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

Eileen GuzmanOct 01, 2018

Word of the deal came as Canadian Prime Minister Justin Trudeau convened a 10 p.m. (0200 GMT Monday) Cabinet meeting to discuss the North American Free Trade Agreement talks.

Chevrolet Equinox SUVs are parked awaiting shipment by CN Rail next to the General Motors Co (GM) CAMI assembly plant in Ingersoll, Ontario, Canada October 13, 2017.

Canada, the United States' No. 2 trading partner, was left out when the US and Mexico reached an agreement last month to revamp the North American Free Trade Agreement.

Pickup trucks built in both countries will be exempted entirely, the side-letter said.

"We think this is a fantastic agreement for the United States but also for Canada and Mexico", one of the officials stated. The quotas are significantly above existing production volumes in each country, allowing for some export growth.

When talks between Washington and Canada about re-writing NAFTA stalled, the Trump administration made a decision to move forward with a bilateral accord with Mexico, which was struck on August 27.

Canadian Foreign Affairs Minister Chrystia Freeland speaks to the media as she arrives at the Office Of The United States Trade Representative in Washington on September 11, 2018.

Canada also appears ready to accept assurances that steel and aluminium tariffs that Trump has imposed will be lifted, though it remains unclear whether the taxes would be replaced by quotas that limit metal imports.

The deal reportedly grants United States farmers access to the heavily protected dairy market.

Canada had agreed to provide USA dairy farmers access to about 3.5 per cent of its approximately $16 billion annual domestic dairy market, the sources said, adding that the Canadian government is prepared to offer compensation to dairy farmers hurt by the deal.

A big worry now appears to be Trump's threat to impose a 25 per cent tariff on the Canadian automotive industry (that, significantly, could be imposed even if a NAFTA 2.0 deal were to be reached). Congress was informed, which triggered the current 30-day window to provide USA lawmakers with the text of the deal. And only vehicles that failed to meet the rules of origin for auto parts agreed to by the US and Mexico would even potentially be subject to the proposed auto tariffs.

So much American trade depends on the 1994 agreement that US markets have been jittery about a possible collapse of negotiations - and because Mr. Trump made campaign promises to get rid of the agreement.

The three North American countries do about $1 trillion in trade among themselves annually.

The trade imbalance would change, Trump said in June during a press conference at the Group of Seven (G7) summit in Canada. They emphasized the committed to "strong and effective enforcement of this agreement".

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 American farmers.

MacNaughton is flying back to Washington Sunday night, one official said.

Even Trudeau has been pulled into the fray: on what's usually a personal day for the prime minister, his itinerary said he'd be spending Sunday in "private meetings" and he was seen entering his office early Sunday evening.

Ottawa and Washington remained at odds over Canada's subsidized dairy sector, and the dispute resolution provisions in NAFTA.

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