1143

Views

U.S. and Canada Reach Agreement on NAFTA Overhaul

alt
President Trump announces the USMCA (courtesy of the White House)

By MarEx 2018-10-01 21:19:00

The United States has reached an agreement with Canada on a revision of the North American Free Trade Agreement (NAFTA), ending concerns over the potential for American withdrawal. Last year, U.S. President Donald Trump threatened to leave the treaty altogether, and in August he warned that he would exclude Canada if it would not agree to his administration's terms. The administration negotiated new terms with Mexico separately in August, and the final treaty contains the results of both sets of talks. 

The new version of NAFTA, which will now be called the U.S.-Mexico-Canada Agreement (USMCA), makes important adjustments to the original version's terms:

- American dairy farmers will have improved access to the Canadian market;
- 75 percent of the components in any USMCA-eligible car must now be made in North America, up from 62.5 percent;
- 30-45 percent of the components in such a car must be made by workers earning at least $16 per hour, a win for American parts makers;
- Union organizing rules will be strengthened in Mexico, a significant win for labor;
- Certain prescription drug patents will now last 10 years rather than 8 in Canada;
- Canada's duty-free limit on cross-border e-commerce sales has been raised to C$150, up from C$20;
- And an investor dispute mechanism known as "Chapter 11," which allowed cross-border lawsuits against governments for policies that have a negative effect on business, has been largely suspended (with exceptions in Mexico).

In addition, the USMCA contains a sunset clause that ends the agreement in 2034, with automatic reviews every six years. 

Some analysts suggested that the most significant benefit of the USMCA negotiations may be their completion. The agreement brings renewed certainty for investors, supply chain planners, investors and shipping interests, and it retains the main components of the North American Free Trade Agreement. The markets responded Monday with modest gains. 

“We are pleased a deal has been reached that preserves NAFTA’s trilateral framework, which is critical to protecting North American supply chains that support millions of American jobs," said National Retail Federation CEO Matthew Shay in a statement. "The administration, as well as officials from Canada and Mexico, should be applauded for months of hard work aimed at modernizing NAFTA for the 21st century."

The USMCA negotiations between the U.S. and Canada may also provide a template for the Trump administration's talks with other trading partners. Trump threatened to leave Canada out of the agreement altogether if it would not make additional concessions, and he set a strict deadline for the end of the negotiations. His team ultimately secured a win for American dairy farmers on access to Canadian markets - a key sticking point in the talks. 

On Monday, Trump sounded positive about similar hard-ball negotiating tactics with China, which faces steep (and ever-rising) tariffs on its goods in American markets. “China wants to talk very badly,” Trump told reporters at a news conference. “I said frankly it’s too early to talk, because they’re not ready.”