Only time will tell if the newly-signed U.S.-Mexico-Canada Agreement will reduce trade tensions.
On Nov. 30, 2018Â trade tensions between the United States and Canada subsided as President Trump and Prime Minister Trudeau signed the U.S.-Mexico-Canada Agreement (USMCA). Hopefully, this will close the tensest chapter in the relationship between these two neighbours in over 80 years. However, only time will tell. President Trump is considering auto tariffs that would re-escalate the situation and provoke counter-tariffs from Canada. President Trump is unlikely to exempt Canada even with the renewed goodwill.
The USMCA is largely a modernization of the North American Free Trade Agreement (NAFTA), which it replaced. There are several positive changes for the seed industry.
First, USMCA requires all parties to ascend to UPOV 1991, the latest and strictest version of the international plant variety protection treaty. Previously, countries were given the option to join UPOV 1978 or 1991. Canada and the United States are already members of the 1991 Convention, Mexico is not.
Second, the new agreement provides robust and highly enforceable phytosanitary standards and highlights the importance of science-based decision-making processes. USMCA provides guidance on regulatory equivalence, transparency, cooperative technical consultations, and the creation of rapid-response mechanisms with stricter standards and deadlines for adverse import checks. And it requires countries to adopt seed policies that are aligned with the International Plant Protection Conventionâ€™s Seed Standard. This should make it faster, more predictable, and less expensive to move seed within North America.
Finally, the United States Trade Representative highlighted that USMCA is the first trade agreement that specifically addresses agricultural biotechnology to support 21st-century innovations in agriculture. This agreement covers all types of agriculture biotechnology including plant breeding innovations like gene editing. It decreases the likelihood that shipments will be stopped because of low-level presence.
These modifications and additions will benefit the seed industry. They will increase bilateral communication at the government-to-government level and further facilitate seed trade. Plus, they will provide stronger intellectual property protection for plant breeders.
While this one piece of the complicated trade environment seems to be resolved, the rest of the landscape has not improved. The trade dispute between the United States and China is still escalating. On Sept. 24, 2018, the United States placed a 10 per cent tariff on $200 billion worth of Chinese imports. This impacted over $100 million worth of vegetable and flower seed that companies produce in China and ship to the United States. Of this $100 million of seed, $40 million is vegetable seed that is re-exported to Canada. Seed companies will likely pass on part of the $10 million in tariffs to Canadian producers.
President Trump has the authority to raise the tariffs from 10 per cent to 25 per cent on January 1, 2019, but the United States and China have agreed not to impose any new tariffs before the end of March or else April of 2019. The tariff on vegetable and flower seeds would increase accordingly.
Seed companies are looking to diversify their production sites to limit their exposure to tariffs, but this takes time and may not be possible before production contracts are signed at the beginning of 2019. Canadian producers should prepare for even higher seed prices in 2020.