Nova Scotia-made tires, seafood 'vulnerable' if NAFTA axed: BMO analysis

Nova Scotia's two biggest U.S. exports, Michelin tires and seafood, are "significantly vulnerable" if the United States kills the North American Free Trade Agreement, according to an analysis prepared by one of Canada's big banks.

BMO predicts new margin-eroding tariffs would be in store for tires and rubber products exported to the U.S. from Michelin's three Nova Scotia plants.

With 3,200 employees, the French multinational is the province's largest private-sector employer, with exports to the U.S. from Nova Scotia plants valued at $1.1 billion in 2016.

'Very much at risk'

"That's obviously one sector that would be very much at risk if domestic content rules were changed or if we were to revert to pre-NAFTA level of tariffs," said BMO economist Robert Kavcic, one of the authors of The Day after NAFTA.

The report explores the impact by region and sector if NAFTA is scrapped.

"That's one area within the Nova Scotia economy that would feel the impact quite hard," said Kavcic.

The report assumes the preceding Canada-U.S. Free Trade Agreement would not be revived. Instead, World Trade Organization tariffs would prevail, BMO said.

"I think it's more likely in terms of the simplicity of it," said Kavcic.

Breaking down BMO tariff warnings

Michelin tires fall under the trade classification "plastics and rubber products," where the average WTO tariff is 3.7 per cent. 

Nova Scotia's Department of Finance figures show WTO tariffs range from 2.5 per cent on vulcanized rubber up to four per cent on new tires. 

Michelin Canada spokesperson Deborah Carty told CBC News the company supports NAFTA, which is part of its global supply chain.

She said the company is following negotiations between Canada, the U.S. and Mexico in the hopes of a mutually beneficial agreement.

"Michelin has been manufacturing in Nova Scotia for over 50 years, before and after NAFTA. We are part of this province and we are here to stay," she said in an emailed statement.

$1B seafood industry also vulnerable

Nova Scotia's next biggest export to the U.S. is seafood, valued at upwards of $1 billion by the province.

BMO said both food and tires are "significantly vulnerable" to new tariffs.

The bank said the WTO tariff for food products averages 4.5 per cent. 

WTO data supplied by the province indicates WTO tariffs on seafood exported to the U.S. would vary widely.

Whole haddock, halibut and scallops would not be subjected to any WTO tariff upon entry to the U.S.

However all filleted fish and "prepared and preserved" lobster would face tariffs from four to 10 per cent.

"They would be relatively hard hit just given the tariffs we would see and some of the profit margins in that industry which are, across the board, lower than average. So there's not as much room to move on that front," said Kavcic.

Better positioned than Ontario

Overall, BMO said Nova Scotia and Atlantic Canada are better positioned than Ontario, where exports to the U.S. make up 20 per cent of the economy.

In Nova Scotia, shipments to the U.S. make up a little over six per cent of provincial Gross Domestic Product (GDP).

"The majority of of the region, with the exception of New Brunswick, is relatively low in terms of export exposure as a share of their economies," said Kavcic.

New Brunswick's big export isn't threatened 

In New Brunswick, the U.S. export picture is skewed by the overwhelming weight of the Irving-owned Saint John oil refinery. Petroleum products from the refinery account for more than half of all New Brunswick's exports to the U.S., worth $5.5 billion in 2016.

BMO does not believe that Irving company has much to worry about.

"We don't think oil is going to be on the block in terms of the U.S. administration wanting to target oil imports," said Kavcic.