NAFTA failure impact on P.E.I. would be 'modest at worst,' says Moody's
Some P.E.I. exports already not exploiting NAFTA tariffs
About 15 per cent of the P.E.I. economy relies on exports to the U.S., but that doesn't mean a failure of the NAFTA negotiations will have a big impact, according to a new report from Moody's.
The credit ratings agency released a report on a NAFTA failure and the potential impact on provincial economies Thursday.
Michael Yake, a senior analyst for Moody's in Toronto, said the 15 per cent ranks P.E.I. about in the middle of the provinces in terms of potential risk, but that risk is not particularly serious.
"The impact to P.E.I. should be modest at worst," Yake said.
"Even for the provinces which are most at risk we think the direct impact on the provinces will be modest, and since P.E.I. is a little bit lower on our list of concerns about NAFTA, the impact on the economy should be even more reduced."
He said Moody's is not forecasting any significant credit implications or any significant declines in economic activity.
Exact impact difficult to measure
While Moody's analyzed the amount of Island exports to the U.S., it was not able to determine just how much of the Island's GDP is directly connected to NAFTA.
Yake said some of those exports, while they qualify for NAFTA, do not necessarily have the NAFTA tariffs applied.
It's costly to do the paperwork.- Michael Yake
"There's a fairly rigorous process to be eligible for NAFTA. You have to show what the country of origin is and go through a lot of paperwork. We know that a lot of small and even medium-sized companies, they just don't go through that paperwork," he said.
"It's costly to do the paperwork, so perhaps just simply the share of their own product that's going to the U.S., it just didn't make economic sense for them to go through that process."
Without NAFTA eligibility, exporters fall back on most favoured nation rules under the WTO, which is also what would happen if NAFTA negotiations collapsed.
The combination of a number of exporters already working under WTO rules, and small differences between WTO tariffs and NAFTA tariffs, played into Moody's conclusion that the economic risk to P.E.I. of a negotiation failure is modest.