US President Donald Trump. Photo: Reuters
US President Donald Trump. Photo: Reuters

US, Mexico, Canada agree on free trade pact to replace NAFTA

The United States-Mexico-Canada Agreement replaces NAFTA. The trade pact will remain in force for 16 years but will be reviewed every six years

Washington: Canada and the US reached a deadline deal on a new free trade pact that will include Mexico, the governments announced late Sunday, after more than a year of talks to revamp a pact President Donald Trump had labelled a disaster.

The United States-Mexico-Canada Agreement (USMCA) updates and replaces the nearly 25-year-old North American Free Trade Agreement (NAFTA), which Trump had threatened to cancel.

The rewrite “will result in freer markets, fairer trade and robust economic growth in our region," said a joint statement from US Trade Representative Robert Lighthizer and Canada’s Foreign Affairs Minister Chrystia Freeland.

Sunday’s announcement capped six weeks of intense talks.

In the end, Canada and the US overcame their differences after both sides conceded some ground, hailing an agreement that covers a region of 500 million residents and conducts about $1 trillion in trade a year.

“It’s a good day for Canada," Canadian Prime Minister Justin Trudeau said. Mexican Foreign Minister Luis Videgaray tweeted that the deal was good for his country “and for North America".

The political stakes were high.

Trump, who pursues an “America First" policy on trade, needs to look strong heading into the November midterm elections where his Republican Party is fighting to keep control of Congress.

Trudeau, for his part, did not want to be seen as caving before next year’s general election in Canada. Canada had risked being frozen out of a US-Mexican deal reached in August.

The Canadian dollar jumped to a five-month high in Asian trade after initial reports of the deal, which also helped Tokyo’s benchmark Nikkei index touch a 27-year high on Monday.

“The news about NAFTA gave an extra boost to the market," said Toshikazu Horiuchi, a broker at IwaiCosmo Securities.

Early Monday a copy of the deal’s 34 chapters was posted on the US Trade Representative’s website. The pact can now be signed before Mexico’s President Enrique Pena Nieto leaves office on 1 December, the date that caused the last-minute flurry of activity.

US law requires the White House to submit the text to Congress 60 days before signing — and officials barely made it by the midnight deadline.

Ottawa will now open its dairy market further to US producers, and — in return — Washington left unchanged the dispute settlement provisions.

Under Canada’s supply-managed dairy system, Ottawa effectively sets production quotas and the price of milk, which raises prices to consumers but provides farmers with a stable income.

Tariffs of up to 275% have kept most foreign milk out of the Canadian market.

Canada had opposed US demands to weaken or eliminate NAFTA’S dispute resolution mechanism, whose arbitration panels Ottawa used to resolve trade conflicts, and to defend against US anti-dumping and countervailing duties, notably against its important lumber industry.

Even late last week officials had warned that time was running out for a new agreement.

But a senior US administration official said the final rewrite is a “fantastic agreement" and he called it “a big win for the United States, Mexico and Canada".

Alongside changes to the dairy market in Canada, officials said it includes stronger protections for workers, tough new environmental rules, and updates the trade relationship to cover the digital economy and provides “groundbreaking" intellectual property protections.

In addition, it adds provisions to prevent “manipulation" of the trade rules, including covering currency values, and controls over outside countries trying to take advantage of the duty-free market, the official said.

The AFL-CIO, a Washington-based federation representing millions of unionized employees, said it was too early to “make a final judgment" on the new deal’s impact on working people.

One of the most important sectors concerns the auto sector, which NAFTA revolutionised.

The US had sought increased American content for duty-free autos. The new text foresees rules to encourage North American supply of components.

While the pact should protect Mexico and Canada from Trump’s threatened 25% tariffs on cars, still pending are the duties on steel and aluminum, which officials said was on a “separate track", handled by the Commerce Department.

Canada will maintain its subsidised cultural sector, despite US objections.

Canadian and Mexican negotiators, as well as US industry, had rejected the American demand that any new NAFTA contain a “sunset clause" requiring the agreement’s reauthorization every five years.

Under Sunday’s deal, the trade pact will remain in force for 16 years but will be reviewed every six years. More than two-thirds of Canadian exports go to the United States, equivalent to 20% of its gross domestic product, while Canada is the largest export market for the US.

This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.

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