The implementation of CUSMA provides an opportunity for Canada, Mexico and the US to work together on critical supply chains.
A new front has opened in the battle against COVID-19 that could have significant long-term consequences if urgent action is not taken.
Faced with a lack of critical equipment such as respirators, protective garments and ventilators, many countries have taken a national security approach to health care equipment, adopting export controls and directing domestic manufacturers to begin production of supplies.
Today, more than 80 countries have instituted export restrictions on COVID-19 supplies, including the US, despite calls from the World Health Organization and World Trade Organization not to do so. As Deputy Prime Minister Chrystia Freeland so aptly put it, it is a “Wild West when it comes to buying medical supplies.”
Exacerbating this situation is the fact that exports of medical supplies and equipment used in the fight against COVID-19 are highly concentrated among a handful of countries. Nearly 17 per cent in exports of personal protective equipment (PPE) supplies came from China in 2019, the world’s top exporter, followed by Germany and the United States. These three exporters account for more than 40 per cent of global exports of PPE.
Canada is particularly exposed to export restrictions, with China and the US responsible for nearly two-thirds of Canada’s imports of protective garments in 2019. President Donald Trump’s recent demand that 3M cease exports of N95 masks to Canada and Latin America underlines Canada’s predicament.
Prime Minister Justin Trudeau stated publicly that he would not retaliate against the US on N95 masks, but if he had, the US would be today in short supply of other critical supplies to fight COVID-19. That’s because, while the US runs an overall trade surplus with Canada on these products, it still imported $1.7 billion in 2019. Perhaps this is why the US ultimately relented, exempting Canada and Mexico from export restrictions on masks and other COVID-19 products.
But having placated Canada and Mexico, the US is still vulnerable to retaliation from other trading partners as it runs a sizable trade deficit with the world on almost all COVID-19 equipment. The two biggest sources of US imports for these products are the EU and China — keep in mind that both had strained trade relations with the U.S. even before the current health crisis.
While all the talk these days is how to establish a national base for manufacturing critical medical supplies and equipment, there is another option.
The pending implementation of the Canada-Mexico-United States Agreement (CUMSA) which replaced the North American Free Trade Agreement creates an opportunity for the US, Mexico and Canada to develop a continental strategy. For the US, this would meet one of the key objectives it set out at the beginning of the CUMSA renegotiation — incentivize greater production in North America.
One way to achieve this objective would be to promote greater regulatory compatibility in key goods sectors, including medical devices. Canadian companies have stepped up to manufacture products such as ventilators in Canada but have been stymied by differing regulatory approval processes and standards.
It makes little sense for Canada, the US, and Mexico to have differing regulations and standards on life-saving medical devices. If a ventilator is good enough for an American patient surely it will be acceptable to Canadians and Mexicans.
Another benefit to North America of an integrated and capable supply chain in medical equipment is that it will better position us to come to the aid of others. Now that China appears to have overcome the worst phase of the COVID-19 pandemic, it is putting its considerable manufacturing capacity to work to help others.
China’s support to so many nations in their time of need will not soon be forgotten, especially across the developing world. Beyond the humanitarian necessity of helping other nations, North America would benefit from the business and social connectivity.
Now that the initial uncertainty has passed around whether North America would truly behave as a unified economic bloc when faced with this crisis, it is time for companies and governments to take a hard look at critical sectors and determine if there are ways to further strengthen supply chains in North America. This would not only provide each country with a faster and stronger response to future pandemics but would enable us to better help other nations when they are affected by pandemics and other health crises.
This article is part of the The Coronavirus Pandemic: Canada’s Response special feature.