Canada’s trade relationship with the United States is entering another formal test. After Washington declined to extend CUSMA during the agreement’s first six-year review in July 2026, the Office of the U.S. Trade Representative has opened consultations for the next annual review, asking businesses, industry groups and other stakeholders to identify problems with implementation, compliance and the North American investment climate.
Written submissions are due January 12, 2027, with a public hearing to follow. The process does not mean CUSMA is expiring or that every complaint submitted will become a U.S. negotiating demand. It does, however, give Washington a structured way to assemble the next list of grievances and proposed changes. For Canada, files ranging from dairy and procurement to digital regulation and automotive rules could once again come under pressure.
The 2027 Review Exists Because Washington Refused to Extend the Pact
CUSMA entered into force on July 1, 2020, with an unusual review mechanism built into Article 34.7. The three countries were required to meet six years later and decide whether they wanted to extend the agreement for another 16-year term. Had Canada, Mexico and the United States all agreed in July 2026, the next formal review would generally have been another six years away. Instead, Washington declined to extend CUSMA in its existing form, arguing that unresolved problems remained.
That decision did not cancel the agreement. CUSMA continues to operate, and its current term runs to 2036 unless the countries agree to an extension sooner or one country separately exercises its withdrawal rights. What changed was the frequency of the reviews. Because unanimous agreement was not reached in 2026, CUSMA now requires annual joint reviews until all three governments confirm that they want another 16-year term. That turns what was supposed to be a six-year checkpoint into a potentially recurring source of negotiation and uncertainty.
USTR Is Building a Detailed Record of Complaints and Proposed Fixes
Washington’s new consultation is deliberately broad. USTR is inviting comments on virtually any aspect of CUSMA’s operation or implementation, including alleged compliance problems and recommendations for specific actions the United States should pursue. It is also asking how the agreement affects North American economic security and how the three countries should respond to non-market practices by outside economies. The consultation therefore goes well beyond asking whether existing tariff rules are being followed.
Investment receives particularly prominent treatment. USTR wants stakeholders to discuss conditions affecting investment throughout North America and whether CUSMA is encouraging investment that improves U.S. competitiveness, productivity and technological leadership. Written comments must arrive by January 12, 2027. Organizations wishing to testify have the same deadline to request an appearance and submit a summary of their proposed testimony. A hearing will be held later, although its date and location have not yet been announced. The resulting docket could provide an early indication of which Canadian policies U.S. industries want Washington to challenge next.
Trade and Investment Exposure Make This More Than a Legal Exercise
The size of the relationship helps explain why relatively technical CUSMA disputes can quickly become national economic issues. USTR calculated total U.S. goods trade with Canada at roughly US$719.5 billion in 2025, including US$336.5 billion in American exports and US$383 billion in imports from Canada. Services added another estimated US$150.2 billion. Statistics Canada, meanwhile, reported that 71.7% of Canadian merchandise exports still went to the United States in 2025, even after the share fell from 75.9% a year earlier.
Investment ties are similarly deep. Statistics Canada says U.S. direct investors held C$737.3 billion in Canada at the end of 2025, representing 46.1% of the country’s total inward foreign direct investment stock. Canadian direct investment in the United States stood at more than C$1.2 trillion and represented almost half of Canada’s total direct investment abroad. That makes USTR’s decision to put the “investment climate” directly into the consultation especially significant. Companies making decade-long factory, energy, technology or supply-chain decisions care not only about tariffs today, but about whether the continental rules will remain predictable enough to justify billions of dollars in capital spending.
Dairy Remains a Ready-Made Compliance Fight
Few Canadian files have generated as much repeated U.S. frustration under CUSMA as dairy. Canada’s supply-management system uses production controls and tariff-rate quotas to manage imports, while CUSMA gave U.S. producers additional quota-based access to the Canadian market. USTR’s 2026 National Trade Estimate continued to identify the system as a major trade concern and noted that above-quota tariffs can be extremely high, including rates it listed at 245% for cheese and 298% for butter.
The history is complicated because Washington has not won every legal argument it has made. The United States challenged Canada’s dairy quota administration in two CUSMA proceedings. Canada changed its policies after an initial panel found its processor-specific reservation inconsistent with the agreement, but a second panel in 2023 rejected the U.S. claims against several later Canadian measures. Washington nevertheless continues to object to issues such as eligibility rules, allocation methods and the ability of importers to use the available quotas fully. Canada said its existing CUSMA dairy allocation policies remained unchanged for the 2026–27 dairy year. That combination—legal history, persistent political pressure and unresolved U.S. dissatisfaction—makes dairy an obvious candidate for another round of stakeholder submissions.
Buy Canadian Procurement Rules Create a New Target
Government purchasing has become another sensitive issue as Ottawa responds to a much more protectionist North American environment. Canada introduced its Buy Canadian framework in December 2025, initially applying its strategic Canadian-supplier and Canadian-content policy to certain procurements worth at least C$25 million. On June 15, 2026, that threshold was lowered to C$5 million, substantially increasing the number of federal purchasing decisions potentially covered. Separate rules require Canadian steel, aluminum and wood in qualifying federal defence and construction contracts valued at C$25 million or more when Canadian supply is available.
Washington is already watching. USTR’s 2026 trade-barriers report identified Buy Canadian rules as a concern and also criticized measures adopted in Ontario, Quebec and British Columbia that it said disadvantaged or excluded U.S. suppliers in some procurement processes. There is an important legal distinction, however: Canada is not a party to CUSMA’s government-procurement chapter with the United States, and much of the bilateral procurement framework instead rests on other commitments, including the WTO Government Procurement Agreement. As a result, a U.S. complaint about Canadian purchasing policy does not automatically establish a CUSMA violation. The review can still make procurement a bargaining issue even where the underlying legal route is more complicated.
Digital Policy Has Shifted, But It Has Not Disappeared
Canada has already removed one of Washington’s largest digital irritants. The federal Digital Services Tax, which would have imposed a 3% levy on certain revenues from large digital businesses, was formally repealed after legislation received Royal Assent on March 26, 2026. The repeal was retroactive to the tax’s original enactment, and the Canada Revenue Agency is refunding payments it received. That effectively closed a dispute that had prompted the United States to seek CUSMA consultations.
Other digital-policy disagreements remain. Canada’s Online Streaming Act gave the CRTC expanded authority over large online broadcasters, and the regulator initially required qualifying online services to make a base contribution equal to 5% of Canadian revenues. In 2026, the CRTC established a broader Canadian-programming expenditure framework under which qualifying online streaming services face a 15% requirement that incorporates that existing 5% base contribution. USTR has also been monitoring the Online News Act and Quebec legislation dealing with the discoverability of French-language cultural content. None of these concerns automatically amounts to a breach of CUSMA. They do, however, create exactly the kind of regulatory and market-access questions U.S. technology and media companies may use the new consultation to raise.
Autos Could Be the Biggest Industrial Pressure Point
Automotive trade may be the file with the greatest immediate consequences for Canadian manufacturing. Ottawa says Canada produced more than 1.2 million passenger vehicles in 2025 and that more than 90% of Canadian-made vehicles, along with about 60% of Canadian-made auto parts, are exported to the United States. The sector directly supports roughly 125,000 Canadian jobs and operates through supply chains in which engines, components and finished vehicles can cross the border at different stages of production.
CUSMA’s automotive rules have already produced one major dispute. Canada and Mexico successfully challenged Washington’s interpretation of certain regional-content calculations, with a panel ruling in their favour in 2022. Yet the question of how much North American content should be required has not disappeared. U.S. Trade Representative Jamieson Greer told lawmakers in July 2026 that tougher automotive rules of origin were among the difficult issues likely to require additional work in 2027. That makes the latest consultation particularly important for automakers and suppliers. Even relatively technical changes to content calculations can alter whether a vehicle qualifies for preferential treatment and, ultimately, where companies choose to build their next factory or source their next generation of components.
Canada Now Faces a Negotiation That Can Repeat Every Year
The most important point for Canadian businesses is that the consultation is the beginning of a political process, not a verdict. A U.S. manufacturer can allege that a Canadian policy violates CUSMA or discourages investment, but filing that complaint does not make the allegation legally correct. Washington must still decide which submissions deserve attention, which should become negotiating demands and which disputes should be pursued through CUSMA’s formal mechanisms. That distinction will matter as industries on both sides of the border argue for changes that favour their commercial interests.
For Ottawa, the bigger challenge is the recurring nature of the review. Canada has continued coordinating with provinces, territories, industry representatives and its Canada–U.S. economic advisory committee while insisting that CUSMA remains fully in force. Article 34.7 also leaves an escape from perpetual annual reviews: the three countries can agree at a later point to extend the agreement for another 16 years. Until that happens, however, each annual review provides Washington, Ottawa and Mexico City with another opportunity to reopen difficult files. The January consultation therefore matters not because it determines CUSMA’s future by itself, but because it begins assembling the arguments that could shape the next round of that fight.
