncertainty for businesses and would have had an impact on investments. What is now provided is a first term of 16 years. Six (6) years after coming into force, a review process will then be initiated to assess the Agreement’s operation. Upon completion of the review, the parties may indicate their intention to pursue a second term of 16 years under the same conditions; alternatively they may negotiate new terms. And what next? It is expected that the text will be signed on November 30, 2018. However, approval by the US Congress will not take place until 2019 and entry into force will probably not take place before 2020. In the meantime, NAFTA remains in force. In anticipation, we will continue to study the USMCA and its potential impact on our clients. Our team remains available to answer any questions related to this matter. The text of the new agreement was published on September 30 on the U.S. Trade Representative’s website.
Provisional entry into force 90% of the Agreement will be in force The date is still uncertain, possibly as soon as June 2017 The Agreement in 6 key points Access to the European Union market, which includes 28 States and 500 million consumers; Elimination of custom duties on 98% of tariff lines; Projected increase of $324 million per year in Québec exports to the European Union by 2022; Projected 20% increase of exchanges with Europe; Access to the vast European public market; Impact on all sectors of the economy, from services and natural resources to the agricultural and the manufacturing sector. On the eve of the provisional entry into force of the Canada-Europe Free Trade Agreement, understanding its implications should be a top priority for any company wishing to expand its activities over the course of the next few years. The vote held on February 15th at the European Parliament in favour of the ratification of the Agreement makes its entry into force imminent. The Agreement will open the door to the vast European market for Canadian businesses, a market representing on average thousands of billions of dollars per year with a population of 500 million. Imminent provisional entry into force In the wake of the historic vote of the European Parliament in favour of the ratification of the Comprehensive Economic and Trade Agreement (“CETA” or “Agreement”), one of the most important free trade zones in the world is on the verge of being established. This vote was held the day after Bill C-30 was passed by the House of Commons in Ottawa and referred to the Senate. This Bill aims to initiate the legislative amendments which are necessary for the Agreement to come into force in Canada. The important steps taken in the last few weeks make it possible for the Agreement to provisionally enter into force as early as this summer. In what way will the entry into force of the Agreement be provisional? At the time of the provisional entry into force, only the provisions on the Investor-State remedies and a provision on the criminalization of Camcording will not enter into force. That means that the entire Agreement will apply in both jurisdictions: 99% of industrial tariffs and 95% of agri-food tariffs will henceforth disappear. The pending legislative amendments in Canada will result in the opening of the Canadian public markets by the provinces and their dependant organizations, including the education, health and municipal sectors. In addition to the elimination of custom duties, the entry into force of the Agreement will result in a reduction of administrative formalities and bureaucratic obstacles to trade. The provisions of the Agreement will allow Canadian entrepreneurs to have the products they intend to export to the European market tested and certified in Canada, thus avoiding the costs related to certification and reducing delays. CETA will also improve access to the services trade, facilitate labour mobility and provide access to European public markets. Conclusion Once the Agreement fully enters into force, Canada will have unequalled access to the two most important world markets, that is, the North- American market, which is governed by NAFTA, and the European market through CETA. Québec businesses will find it most beneficial to consider the new business opportunities and partnerships made possible by the Agreement in order to profit from this preferential access and make their companies prosper.
CANADIAN INVESTMENTS IN CUBA The Helms-Burton Act and its risks for Canadian investors in Cuba Recommandations for investors Prospects in the face of the thaw in U.S. and Cuba relations Following the announcement of the restoration of diplomatic relations between the United States and Cuba, many Canadian business stakeholders have been solicited by promoters so that they may consider various investment projects in Cuba1. However, Canadian nationals who are evaluating whether to invest in Cuba must be aware that the thawing of diplomatic relations between U.S. and Cuban authorities has not (as of yet) been followed by the withdrawal of one of the main obstacles to the completion of Canadian investments in Cuba, that is, the Helms-Burton Act. Here is some background on the subject. In March 1996, the United States (U.S.) adopted the Cuban Liberty and Democratic Solidarity Act, better known as the Helms-Burton Act.2 This statute was enacted following an incident which occurred in the same year, where two U.S. civil planes belonging to an antiCastro organization were shot down by Cuba. The purpose of the Act was to reinforce and codify the economic embargo against Cuba in order to weaken and eventually remove the Castro regime in favour of a democracy. This Act has been vigorously contested by the international community since its enactment, particularly in respect of its Titles III and IV, its two most important sections, as violating international law and being at odds with the concept of national sovereignty. Title III – “Trafficking” in confiscat ed property Title III of the Act confers on U.S. businesses and nationals the right to sue on U.S. soil anyone who, since November 1, 1996, traffics or has trafficked in property confiscated from them by the Cuban State. The definition of “traffic” is very broad. A person “traffics” in confiscated property if, among other things, that person knowingly and intentionally sells, transfers, distributes, conducts financial operations or disposes in any other manner of confiscated property or purchases, receives, holds, controls, manages or holds an interest in confiscated property and engages in a commercial activity using or otherwise benefiting from confiscated property3. The Act provides that the U.S. President may suspend Title III for any 6month period. Until now, the implementation of Title III has always been suspended. There remains some risk for Canadian investors despite this suspension, especially if they hold property or have subsidiaries in the U.S. This is why we recommend to Canadian investors contemplating operations on Cuban soil to conduct precautionary due diligence to ascertain that their commercial activities and the Cuban corporations with whom they do business, if any, involve no operations which could be considered as constituting trafficking in confiscated property. Title IV – Exclusion of aliens from the U.S. territory Title IV of the Act excludes some aliens from the U.S. territory and provides for the refusal of entry visas to officers and directors of businesses who are involved in the trafficking of confiscated property and their family members. Title IV of the Act currently applies to any alien, Canadian or otherwise. Canada’s response In October 1996, to counter the Helms- Burton Act, Canada amended the Foreign Extraterritorial Measures Act.4 Section 7.1 of this Act provides that: “Any judgment given under the law of the United States entitled Cuban Liberty and Democratic Solidarity (LIBERTAD) Act of 1996 shall not be recognized or enforceable in any manner in Canada.” The Act prohibits Canadian nationals from communicating information in the context of the enforcement of the Helms-Burton Act (Section 3(1)). Moreover, under the Act, Canadian nationals against whom a judgment ordering to pay an amount has been rendered in the U.S. pursuant to the Helms-Burton Act are entitled to sue the plaintiff in Canada in order to recover amounts paid in the U.S., including all solicitor-client costs (Section 9). These two contradictory statutes continue to create confusion and uncertainty for Canadian businesses that conduct activities or have subsidiaries in the U.S. as they are faced with the dilemma of having to comply with only one of these statutes. Toward normalization of the relations between Cuba and the U.S. On July 20, 2015, Cuba and the U.S. restored their diplomatic relations with the reopening of their respective embassies. This recent warming of relations between the two countries paves the way towards the normalization of their economic relations. Lifting the economic sanctions will require that the Helms-Burton Act be repealed by the U.S. Congress since the U.S. President only can temporarily suspend the application of Title III of the Act. Conclusion Canadian investors have had to deal with the Helms-Burton Act for 20 years. They have had to manage the risks resulting from such Act as part of their investment in Cuba. Mining corporations have had to renounce conducting any commercial activity with U.S. businesses while their officers continue to be prohibited from entering the U.S. Although the thawing of relations between the U.S. and Cuba has not yet resulted in the repeal of the repeal of the Helms-Burton Act, it augurs well for a progressive lifting of the embargo. If such is the case, Canadian businesses will be able to continue, even increase their activities in Cuba while developing their commercial relations with the U.S. American investors will also be able to invest in Canadian businesses which are active in Cuba. That being said, new competition from the U.S. should provide Canadian businesses with incentives to maintain their competitiveness if they wish to retain their leading role as economic partners of Cuba. 1 See as an example: http://www.tradecommissioner.gc.ca/eng/document.jsp?did=159128. 2 Available online: http://www.treasury.gov/resource-center/sanctions/Documents/libertad.pdf. 3 Section 4(13) of the Helms-Burton Act. 4 R.S.C. 1985, c. F-29.