US, Canada Deal Saves NAFTA as Trilateral Pact

US & CANADA - The United States and Canada forged a last-gasp deal on Sunday to salvage NAFTA as a trilateral pact with Mexico, rescuing the three-country, $1.2 trillion open-trade zone that had been about to collapse after nearly a quarter-century.

3 October 2018

3 minute read

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, US President Donald Trump virtually forced Canada and Mexico to accept more restrictive commerce with their main export partner.

Trump's primary objective was to bring down the US trade deficit.

While the new United States-Mexico-Canada Agreement, or USMCA, avoids tariffs, it will make it harder for global automakers 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 that 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 of weaker bilateral agreements.

"It's a good day for Canada," Canadian Prime Minister Justin Trudeau told reporters after a late-night cabinet meeting to discuss the deal.

Negotiators worked frantically ahead of a US imposed midnight deadline to settle differences, with both sides making concessions to seal the deal. The US 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 US 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 will be submitted to the US Congress for approval, another senior US official said.

Cost for Canada

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 it came at a cost.

Canada has agreed to provide US dairy farmers access to about 3.5 per cent of its approximately $16 billion annual domestic dairy market. Although Canadian sources said its government was prepared to offer compensation, dairy farmers reacted angrily.

"We fail to see how this deal can be good for the 220,000 Canadian families that depend on dairy for their livelihood," Pierre Lampron, president of Dairy Farmers of Canada, said in a statement.

"This has happened, despite assurances that our government would not sign a bad deal for Canadians."

The deal also requires a higher proportion of the parts used in a car to be made in areas of North America, paying at least $16 an hour, a rule aimed at shifting jobs from Mexico.