Canada: Renegotiating NAFTA: Three Areas Where Renegotiation Could Impact Commercial Carriers

Last Updated: November 14 2017
Article by Allan Foran and Carolyn Frost

Many trucking companies in Canada do business with our neighbours to the south and are engaged in cross border trucking. For those companies, the prospect of Canada renegotiating the North American Free Trade Agreement ("NAFTA") with an American government in full protectionism mode may raise concerns about how any renegotiated NAFTA will affect business. Even carriers who never do business in the U.S. may sit up and take notice of U.S. proposals to change NAFTA.

The U.S. Bureau of Transportation Statistics reported in June 2017 that trucks carried 57.6% of the value of the freight flowing to Canada from the U.S and from Canada to the U.S. The same report confirmed that the movement of freight as a result of NAFTA alone totals 91.1 billion dollars per year and that the volume of freight being moved as a result of NAFTA has risen in the last six consecutive monthly periods for which data has been compiled. In other words, freight moved between the two countries as a result of NAFTA is big business, which may be impacted if new rules are imposed that raise trade barriers consistent with the protectionist rhetoric coming out of Washington, D.C.

On July 17, 2017, the U.S. Trade Representative's Office released a summary of proposals setting out the U.S. position going into the NAFTA talks set to begin in August 2017. These proposals, overall, do not set the ground work for massive change to NAFTA; therefore, concerns that NAFTA might be ripped up and terminated are probably overblown. However, there are some very interesting proposals that touch directly on the business of commercial carriers.

Three specific categories in the proposals may relate directly to the trucking industry and may represent the opportunity for Canada to negotiate some modernizations for cross border trucking.

The first proposal which may be of some interest to Canadian carriers is intended to facilitate easier cross border movement.

For example, the proposal raises the possibility of new rules providing for the automation of import, export and transit processes by reducing the requirement for import, export and transit forms, documents and formalities; enhancing harmonization of data requirements for customs and providing the ability to make electronic payment of fees associated with import and export of goods. These are areas which could be streamlined and modernized, and such rules are likely to reduce the cost of doing cross border business for Canadian trucking companies. Accordingly, the proposal may represent some welcome change.

A second proposal that may impact commercial carriers positively is a proposal to increase use of risk management systems for customs.

Canada and the U.S. currently co-operate on certain risk management processes such as the FAST program. FAST is a joint program between the Canada Border Services Agency and the United States Customs and Border Protection that allows for more efficient transportation of goods through border crossings while maintaining proper security measures. To be eligible for the FAST program, every participant in the supply chain (manufacturer, carrier, driver, importer) must be certified under the Customs-Trade Partnership Against Terrorism program. This includes a requirement that carriers agree to implement security measures that address any security deficiencies. Although correcting some of these deficiencies can involve significant up front cost and inconvenience, once a carrier and its drivers participate in the FAST Program, the drivers have access to lanes or booths at certain border crossings between Canada and the United States dedicated solely to FAST members, which cuts down on wait times for commercial vehicles. A FAST driver is also subject to less stringent security checks before being permitted to pass through the border crossing. The success of programs such as the FAST Program suggests that new or enhanced regulatory co-operation at the border under NAFTA could be beneficial for Canadian carriers.

One final area identified for discussion in upcoming negotiations will include developing "rules to help level the playing field for U.S. delivery services suppliers in the NAFTA countries."

This proposal may open the door for discussions about cabotage. Cabotage refers to a process where freight is transported between two points in a country by a foreign driver. Currently, under Article 1603 of NAFTA, cabotage is prohibited. The purpose of prohibiting cabotage is to prevent a foreign driver from taking work away from domestic drivers by transporting goods from two points within that country.

The implications of renegotiation around cabotage are very different for Canadian carriers who do cross border business versus those who carry freight in Canada only. For cross border carriers, removing the prohibition against cabotage entirely or loosening that prohibition has the potential to open up efficiencies for drivers returning to Canada after carrying a load to a U.S. customer. It could mean obtaining new business that was previously unavailable as a result of the rule against cabotage.

Carriers whose business is solely within Canada, on the other hand, may take a very different view of any agreement to remove prohibitions against cabotage. In that scenario, U.S. based carriers would be able to compete for business involving freight moving between two points in Canada. Increased competition could have negative implications for such carriers.

As noted above, negotiations will not commence until August and therefore carriers (and their lawyers) will have to stay tuned to determine how significantly the renegotiations will ultimately change the legal framework for cross border trade.

This article first appeared in Western Canada Highway News, fall 2017 issue.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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