Features, manufacturing, canada, united states, automotive

By Jon Elkin | October 1, 2018

After a frantic weekend of negotiations, the United States and Canada reached a last-minute deal concerning NAFTA, just ahead of the midnight deadline set by the White House.

The new deal will be named the "United States-Mexico-Canada Agreement" (USCMA).

In a joint statement, President Trump's top trade negotiator, Robert E. Lighthizer and Canada’s foreign affairs minister, Chrystia Freeland, said the new deal “will give our workers, farmers, ranchers and businesses a high-standard trade agreement that will result in freer markets, fairer trade and robust economic growth in our region.”

You can read the full text of the agreement here.

 

What did the U.S. and Canada agree on?

In terms of agriculture

Canada will reduce dairy protections, providing the U.S. greater access to about 3.6% of its current dairy market. Canada will also provide the U.S. with greater access to its chicken, turkey, and eggs markets.

Interested in more about the dairy and agriculture changes, and why Quebec farmers are so angry? Read more here.

In terms of auto manufacturing

The U.S. has agreed that there will be no hard limit on Canadian auto exports to the U.S.

The White House had previously threatened Canada with national security tariffs that would add 20-25% duties on cars and auto parts imported into the U.S.

If global national security tariffs are imposed, Canada will also be included. However, Canada will still be able to export cars and parts tariff-free up to a certain amount - although the precise number of cars or parts that will be allowed is still unclear.

Experts say that Canada is unlikely to exceed this cap. "Pure free traders in both countries will go crazy, but in practical terms I don't see how the automakers come off any worse," said Dan Ujczo, a leading Canada-U.S. trade lawyer who represents clients in the auto industry, to the CBC.

According to the United States trade representative, Canada exported $71 billion in car and parts to the U.S. last year.

In terms of steel and aluminium tariffs

Canada did not win any relief regarding the 25% steel and 10% aluminium tariffs imposed earlier in the year. Canada had imposed counter-tariffs of $16.6 billion on the U.S. involving goods such as bourbon and playing cards.

Canada produces about 5% of the world's steel and 1% of the world's aluminum. Canada exported about $24 billion in steel and aluminum to the U.S. last year.

In terms of dispute resolution

Canada claims a major victory as Chapter 19 remains unchanged.

Chapter 19 is the section of NAFTA that allows companies to request arbitration if they believe there has been unfair anti-dumping or countervailing duties. There has been a long history of U.S. resistance to the idea - going back to Canada's first trade deal with the U.S. in the 1980s.

However, Chapter 11, regarding investor-state dispute settlements, will be phased out, allowing businesses to sue governments at special tribunals.

  

What did the U.S. and Mexico previously agree on?

The agreement between the United States and Canada builds on the previous U.S. deal with Mexico in August

The U.S. and Mexico agreed to updates to provisions surrounding the digital economy, automobiles, agriculture, and labor unions. American companies being able to operate in Mexico and Canada without tariffs - seen as a core of the trade pact - remains unchanged.

The biggest change surrounds automobile manufacturing with the aim of bringing car production back to the U.S. from Mexico. These changes include:

  • Car companies are now required to manufacture at least 75% of an automobile’s value in North America under the new rules, up from 62.5 percent, to qualify for Nafta’s zero tariffs.
  • Car companies will be required to use more local steel, aluminium, and auto parts
  • 40 - 45% of the car must be made by workers earning at least $16/hour

What happens next?

A Trump administration official said Trudeau, Trump and Mexican President Enrique Pena Nieto will sign the USMCA at the end of November.

This agreement isn't law yet - it will still need to be ratified and approved by each individual country's lawmakers.

A trade agreement that includes Canada has a greater chance of being ratified by Congress but its ultimate fate is still uncertain. The Democrats could win a majority in the midterms and could ask for further changes.

U.S. lawmakers said that they do not expect Congress to vote on the deal until early next year.

Jon Elkin

Jon graduated from Queen's University with a degree in Political Studies and then went on to earn his Master's Degree in War Studies from the Royal Military College of Canada. He is an active member of the NATO Association of Canada, and outside of work enjoys skiing, running and mountain biking.

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