More online shopping but also pricier drugs: What the new NAFTA means for your wallet
After more than a year of negotiations, the North American Free Trade Agreement (NAFTA) is about to give way to the United States Mexico Canada Agreement (USMCA).
Both Washington and Ottawa are calling it a win, with U.S. President Donald Trump hailing a “wonderful” new trade deal with Canada and Mexico and Prime Minister Justin Trudeau extolling the virtues of a trade agreement that will “grow the middle class.”
Here’s what Prime Minister Justin Trudeau had to say about the new deal:
For Canadian consumers, though, the USMCA appears to be a mixed bag, experts say.
WATCH: What does the new NAFTA deal mean for Canada?
Cheaper, faster cross-border online shopping
Online shopping is arguably the big win for consumers. The deal raises the maximum value of goods that Canadians can purchase online or via mail order without paying duties from $20 to $150. It also raises the threshold value of imported goods exempted from Canadian sales taxes from $20 to $40.
In other words, if you’re ordering something from the U.S. that’s valued at $150 or less, you won’t have to pay duties. For goods worth up to $40, you won’t even have to pay the GST or provincial sales taxes.
The move also means faster delivery times for smaller online purchases, thanks to fewer customs processing at the border for duty-exempt goods, according to BMO Financial Group chief economist Douglas Porter.
Still, the new rules might not take effect in time for holiday shopping this year. While Trump, Trudeau and Mexico’s outgoing President Enrique Pena Nieto are expected to sign the deal at the end of November, it’s unclear whether the U.S. Congress would ratify it during the lame-duck December session that will follow the 2018 U.S. midterm elections this fall.
WATCH: 300,000 Canadian jobs could be lost if U.S. duty-free limit rises for online shopping
Pricier prescription drugs
As part of the deal, Canada has agreed to extend patent protections for so-called biological pharmaceutical drugs from eight to 10 years, a concession Mexico had already agreed to.
“This is the one portion of the deal that is a clear negative for Canada since it will add to drug costs with precious little upside in return,” according to Porter.
Biologics are a new generation of pharmaceuticals that are manufactured using the biological processes of living organisms like plant and animal cells. They are complex drugs that are revolutionizing the treatment of anything from various types of cancer to arthritis. And they are also a major driver of soaring drug prices.
Five out of the 10 costliest drug treatments currently available in Canada involve biologics, said Rosalie Wyonch, a health policy analyst at the C.D. Howe Institute.
And biological drugs went from accounting for less than 15 per cent of the cost of public drug plans in Canada in 2011 to making up over 22 per cent of those costs in 2011, a seven percentage point leap in just five years, Wyonch noted.
The USMCA provisions mean that Canadians will now likely have to wait longer until a cheaper, generic version of new biological drugs becomes available, Wyonch told Global News.
“Generally speaking, [biologics] are more expensive and used by fewer patients,” Wyonch said, adding that the drugs may be “the treatment of last resort” for some.
But stronger patent protections for biologics may have broader implications, by gradually putting upward pressure on both private and public drug plans, she added.
And Canada’s diminished control over the price of biologics poses a fresh challenge for the creation of a national pharmacare plan, Wyonch noted.
“While the government of Canada says it is committed to improving access to necessary prescription medication and reducing the amounts Canadian governments pay for these drugs, this is unfortunately not what they have achieved by agreeing to concessions that reduce access to essential medicines and increase costs for those who pay for drugs,” Jim Keon, president of the Canadian Generic Pharmaceutical Association told Global News in an emailed statement.
WATCH: The difference between generic and brand-name drugs
Little change on dairy products
Canada’s concessions on dairy have drawn scathing criticism from Canadian farmers, but the measures are expected to have little impact on consumers.
The deal guarantees U.S. farmers greater access to 3.5 per cent of Canada’s dairy and poultry market.
That’s still a relatively small slice of the pie. Add to this that the quota increased will be phased in over six years and the price gains for grocery shoppers appear small.
“At the margin, it may have a small impact on weighing on dairy prices (notably cheese), but I wouldn’t overplay the impact,” Porter told Global News via email.
Higher chances of more interest-rate increases
News of a new NAFTA deal sent the Canadian dollar soaring on Monday, but the revamped trade agreement will likely have at least one other major indirect impact on Canadian pocketbooks.
The trade renegotiations had been a key element of uncertainty clouding the outlook for the Bank of Canada. Now the USMCA “all but cements a rate hike at the next policy announcement on October 24, barring something truly shocking over the next three weeks,” Porter wrote.
© 2018 Global News, a division of Corus Entertainment Inc.