U.S., Canada and Mexico Reach Agreement on New “NAFTA”

U.S.

President Trump announced the U.S. has reached a deal with the governments of Mexico and Canada on a new trade agreement meant to replace NAFTA, the twenty-five-year-old pact that Mr. Trump campaigned against during the 2016 election.

The announcement was made from the Rose Garden at the White House. The President was joined by Republican members of Congress as well as senior members of his administration.

“It is my great honor to announce that we have successfully completed negotiations on a brand new deal to terminate and replace NAFTA and the NAFTA trade agreements with an incredible new US-Mexico-Canada Agreement, called ‘USMCA.’ It, sort of, just works: USMCA,” the President said.

“We have negotiated this new agreement based on the principle of fairness and reciprocity. To me, it’s the most important word in trade because we’ve been treated so unfairly by so many nations all over the world. And we’re changing that,” he continued.

The President and the leaders of Mexico and Canada, President Enrique Pena Nieto and Prime Minister Justin Trudeau, are expected to sign the deal by November. Since the agreement is a treaty, it will be subject to approval from the U.S. Congress. That will vote will likely come up next year.

Negotiations between the U.S. and Canada ran right up until a deadline set by the Trump administration of Sunday night. A deal between the U.S. and Mexico was reached in August. That agreement put pressure on Canada to join as well.

Tensions have been running high between the U.S. and its neighbor to the north for months since a war of words erupted between Trump and Trudeau in the wake of a G7 meeting held in Quebec in June.

The Trump administration announced 25% steel tariffs and 10% aluminum tariffs would go into effect on imports from the European Union, Mexico and Canada earlier this year.

Trudeau referred to those tariffs as “insulting” at the end of the G7 meeting in June, and said that “it would be with regret, but it would be with absolute certainty and firmness” that Canada would apply retaliatory tariffs against the U.S. beginning in July.

Trump called those words “very dishonest & weak.”

What’s new?

The new agreement would revise many of NAFTA’s provisions.

It requires more of an automobile’s parts to be manufactured in North America in order for a car to be exempt from tariffs. Under the new deal, 75% of the parts must be made in Canada, Mexico or the U.S. That’s up from 62.5% under NAFTA’s old rules. That, the administration says, will help keep production of car parts in the U.S., as well as bring some production that had moved overseas, back.

The USMCA also requires 40% to 45% of car and truck parts be made by workers earning at least $16 an hour. That would help American workers by leveling the playing field between them and their Mexican counterparts, who often earn much lower wages, making Mexico an attractive destination for manufacturing. The requirement would incentivize manufacturers to build more in the U.S.

Under the terms of the deal Mexico had also agreed to recognize workers’ rights to collectively bargain and all three signatory countries agreed to enforce rights recognized by the International Labor Organization. These regulations will help bring manufacturing back to the U.S. Mr. Trump said.

“Instead of jobs leaving for overseas, they will be returning back home,” he said.

Another provision of the deal opens up Canada’s dairy market to U.S. farmers. The issue was a major one between the two nations.

Under NAFTA, Canada limited how much milk, cheese and other dairy came into Canada from the U.S. Under the USMCA, Canada will increase access for U.S. dairy products, poultry and eggs. Canada also agreed to end a system that had kept the price of some of its dairy products low. In exchange, the U.S. will allow more Canadian dairy, peanut products and sugar to be sold in the U.S.

The USMCA also has a sunset clause, meaning the trade pact expires after 16 years unless all three countries agree to renew it. The U.S., Canada and Mexico will be required to meet every six years to decide the future of the pact.

The Trump administration had sought a shorter time frame – 5 years instead of 6 – but Mexico and Canada opposed it. They argued that it would stifle investment in their countries if the future of agreement was too often in doubt.

Photo by The White House via YouTube

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