Photo: © Tourism Toronto, 2003 Canadian perspective on NAFTA at 20 2nd Conference on Legal Challenges & Opportunities of Mexico's Increased Global Integration ABA Section of International Law, November 8, 2013 Paul M. Lalonde, Partner, Heenan Blaikie LLP

Canada’s trade interests

Canada – U.S. Integration  "No two nations match up more closely together, or are woven together more deeply, economically, culturally, than the United States and Canada." - President Barack Obama  U.S. exports to Canada exceeded total U.S. exports to China, Japan, South Korea and Singapore combined in  Highly integrated cross-border supply chain – “we make things together”  2012: Canada reliant on exports to US for about 20% of its GDP (35% in 2002)

Reliance on US is declining

Other regions growing in importance

Why US proportion declining?  One-third appreciation in the C$ v. US$ + rising unit labour costs (2002 C$ = 0.65US$)  Emerging market competition: China overtook Canada’s position as the most important source of U.S. imports  Diminishing returns to the CUSFTA and NAFTA

Why U.S. proportion declining?  “Thickening” Canada-U.S. border following 9/11  2008/2009 recession  Canadian exporters increased focus on EU and emerging markets ( : exports to China have more than doubled and exports to Europe are up 83%)

Canada – US: Prospects for deeper integration  Mega integration projects are unrealistic  Get the border right – infrastructure and customs procedures  Continue other important work at the margins  Regulatory Cooperation Council  North American energy security and sustainability  Follow through on commitments in Canada-US Government Procurement Agreement

Canada - Mexico

Canada – Mexico: FDI

 Mexican FDI in Canada is very small  Ranked 40 th in 2012  Not statistically significant  Why?

Canada – Mexico: Prospects for Deeper Integration  Huge potential to do more  Trade at an all time high but still much room to grow  Outside of mining, investment is modest  Surprising how little has been accomplished  Encouraging sign: 2012 trip by Pres. Peña Nieto to Canada

Canada – Mexico: Recommendations for Deeper Integration  Immediately remove visa requirements  Deepen direct bi-lateral relationship  EU deal is great but don’t take Mexico for granted  Cooperate on TPP and other initiatives  Enhance awareness campaigns  Increase funding for common anti-crime and anti- corruption initiatives  Increase frequency of bi-lateral contacts at senior levels

Canada – EU CETA: Game changer?  Comprehensive Economic and Trade Agreement  New generation agreement – deep and wide  5 main components:  1. Tariff elimination on 99% of non-ag and 95% of ag  2. Access to subnational procurement  3. Investor protections  4. Strengthened IP rights  5. Services and labour mobility

CETA Rules of Origin  Rules of origin issues generally follow Canadian style of drafting  Derogations (origin quotas) for products with a higher proportion of imported inputs

CETA Rules of Origin  Autos:  EU: duties currently range from 3.5% to 22% (averaging 11.2%), transition periods of three, five and seven years to match Canada’s offer  Canada: duties currently at 6.1%, seven-year phase- out on most sensitive lines  Main rule of origin with a 50% limit on non-originating materials, decreasing to 45% after seven years  Origin quota of 100,000 vehicles under which a more liberal rule of origin applies (70% transaction value or 80% net cost) for non-originating materials

CETA Rules of Origin  Autos (cont’d)  Cumulation provision in the case of an EU-U.S. FTA, allowing auto parts originating in the United States to count towards the originating status of a vehicle produced in Canada or the EU following discussions between the parties on the applicable conditions  0ne year after the implementation of a provision allowing for cumulation with the United States, the origin quota is eliminated and the main rule of origin includes a 40% limit on non-originating materials

CETA Rules of Origin  Other special rules  Fish/seafood  Textiles and apparel (origin quotas for textiles and apparel cover Canada’s and the EU’s top exports)  High-sugar-containing products  Chocolate and confectionery (see separate agriculture summary)  Processed foods  Cat and dog food

CETA  Full impact will depend on result of EU-US agreement  Will accelerate diminished reliance on US  Receives 80% approval in Canada  No final text available yet – expected in January  Ratification likely in early 2015

20 QUESTIONS? Paul M. Lalonde Partner, HEENAN BLAIKIE LLP T F C P.O. Box 2900, 333 Bay Street, Suite 2900, Bay Adelaide Centre, Toronto, Ontario Canada M5H 2T4