Ottawa/Washington, October 1
The United States and Canada forged a last-gasp deal on Sunday to salvage NAFTA as a trilateral pact with Mexico, rescuing a three-country, $1.2 trillion open-trade zone that had been about to collapse after nearly a quarter century.
In a big victory for his agenda to shake-up an era of global free trade that many associate with the signing of NAFTA in 1994, President Donald Trump coerced Canada and Mexico to accept more restrictive commerce with their main export partner.
Trump’s primary objective in reworking NAFTA was to bring down US trade deficits, a goal he has also pursued with China, by imposing hundreds of billions of dollars in tariffs on imported goods from the Asian giant.
The new deal will be known as the United States-Mexico-Canada Agreement or “USMCA.” Trump, who had long disdained NAFTA, had suggested he might call it the “USMC,” in honour of the US Marine Corps, but in the end, USMCA won out.
The new pact is aimed at bringing more jobs into the US, with Canada and Mexico accepting more restrictive commerce with the US, their main export partner. While it avoids tariffs, it will make it harder for global auto makers to build cars cheaply in Mexico and is aimed at bringing more jobs into the US.
Since talks began more than a year ago, it was clear Canada and Mexico would have to make concessions in the face of Trump’s threats to tear up NAFTA and relief was palpable in both countries on Sunday that the deal was largely intact and had not fractured supply chains between weaker bilateral agreements.
“It’s a good day for Canada,” PM Justin Trudeau said after a late-night cabinet meeting to discuss the deal, which triggered a jump in global financial markets.
In a joint statement, Canada and the United States said it would “result in freer markets, fairer trade and robust economic growth in our region”.
Negotiators worked frantically ahead of a midnight US imposed deadline to settle differences, with both sides making concessions to seal the deal. The United States and Mexico had already clinched a bilateral agreement in August. “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.
Trump has approved the deal with Canada, a source familiar with the decision said. US officials intend to sign the agreement with Canada and Mexico at the end of November, after which it would be submitted to the US Congress for approval, a senior US official said.
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, US and Canadian officials said.
But the deal failed to resolve US tariffs on Canada’s steel and aluminium exports. The Trump administration had threatened to proceed with a Mexico-only trade pact as US talks with Canada foundered. “It’s a good night for Mexico, and for North America,” Mexican Foreign Secretary Luis Videgaray said.
Meanwhile, Trump on Monday took credit for salvaging a trilateral free trade accord with Canada and Mexico, marking it as a victory in his campaign to reshape global commerce as financial markets breathed a sigh of relief.— Reuters
For Canada, it came at a cost
- Canada agreed to provide US dairy farmers access to about 3.5% of its approximately $16 billion annual domestic dairy market and the Canadian government is prepared to offer compensation to dairy farmers hurt by the deal
- Canada has agreed to eliminate its Class 6 and Class 7 milk categories and associated pricing schedules for skim milk, skim milk proteins and other components and ultrafiltered milk, within 6 months after the USMCA goes into force
- US farmers said those schedules had effectively pushed them out of the Canadian dairy market. The agreement will increase U.S. access to Canada’s dairy market beyond Trans-Pacific Partnership levels, a Trump administration official said
Victory for Trump
- The new deal represents a win for President Donald Trump, who has derided NAFTA for years and threatened to pull the United States from the agreement if it was not rewritten in America’s favour
- Overhauling trade deals has been one of Trump’s top priorities as President and he has used tariffs and other threats to try and force trading partners to rewrite agreements in America’s favour
- The Trump administration struck a deal with Mexico last month to rewrite Nafta and had threatened to jettison Canada from the pact if it did not agree to concessions like opening its dairy market to US farmers
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