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CETA spells benefits for North America, too

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01 Jan 2014

According to research from the C.D. Howe Institute, the effect of the Canada-EU Comprehensive Trade and Economic Agreement (CETA) will be felt throughout North America, and will reverberate through countries listed under the North American Free Trade Agreement (NAFTA), which includes Canada. Essentially, analysts say that those countries which maintain favorable trade partnerships with Canada through NAFTA (most notably the United States and Mexico) will at least maintain those favorable relationships through CETA, and in some instances may see benefits improve to match the climate CETA will establish between Canada and countries in the European Union.

What it means
Analyst and trade lawyer Lawrence Herman looked at the effect that CETA is expected to have on Canada's established trade partnerships, and found that although the majority of extant agreements (like Canada's membership in the World Trade Organization [WTO]) would remain unaffected, trade partnerships with Mexico, the United States and some South American countries would likely improve.

"The North American Free Trade Agreement does not expressly restrict application of the Most-Favoured Nation rule with respect to investments, so the rule applies," said Herman, according to the Canada Free Press.  "Investors from the United States and Mexico must be treated on an equal footing and receive the same preferences as EU investors or investments under CETA - likewise, our other partners in PTAs, such as Peru, Chile and Columbia."

Manufacturing
From the perspective of the European Union, CETA will increase the investment review threshold from $344 million to $1.5 billion at the enterprise value level, Herman noted. To maintain pace in North America, Mexico and the United States will both see equal increases in the investment threshold, allowing U.S. companies to invest more in nearshoring initiatives. Nearshoring projects in Mexico have seen significant success in the automotive parts and aerospace sectors, and Herman notes that the increased threshold will have an effect on more expensive manufacturing and processing sectors, in particular the uranium extraction and processing in Canada. 

The North American advantage
Although on the surface, CETA marks a significant step forward for trade possibilities between Canada and the EU, the existing trade laws established in NAFTA provide North American partners an advantage as global trade regulations and limits fluctuate. As evidenced by the coordinated threshold increase, NAFTA countries are unlikely to be left behind when member countries strike trade deals outside of North America. 

As global manufacturing becomes more expensive in many industries, nearshoring becomes increasingly attractive. With nearshoring, U.S.-based companies can be more easily assured that processes are sophisticated while labor remains inexpensive. As labor costs continue to climb in China and with favorable trade agreements, plus the ability to monitor plant conditions and production quality more easily on-continent, a major benefit, more companies are moving their manufacturing operations back to North America. According to research from the C.D. Howe Institute and analysis from Lawrence Herman, Canada's newest deal with the European Union represents yet another reason for increased nearshoring participation in North America.

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