October 01, 2018
The pact – now to be known as the United States-Mexico-Canada Agreement – settles differences on dairy and auto industry products
NAFTA: Canada and US reach deal on new, modernised trade agreement
The United States and Canada have reached a deal on a “new, modernized Trade agreement”, which is designed to replace the 1994 NAFTA pact.
In a joint statement on Sunday night, the two nations said the new deal would be called the United States-Mexico-Canada Agreement (USMCA).
The rejigged pact will substantially boost American access to Canada’s dairy market and protect Canada’s auto industry from possible US tariffs.
“It’s a good day for Canada,” prime inister Justin Trudeau told reporters after a late-night cabinet meeting to discuss the agreement, which triggered a jump in global financial markets.
Donald Trump, who blamed Nafta for the exodus of manufacturing jobs to low-wage Mexico, had threatened to walk away from the deal unless major changes were made.
But the US president has approved the “framework” deal with Canada just days after he criticised Canadian prime minister Justin Trudeau and his negotiating team.
“It’s a great win for the president and a validation for his strategy in the area of international trade,” a senior administration official told reporters.
Negotiators from both sides spent two days talking by phone as they tried to settle a range of difficult issues.
The deal will preserve a trade dispute settlement mechanism that Canada fought hard to maintain to protect its lumber industry and other sectors from US anti-dumping tariffs, Canadian sources said.
But this came at a cost. Canada had agreed to provide US dairy farmers access to about 3.5% of its approximately $16bn annual domestic dairy market, the sources said, adding that the Canadian government was prepared to offer compensation to dairy farmers hurt by the deal.
The influential Dairy Farmers of Canada lobby group – which strongly opposes the idea – said in a statement that it insisted “any final Nafta deal should have no further negative impact on the dairy sector”.
Canada also agreed to a quota of 2.6m vehicles exported to the US in the event that Trump imposed 25% global autos tariffs on national security grounds, a side letter to the agreement showed.
The quota would allow for significant growth in tariff-free automotive exports from Canada above current production levels of about 2 million units, safeguarding Canadian plants.
But the deal failed to resolve US tariffs on Canada’s steel and aluminum exports, the Canadian sources said.
“We celebrate the trilateral agreement. The door is closed to the fragmentation of the region,” Jesus Seade, president-elect Andres Manuel Lopez Obrador’s Nafta negotiator said on Twitter. “Nafta 2 will give certainty and stability to Mexican trade with its partners in North America.”
The Canadian dollar and Mexican peso both rallied as word circulated that a trilateral deal had been hammered out. The loonie was up 0.6% versus the greenback while the peso gained 0.8%.
US trade representative Robert Lighthizer and White House adviser Jared Kushner had been keeping Trump updated through the weekend, according to a source, who was not authorized to speak about the talks publicly.
White House trade adviser Peter Navarro said everyone involved had worked in good faith and reiterated the Sunday deadline.
US business groups had opposed turning Nafta into a bilateral deal because the three nations’ economies have become closely intertwined since the pact came into force in 1994.
Officials have blown through several deadlines since August 2017.
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