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Episode 27 – When Site Selection Goes International

Site Selectors Guild
Episode 27 - When Site Selection Goes International
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Rick Weddle: Welcome to “Site Selection Matters” where we take a close look at the art and science of site selection decision making. I’m your host, Rick Weddle, president of the Site Selectors Guild. In each episode, we introduce you to leaders in the world of corporate site selection and economic development. We speak with members of the Site Selectors Guild, our economic development partners, and corporate decision-makers to provide you with deep insight into the best and next practices in our profession.

In this episode, we have as our guest, Consul General Nadia Theodore, consul general of Canada for the U.S. Southeast, and Atlanta, Georgia.

Today, Consul General Theodore will talk with us about the new USMCA trade agreement and more specifically Canada’s benefits as the location for foreign direct investment or FDI. Join me as we welcome Consul General Theodore to “Site Selection Matters”.

Consul General Theodore, please take a few minutes if you will to bring our listeners up to date about the USMCA trade agreement. Just what exactly is the agreement all about?

CG Theodore: Well, first, Rick, I just wanted to say thank you for this opportunity to chat with you. Canada, and the Canadian consulate general, and myself as the consul general, we are very excited to be one of the Gold Sponsors at the upcoming National Conference. We’re going to have a great, big Canadian presence at the conference.

And so, it’s very exciting for me to be talking to you today about the Canada-U.S. relationship and, in particular, the Canada-U.S. trade relationship because as your listeners may or may not know about me, I am a self-proclaimed trade geek. So, talking to you about the USMCA is something that I’m excited to do.

And frankly, before we get into sort of the details about the agreement, I really think that, you know, anything to do with the USMCA should really be prefaced by saying that there are very few relationships that transcend the passage of time, of political change, of economic ups and downs while maintaining the depth and the shared value and economic ties that Canada and the United States have maintained. There are really no two other nations in the world that have the dependency, whether it be on economics or security, than the United States and Canada.

And so, having said that, in the context of the trade relationship, the USMCA has really been a model for our economic prosperity both in Canada, and the United States, and also Mexico. It is really a balanced and fair agreement that supports growth and innovation in both of our countries. And it’s really the mechanism that provides certainty for Canadian, American, and Mexican companies to take advantage of supply chains across all three borders in all three countries to produce goods at a cost that people were able to afford and at a quality that people have come to expect. So, you know, the agreement in short is really about maintaining those supply chains and maintaining that deep trade connection in between our three countries.

Rick: You know, Consul General, you said you were a self-proclaimed trade geek. I believe that’s what you… And I’m a…

CG Theodore: Indeed. Indeed, that is exactly it.

Rick: I’m a self-proclaimed economic development geek. So, from one geek to another, this is going to be a great conversation. I would agree with you completely about the relationship between the U.S. and Canada that’s been a gold relationship over the years. It is probably unparalleled anywhere in the world in terms of overall relationships and so I agree with you completely. And that’s because it’s balanced and it’s fair and mutually important for both sides.

You know, Consul General, when Canada, Mexico, and the U.S. are combined, it really creates the world’s largest trading bloc.

CG Theodore: Indeed, indeed.

Rick: Why is that important?

CG Theodore: Well, you know, the U.S., Mexico, Canada trading bloc or, you know, free trade zone I suppose as some people like to call it is—you said it very correctly—the biggest economic region in the world. And it is a $22 trillion market of more than 480 million consumers. But let’s say that again. $22 trillion and 480 million consumers and those two numbers to me are exactly why it’s important.

For every and any business person, small, medium, or large-sized business person who is listening to this podcast right now, you know that what is most important in order for you to succeed is to have a market, right? It’s to have a market for which and to which you can sell your stuff. And Canada, Mexico, and the United States having this 480 million consumer market that allows companies to sell their products into those markets to those consumers without tariffs and without duties of 99.9% of those goods, it means benefits for our companies, right? I mean, that is the crux of the matter.

And when you talk about the Canada-U.S. relationship in particular, there is no two countries that have a relationship where there is $1.4 million of trade that goes back and forth between our borders every minute of every day. $1.4 million worth of trade. So, we are each other’s number one trading partners, and that is why the trading bloc is important.

Canada is your number one supplier of energy in the United States in all its form. Many people might know that, you know, Canada has the third largest [inaudible 00:06:45] crude reserve and so we supply 47% or 48%, I can’t remember the exact [inaudible 00:06:53] so don’t quote me on it. Forty-eight, I think it is, percent of the U.S.’ crude oil.

We supply you with a numerous amount of input but not finished products but products that are inputted into other products here in the United States that then add additional value and additional job creation right here in the United States and then it’s sold to the world.

And so, the relationship isn’t really just about selling finished goods across the border. It really is about making things together. And having this trade bloc, having this free trade zone amongst our country, amongst developed countries is important in that regard.

Rick: You know, Consul General, you said market, very important. That’s the most important thing. Secondly probably certainty, if you will, the rules of the road operate. But just thinking of the size of that, you said $1.4 million a minute, that’s probably $12 million just while we’ve been talking today in this conversation how huge this market is as we look at it. What a great situation. What are the main points of the United States-Mexico-Canada trade agreement?

CG Theodore: So, the modernized NAFTA is really about… And you said it 100%, Rick. It’s really about maintaining that stability and that predictability for companies. So, the USMCA includes updates in all of the key areas that the NAFTA covered including rules of origin for automotive manufacturing for automobiles. Many people would have read about that in the media. So, the rules of origin changed from 62.5% for auto to 75% with an additional requirement being added in that 70% North American steel and aluminum must be in that product in order for the product to qualify for a preferential tariff treatment.

And, you know, this is really something that came out of the realization that, “As trade agreements evolve, as supply chains evolve, as, you know, the world becomes increasingly globalized, we all three countries wanted to make sure that the benefits of our agreement were borne by the signatory of the agreement, right, and that we didn’t have what we in the trading world sometimes call free riders. So, we tightened up the RVC for automobiles from 62.5% to 75% and put in that requirement for 70% of North American steel and aluminum.

So that’s a big change. I would say that that’s probably the most significant change in the area of manufactured goods. You know, for Canada, it’s very important as well that, as a sidestep to the agreement, we also removed the 232 tariffs that were in place for steel and aluminum, which in our view were unjust and created undue hardship for all of our companies frankly both in Canada and the United States. So that was important for us.

And then something else that I just want to point out to make sure that your listeners understand, and they might not be aware of because it really is groundbreaking, never have been done before in any trade agreement. We also included a requirement that 40% to 40% of a vehicle value i.e., the stuff, the parts that go into the car must be produced by workers that are earning at least $16 an hour in order for the car to be deemed originating and therefore get the preferential tariff treatment.

And that is a big deal. It is something that has never before been done in any trade agreement, and it was important frankly for all three countries to ensure that, A, companies were respecting the labor laws, rules, and regulations in all three countries, right, and also to ensure that companies in any one country weren’t getting an unfair advantage because of leased labor laws or maybe not leased labor laws but maybe labor laws that might not have been properly enforced in the country. And so that, to me, is something that is unique and innovative and very 21st Century that is new in the USMCA.

Rick: Consul General, you know, we intuitively just understand and know that trade agreements and trade is good for the economy and good for our people, but it seems like this groundbreaking provision to kind of lock in the wage rate for the percentage of the automobile production, it kind of locks it in to be good for our people; I guess it is a first.

CG Theodore: One hundred percent. In my view, it creates incentives for higher wages, right? so we’re not saying we’re not prescribing to any company or any country what their minimum wage has to be or how much they need to pay their workers. I mean, those are decisions that companies and governments will make based on, you know, numerous factors.

But what we are saying is that, if you want to benefit from the preferential tariff treatment, if you want to benefit from the preference that you can have as part of this trade agreement, you do have to pay…at least 40% to 45% of a vehicle value has to be produced by workers that are making it in $16 an hour. So it is an incentive for higher wages and better working conditions in all three countries. And so I think it’s important and I think it’s an innovation that will hopefully be replicated in future agreements.

Rick: And that’s an innovation you’re going to be proud of for a long, long time to come because that’s a really neat thing. Consul General, let me switch gears with you for just a second, if I may. We’ve been talking about trade and we kind of understand that back and forth of trade, but I’d like to probe a little bit about how this agreement really impacts Canada’s overall competitive position and really attractiveness as a location for foreign direct investments. So not just trade but investment. How does it help that?

CG Theodore: Absolutely. So, you know, again, not to sound like a broken record but, you know, it is true. The special relationship that the United States and Canada share really for Canada makes it a no-brainer when we say to U.S. companies, “Hey, when you’re looking to expand your global footprint, look no further than your neighbors to the north,” right?

So for a U.S. company expanding into Canada is a natural step when they’re setting their sights global. What we say to Canadian companies when they’re looking to go global is, “Listen, if you can make it in the United States, that’s the first step to then looking at the broader world,” and the reverse is true. So for the United States and U.S. companies, Canada is a perfect place to come and expand your global footprint and begin your global journey so to speak.

And really, in my humble opinion, it’s not really a choice between the U.S. and Canada. It’s really about how one location can complement the other. So, you know, what do I mean by that? Canada has free trade agreements with all G7 countries. And through those trade agreements with all G7 countries, we have preferential access to 51 countries through 14 trade agreements, 51 countries, 14 trade agreements. Yes, that’s correct. And so businesses that choose to invest in Canada and set up a second office in Canada enjoy preferential access to a global market representing two-thirds of the world outside of goods and services. So it really means that, for these companies, they are able to leverage access to European and Asian markets for their goods and services.

As many of your listeners might know, we have one of the most stable banking systems in the G7 and the incentives for foreign investors such as duty-free manufacturing, celebrated capital cost allowance, which allows you to write off 100% of capital investment in one year in Year 1 of the investment. Year 1 of the investment, you get to write 100% of capital investment. It makes Canada an excellent opportunity. It really does make us a preferred location for U.S. companies that are looking to reach global markets and de-risk exposure to what we know now to be very somewhat unexpected tariff shift.

Rick: So when I locate a production facility in Canada, I get the benefit of all the preferential agreements and treatments that you’ve negotiated over the years. I just plugin and play. That’s amazing.

CG Theodore: One hundred percent. And, you know, not only do you get that, the preference to other markets, you also get access to our accelerated ability to bring in foreign talent into the country, into Canada. We have programs that allows companies to offshore talent in Canada to support both their Canadian needs and to service their U.S. clients, right?

So, again, it’s not an either/or. It’s really about complementarity. So, you know, absolutely you can bring in talent to support your Canadian needs but also to service your U.S. client which again will complement the U.S. economy as well. So lots of no-brainer, as I like to say, reasons for companies to look to Canada for their next investment play.

Rick: You know, Consul General, we’ve been talking about how all this happened, and how it came about, and what it means to the individual countries. That’s really interesting. But perhaps more important to our listeners might be what we can expect going forward, if you will, kind of taking a look into your crystal ball if you will. Why don’t you give our listeners a little sneak peek of maybe what you see in the next few years?

CG Theodore: Yeah. So, you know, this might not sound as exciting as some may want it to sound, but I am also an optimist unfortunately maybe. But I really think that, because of our close cooperation, we really are your closest neighbors and closest allies. I really do expect partnership between Canada and the United States with regards to foreign policy, with regard to trade, with regard to defense to continue. Our shared values will continue to be a strong voice for the rule-based order system that we have over the last several decades worked to established internationally.

I will say though and let me say that I also think that the USMCA as a trading bloc will continue to make all three countries competitive globally. It will allow us to continue to compete with the rest of the world, to compete with Europe, to compete with Asia and win as we have been winning for many years and decades past. So, we will continue to be able to do that.

But I will say that, you know, we have to be careful not to rest on our laurels. You know, we all know that the rising economic influence of other countries, China, India, and others will necessitate us to continue to be very deliberate and intentional in working together—Canada, and the United States, and other allies but especially Canada and the United States—to engage with each other and to engage with those others around the world to ensure that we maintain a degree of cooperation and collaboration because I really do believe that the world, whether we like it or not, is going to continue to be more globalized and we are only going to continue to have an increased connected ecosystem.

And so, it will really be for Canada and the United States to continue to be the leaders in developing the rule. You know, if you’re not a rule-maker, then you’re a rule-taker. And Canada and the United States have been lucky to be rule-makers, and we need to continue to play that role in the global economy. I really think that it’s important for us to continue to be the voices of a rule-based order system to ensure the continued prosperity of our citizens.

Rick: And by working together, our three major partners, we kind of sharpen our saws so we can compete against everybody else and continue to benefit our citizens going forward. Consul General Theodore, you’ve given us a lot to think about today. What a great conversation this has been, but, you know, it’s really all the time we have. I could go on and, on all day, but it’s really all the time we have. So, let me say thanks to Consul General Nadia Theodore for talking with us today on this episode of “Site Selection Matters”.

CG Theodore: Thank you so much, Rick. I could talk all day, too. I really enjoyed this, and I look forward to seeing you in a couple weeks.

Rick: Thanks for listening to this episode of “Site Selection Matters” and a special thanks to Consul General Nadia Theodore for helping us get inside and better understand the U.S-Mexico-Canada trade agreement and just how it impacts foreign direct investment for the partners. What an informative discussion that was and one that leaves us with a lot to think about.

Again, I am Rick Weddle, president of Site Selectors Guild. This podcast episode presents my views and the views of my guests and they do not necessarily represent the views or opinions of the Site Selectors Guild or its membership. We do hope you will subscribe to the “Site Selection Matters” podcast on Apple podcast, on Stitcher, on Spotify, or wherever you listen to your podcast. We look forward to bringing you some great discussions in the year ahead. Until next time, good day.