Tariff-exempt exports top 80% as Canadian companies scramble to comply with CUSMA

Recent data from Fitch Ratings Inc. shows that a significant increase in compliance with the Canada-United States-Mexico Agreement (CUSMA) has been observed among Canadian exporters. The ratings agency reported that 81 per cent of goods exported from Canada to the U.S. are now compliant with CUSMA, a substantial improvement from 56 per cent in May.

This surge in compliance can be attributed to the heightened tariffs imposed by United States President Donald Trump on Canadian goods that did not meet the agreement’s criteria. Companies scrambled to ensure their products met the necessary requirements, with some having to navigate through additional paperwork and adjust their supply chains to align with the regulations.

Douglas Porter, chief economist at Bank of Montreal, noted that while some goods only required minor adjustments to become CUSMA-compliant, others faced more significant challenges, especially those with high non-North American content. However, overall compliance rates indicate that the impact of non-sector-specific tariffs on the Canadian economy may be minimal.

Fitch’s analysis also revealed a similar trend among Mexican exporters, with 77 per cent of imports meeting CUSMA criteria in June, up from 42 per cent in May. The ratings agency now forecasts peak compliance rates of 89 per cent for Canada and 83 per cent for Mexico, leading to lower effective tariff rates for both countries.

Despite the Bank of Canada’s estimates that the majority of goods should be covered by CUSMA, the compliance figures remain somewhat elusive. The ongoing trade tensions have resulted in a 25 per cent tariff on non-CUSMA-compliant goods, a measure that was recently raised to 35 per cent.

As all three member countries prepare for a joint review of CUSMA next year, concerns linger about the agreement’s future. Trump’s past disregard for the pact, coupled with his skepticism during discussions with Prime Minister Mark Carney, has raised doubts about its longevity. The upcoming review will likely require significant concessions from Canada and Mexico to sustain CUSMA.

In conclusion, the increased compliance with CUSMA among Canadian exporters signifies a proactive response to evolving trade dynamics. As the trade agreement faces scrutiny in the coming year, stakeholders must navigate uncertainties and prepare for potential changes to ensure continued trade relations.

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