Canada, U.S. reach NAFTA deal, Canadian officials say

Canada, U.S. reach NAFTA deal, Canadian officials say

WASHINGTON—Canada and the U.S. have agreed on a new North American Free Trade Agreement, three Canadian officials said late Sunday, concluding an acrimonious 13-month negotiation that had hindered the Canadian economy and damaged relations between the two countries.

They did not immediately release the details on which the deal will ultimately be judged. The news that they have struck any kind of deal, though, means Prime Minister Justin Trudeau has achieved a long-sought goal: convincing U.S. President Donald Trump to preserve a trade accord Trump has repeatedly threatened to terminate.

The news of any agreement is likely to be greeted with relief by businesses across the continent, whose planning decisions have been complicated by the uncertainty. Bank of Canada Governor Stephen Poloz said in April that trade uncertainty was the top factor slowing business investment in Canada.

The deal will include substantial changes to the rules governing the North American auto industry. And it will affect dozens of other industries and the consumers who buy their products, from milk to medicine.

Sources said the deal would include partial protection for Canada against the auto tariffs Trump has repeatedly threatened to impose. A certain number of Canadian car exports to the U.S., significantly higher than the current number, would be guaranteed tariff-free access. Trump could hypothetically impose tariffs on amounts above that.

Bloomberg reported that Trump is “on board” with the deal. The agreement gives the president something he can tout as a trade victory in advance of the November congressional elections.

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Word of the agreement came after 9:30 p.m. Sunday night, just before the deadline the Trump administration had set for publicly publishing the text of its preliminary agreement with Mexico. That would have started a 60-day countdown to the possibility of Trump and Mexican President Enrique Pena Nieto signing a deal that did not include Canada.

The current NAFTA will stay in effect until the end of the process of finalizing the merged three-country agreement, which is still far from over. Most critically, the legislatures of Canada, the U.S. and Mexico, which previously struck its own preliminary agreement with the U.S., must now vote in favour of the final three-country deal.

While that will not be a problem in Canada or Mexico, the U.S. Congress, which has sometimes taken years to approve trade deals struck by presidents, may prove more difficult. If Congress delays, Trump could renew his threats to terminate the current NAFTA to try to pressure Congress into accepting the new one.

Nonetheless, the agreement between Trump and Trudeau appears to put to rest, at least for now, a primary source of bilateral tension. Trump had grown increasingly critical toward Trudeau and Canada as the difficult negotiations dragged on, and he had warned that he could “ruin” the Canadian economy with car tariffs if there was no deal.

The Sunday deal followed a weekend scramble in Ottawa and Washington. Trudeau’s top officials huddled in his office into the night on Saturday and Sunday. Trudeau arrived on Sunday night, declining to comment to waiting reporters. He convened a meeting of his cabinet around 10 p.m.

Read more:

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NAFTA governs more than $1 trillion in annual trade between the three countries. It guarantees tariff-free trade of most products, facilitates the movement of investment capital and professional workers across the two borders, sets rules governing hundreds of kinds of businesses and provides a system for resolving continental trade disputes.

Economists had predicted serious though not catastrophic damage to the Canadian economy if the 24-year-old NAFTA had vanished, with the losses concentrated in Ontario.

The final stage of the negotiations had focused on a small number of issues on which both sides had dug in their heels.

Canada insisted on preserving NAFTA’s “Chapter 19” system that allows Canada to challenge U.S. trade duties at an independent tribunal rather than in U.S. courts. The U.S. had wanted to eliminate it. Sources said this weekend that the deal would include some version of the system, but perhaps with a time limit on it or some other Canadian concession.

The U.S. insisted on substantially more access to Canada’s tightly protected dairy market. Trudeau vowed to preserve the supply management system, which aids domestic farmers, but signalled he was open to incremental concessions. His officials suggested they were willing to do something similar to what they had done in the Trans-Pacific Partnership agreement, in which they opened 3.25 per cent of the market to foreign suppliers.

Canada had insisted on complete protection from the auto tariffs. Flavio Volpe, president of the Canadian Automotive Parts Manufacturers’ Association, declined to comment on the details of the apparent compromise, but he said Canadian negotiators had to practical when dealing with Trump.

“The principle of agreeing to a cap based on a the threat of illegal tariff is never good, but the reality of negotiating with an administration that has proven that it will harm itself in order to harm its trading partners means that we’ve got to use some realpolitik, to live to fight another day,” Volpe said.

Jerry Dias, head of Unifor, the largest union representing Canadian autoworkers, said late Sunday that he was optimistic about the deal.

“It is incredibly important that we get a deal that stabilizes the auto industry in Canada for the long term and I’m confident that we are heading in that direction,” said Dias.

U.S. news outlets reported that the U.S. was offering tariff-free access to a certain number of Canadian-made cars per year, higher than the current number, but would reserve the right to impose tariffs on cars above that number.

It was not immediately clear what would become of the steel and aluminum tariffs Trump imposed on Canada or the retaliatory tariffs Trudeau imposed on various U.S. products.

The name of the agreement is likely to change. Trump said he wants to call it “USMC,” the same abbreviation used by the United States Marine Corps.

U.S. Trade Representative Robert Lighthizer and senior aide Jared Kushner planned to brief Trump on Sunday, Reuters reported on Sunday afternoon. Kushner and the U.S. ambassador to Canada, Kelly Craft, were seen at the U.S. trade building in Washington late Sunday night.

Canadians, initially divided on the agreement, have come to be overwhelmingly supportive. But Trump had called NAFTA the worst trade deal in world history, blaming it for the loss of U.S. manufacturing jobs. He vowed during his 2016 campaign to tear up the accord unless he could secure a better deal for American workers, and he launched renegotiation talks in August 2017.

The new agreement includes substantially altered rules on automotive manufacturing. The U.S. pushed for a series of changes the Trump administration believes will wrest some jobs back to the U.S. from Mexico and overseas.

According to U.S. and Mexican government reports, a car will qualify for tariff-free treatment only if 75 per cent of its contents are made in North America, up from 62.5 per cent in the current NAFTA. And at least 40 per cent of the contents must be produced by workers earning at least $16 (U.S.) per hour, more than three times the wage of the average Mexican autoworker.

The negotiations involved two basic categories: modernization and renegotiation. The modernization track, in which the three countries worked to update an outdated agreement that was finalized before the advent of the internet economy, proceeded smoothly. The renegotiation track was far more difficult. Canada and the U.S. clashed over several U.S. proposals.

Among other things, the Trump administration had initially wanted to eliminate Canada’s supply management system for dairy and poultry, introduce a “sunset” clause that would automatically terminate NAFTA unless all three countries decided again to keep it, sharply reduce Canadian access to U.S. government contracts and eliminate the independent dispute resolution system.

Mexico was Trump’s chief NAFTA target during his election campaign. But it was Canada that drew most of his administration’s public ire in 2017 and 2018. He called Canada “brutal” on trade and Lighthizer complained at length that Canada was being inflexible. Freeland responded that the U.S. had made “extreme” proposals and was seeking a victory only for itself rather than the “win-win-win” the administration had promised.

The Canadian government tried to work around Trump while also seeking to avoid his anger. Trudeau launched an unconventional diplomatic blitz in support of the agreement, dispatching ministers around the U.S. to attempt to build alliances with trade-friendly lawmakers at all levels of government.

Canada was joined in its pro-NAFTA pressure by the main American business lobby groups, such as the U.S. Chamber of Commerce, and by much of the Republican congressional caucus, whose leaders warned Trump that dumping NAFTA would hurt the hot economy. Farm-state legislators told Trump how NAFTA had caused a boom in agricultural exports. Texas legislators told Trump that their state relied on free trade with Mexico.

Daniel Dale is the Star’s Washington bureau chief. He covers U.S. politics and current affairs. Follow him on Twitter: @ddale8

Tonda MacCharles is an Ottawa-based reporter covering federal politics. Follow her on Twitter: @tondamacc

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