US and Canada reach trade deal, keep NAFTA trilateral

Revamped agreement removes tariff risks from around $1.2trn worth of a goods each year

The US and Canada have reportedly agreed on a trade deal that would save the North American Free Trade Agreement as a trilateral bloc after more than a year of tortuous negotiations. According to media reports Canada agreed late Sunday, just hours before a midnight deadline, to settle differences, with both sides making concessions and seal the deal, rescuing a three-country, $1.2trn open-trade zone that had been about to collapse after nearly a quarter century. The new deal is going to be known as the US-Mexico-Canada Agreement or USMCA. 

“It’s a good day for Canada,” Prime Minister Justin Trudeau told reporters after a late-night cabinet meeting to discuss the deal, which triggered a jump in global financial markets. In a joint statement later, Canada and the United States said it would “result in freer markets, fairer trade and robust economic growth in our region”.

"It will strengthen the middle class, and create good, well-paying jobs and new opportunities for the nearly half billion people who call North America home," said US Trade Representative Robert Lighthizer and Canadian Foreign Affairs Minister Chrystia Freeland in their statement.

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. But not without a hefty cost. Ottawa has agreed to provide US dairy farmers access to about 3.5 percent of its approximately $16bn annual domestic dairy market. Although Canadian sources said its government was prepared to offer compensation, local 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.

The deal also failed to resolve US tariffs on Canada’s steel and aluminum exports.

On the positive side, however the framework agreement removes a significant tariff-related risk for the global financial markets heading into the final months of the year. Canada and Mexico each agreed to a quota of 2.6m passenger vehicles exported to the United States in the event that Trump imposes 25 percent global autos tariffs on national security grounds. The quota would allow for significant growth in tariff-free automotive exports from Canada above current production levels of about 2m units, safeguarding Canadian plants. It is also well above the 1.8m cars and SUVs Mexico sent north last year. 

The agreement with Canada and Mexico — two of the United States' biggest trading partners — represents a great victory for President Donald Trump since it fulfills his campaign pledge to renegotiate or rip up the trade pact, calling it "the worst deal maybe ever signed." It also avoids his threat to exclude Canada if the talks failed, preventing a complete chaos for businesses that rely on trade between the countries. 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.

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