U.S., Canada Agree on New NAFTA Deal After Marathon Negotiations
The United States and Canada have agreed in principle on a new trade pact that will replace the North American Free Trade Agreement (NAFTA) following a series of intense negotiations over the weekend. The new deal, dubbed the United States Mexico Canada Agreement (USMCA), seeks to “rebalance” continental trading after more than two decades of NAFTA rule.
Agreement at the Eleventh Hour
Although details remain scarce, officials from both countries, including Canadian Prime Minister Justin Trudeau and U.S. President Donald Trump, have confirmed that a deal was reached late Sunday that will keep North America a tariff-free zone. Negotiators were racing to get a deal done by Sept. 30 so that Congress can start a 60-day review period and give Mexico’s out-going president enough time to sign off on the documents before leaving office in November.
The agreement reached late Sunday ended a 13-month impasse that threatened to unravel one of the world’s longest standing free trade partnerships. Although negotiators had made significant progress in recent weeks, disputes over the Chapter 19 dispute resolution process, Canada’s cultural industries, U.S. access to Canadian dairy and auto manufacturing were the major sticking points heading into frantic weekend talks.
In exchange for maintaining the Chapter 19 dispute resolution mechanism, Canada has agreed to open up its heavily protected dairy industry to American farmers – a major victory for the Trump administration. Canada’s auto industry will also receive “accommodation” should President Trump choose to impose auto tariffs. Canada, in turn, will put a cap on auto exports to the U.S. of roughly 40% above its current levels. Exports below this level would be exempt from tariffs.
President Trump called the new trade deal a “historic transaction” in a tweet that appeared early Monday morning:
“Late last night, our deadline, we reached a wonderful new Trade Deal with Canada, to be added into the deal already reached with Mexico. The new name will be The United States Mexico Canada Agreement, or USMCA. It is a great deal for all three countries, solves the many deficiencies and mistakes in NAFTA, greatly opens markets to our Farmers and Manufacturers, reduces Trade Barriers to the U.S. and will bring all three Great Nations together in competition with the rest of the world. The USMCA is a historic transaction!”
NAFTA by the Numbers
Enacted in 1994, NAFTA has grown to become a trillion-dollar free trade partnership between the United States, Canada and Mexico. Trade flows between the three countries have grown more than three-fold over the past two decades. In addition to exporting roughly $454 billion annually to the United States, Canada imported nearly $349 billion of U.S. goods and services in 2017.
This relationship has also fostered cross-border investment. Canadian firms have invested $474 billion south of the border while U.S. foreign direct investment in Canada amounted to $392 billion as of 2017.
The Trump administration had significant leverage over Canada during negotiations due to the latter’s heavy reliance on the U.S. market. Roughly three-quarters of Canadian exports are destined for the United States, and roughly one-third of the nation’s entire gross domestic product (GDP) is tied to exporting goods and services. This means direct trade with the U.S. accounts for roughly one-fifth of Canada’s GDP.
Featured image courtesy of Shutterstock.