Increased national anxiety regarding free trade agreements coupled with the growth of protectionist attitudes were significant factors in the outcome of our last Presidential election. These factors are not only influencing people in the United States, but they also reflect a larger, global trend. What this new mindset may mean going forward for the global trade community is yet to be determined. However, as this new administration seems primed to implement a protectionist trade agenda, it risks undermining U.S. national interests by creating a vacuum for other countries to fill. The advent of the new trade deal between Canada and the European Union is one of the first examples of this happening. Unfortunately, this new agreement will adversely impact some of New England’s top exports to the Europe.
As it looks now, the U.S. Government’s stalled action, and now a complete halt with nearly eight years of negotiating the Transatlantic Trade and Investment Partnership (TTIP) with the EU, appears this new deal between Canada and Europe will fill the void with exponentially reduced tariffs for Canadian goods. As a result, these tariffs will hurt New England’s economy because they will make some of the region’s most valuable exports from industries such as natural resources, lumber, textiles, agriculture, and seafood more expensive to current European markets in contrast to the same Canadian goods. In April, the Comprehensive Economic and Trade Agreement (CETA) will have provisional status and the agreement will be fully enacted by July 1, 2017. While CETA took seven years to negotiate, the deal is rapidly moving forward towards the final phases before full implementation. Although, various aspects of the agreement require authorization by national legislatures, the new tariffs would begin going into effect in June. Over the next three years, these tariffs will reduce duty rates to zero on most Canadian products shipped to the EU.
One area the deal will cause some problems for U.S. trade is in automotive exports. Canadian cars will enter duty-free as U.S. autos will still have a 10% tariff in the EU. Additionally, CETA creates obstacles to market access for U.S. agriculture producers. CETA is also causing a lot of concern within the local seafood industry because it will also affect wholesalers, fishers, wharves, freighters, and airlines. It eliminates tariffs on live Canadian lobster, dogfish, monkfish, and scallops shipped to the twenty-eight nations in the EU. The outcomes of this legislation would lead to an entirely different and more challenging market for the New England seafood industry. Many in the New England seafood community worry that their live lobster exports will not be able to compete because of the huge competitive advantage Canada expects to have over its American counterparts in shipping these highly desired seafood products overseas. Unfortunately, U.S. exporters would be forced to sell their lobsters with tariffs from 8% for live ones, and up to 20% for processed or cooked lobsters.
This combination of tariffs and the current strong U.S. dollar may wipe away the advantages New England’s stout logistics offer in expediting a fresh catch to a European dinner table. Shipping a living, perishable product such as a lobster is a complex and not a widely known process, where every hour spent in transit counts. Any transit delays could cause shrinkage or lobsters may die. These kinds of issues hurt profits as well as customer relations. A Canadian dealer can take four or five days to get a lobster from the dock to plate in contrast to one from New England who can deliver in two to three days. Until this agreement, U.S. dealers shipping lobsters abroad enjoyed the benefits from shorter drives to international airports in Boston, New Jersey, and New York. In contrast, it takes ten hours to truck lobsters to Toronto, or they have to undergo a layover in Montreal or Toronto before shipping.
In Maine, lobster exports make up 75% of the state’s total commercial value, and lobsters are the most valuable commercial seafood product. So, these expected lower prices for Canadian lobster could devastate this portion of New England’s seafood supply chain because the same species is going to compete in the same market with considerable costs differences. But CETA is also creating a unique problem for some New England lobster companies, and is the subject of lobbying abroad. Currently, there are several New England suppliers, which export lobsters caught in both Canadian and U.S. waters. EU regulations require lobsters to have a tag designating where they were caught and which fishing boat caught them. At this time, it is uncertain if these companies will have an opportunity to sell catches from both waters or have permission to ship lobsters caught in Canadian waters through U.S. airports.
The EU is the largest seafood consumer market in the world, with a market of 500 million consumers and $17 trillion in economic activity a year. According to Fisheries and Oceans Canada, Europe annually buys an average $26 billion in fish and seafood products, making it the largest global fish and seafood market in the world. While this new trade agreement offers major advantages for Canada and brings troubling news for the New England’s lobster industry, there are still good markets available for these New England exporters. By itself, Canada cannot fulfill the global demand for lobster. China’s demand for lobster is growing quickly, even though it only represents half of Europe’s needs. Despite facing a competitive disadvantage for the European market, properly communicating the logistical benefits the U.S. lobster industry has over Canada will keep American suppliers as a viable option for Europe.
As Canadian companies are sure to take advantage of the future tariff reductions coupled with the current climate of lower currency value, many in New England will feel the impact of this trade agreement. Everyone from fishers, suppliers, dockworkers, forwarders, cargo personnel, agents, port officials, to the airlines, should view this legislation as a monumental threat to the entire local trade community and should not take it lightly. The U.S. Government’s delayed action in this matter may result in a full restart to trade discussions with the EU, rather than simply moving forward. Governor LePage of Maine and several interest groups plan to push for a U.S. response to the trade deal, but they cannot be successful alone. OCEANAIR has been encouraging the local business community to help press for a response as well, and we ask you to write or call your Congressmen, Governor, and Senators to act and help keep European markets competitive for New England trade businesses.