US and Canada reach last-minute accord to conclude talks on new NAFTA

US and Canada reach last-minute accord to conclude talks on new NAFTA
Canada, U.S. have reached a NAFTA deal – now called the USMCA
OTTAWA – Canada has reached a new trilateral trade agreement with the United States and Mexico, after nearly 14 months of NAFTA renegotiations.

The new deal is called the United States Mexico Canada Agreement, or USMCA for short, according to a joint statement from Foreign Affairs Minister Chrystia Freeland and U.S. Trade Representative Robert Lighthizer.

Senior White House administration officials said the deal is a big win for Mexico and Canada, and the deal includes ambitious new market access, including U.S. access to the dairy market in Canada, which was described as a big win for the U.S.  The officials said that a new regime has been agreed upon that will prevent supply management from being externalized outside of Canada.

USMCA 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.  It will strengthen the middle class, and create good, well-paying jobs and new opportunities for the nearly half billion people who call North America home, the statement said.

The NAFTA negotiations have been in the works since Aug. 16, 2017. The goal was to “modernize” the trade pact, with U.S., Mexican and Canadian. Officials initially expected to conclude negotiations in early 2018 due to elections later in the year.

According to one high-level American source, the text of the deal was finalized around 9:30 p.m. Sunday, but issues remain around wording.

The formal NAFTA text is due before Monday in order to meet U.S. congressional notification requirements and allow U.S. President Donald Trump and outgoing Mexican President Enrique Peña Nieto to sign the pact by Nov. 30, Nieto’s final day in office.

It will take time to sort through the text of the deal, and to evaluate the details to assess the winners or losers, though tonight all three countries are celebrating the deal as a win-win-win.

A senior Canadian official close to the talks tells CTV News that the deal is not 100 per cent finalized, but that as things stand, the Chapter 19 dispute resolution mechanism remains intact; Canada will have a full cultural exemption; and Canada will be making what the source described as modest concessions on access to Canadas supply-managed dairy sector, comparable to what was agreed to as part of the CPTPP trade deal.

Though,one of the senior U.S. administration officials who briefed reporters on background Sunday night described Canadas concessions on dairy as a big win for American farmers. These officials also said the deal includes stronger rules of origin,a review and termination provision aimed at preventing the deal from becoming outdated,and an ambitious slate of other provisions related to the digital age.

Foreign Affairs Minister Chrystia Freeland and United States Trade Representative Robert Lighthizer released a joint statement Sunday night announcing the new deal, which will be called the United States-Mexico-Canada Agreement (USMCA).

Talks over the weekend have included looking at ways to protect against the Section 232 auto tariffs that Trump threatened again last week. The Canadian source said that an exemption will be made for autos, though its unclear what will happen with the currently-imposed steel and aluminum tariffs.

Foreign Affairs Minister Chrystia Freeland cancelled a planned talk at the U.N. General Assembly for Monday, a spokesperson said, and has been in Ottawa since early Sunday working on the deal as the pressure mounted.

The Americans made the text of the agreement public tonight, with the leaders of all three countries likely to convene before the end of November to sign the deal.

In short, we think this is a fantastic agreement for the United States but also for Canada and Mexico. Its a great win for the president and a validation of his strategy in the area of international trade, said one senior U.S. official.

The deal on the table is subject to the approval of the federal cabinet, which convened in Ottawa late Sunday night. Prime Minister Justin Trudeau called the cabinet meeting inside his office across the street from Parliament Hill, where high-level staff and Freeland had been working over the weekend to secure a NAFTA deal.

This gave cabinet members the opportunity to understand what is on the table and how it could impact their portfolios, or regions. It was an intense last-minute push from Canadian officials to get a trilateral deal before the midnight Sunday deadline.

The deal came down to the wire before a midnight deadline Sunday set by U.S. Congress, with Prime Minister Justin Trudeau convening a cabinet meeting at 10:00 p.m. Sunday evening in Ottawa.

Trudeau departed shortly after 11 p.m., saying that it was a good day for Canada and he would have more to say on Monday.

The federal cabinet was instructed to attend in-person, if they were in town, or to dial in on the phone to hear from Trudeau and his team. The House of Commons is scheduled to sit Monday morning.

After more than a year of negotiating a new North American Free Trade Agreement (NAFTA), Canada, the U.S. and Mexico have finally inked a trade deal.

With files from CTV News Richard Madan, Joyce Napier, Glen McGregor, Michel Boyer, and Mackenzie Gray

Chapter 19, the dispute resolution mechanism, which was a major sticking point in the negotiations, will be kept with no substantial changes.

Canada has reached a new trilateral trade agreement with the United States and Mexico, after nearly 14 months of NAFTA renegotiations.

U.S. President Donald Trump is to sign the new trade agreement at the end of November and will then submit it to Congress, an official said.

Canada and the U.S. have announced a tentative new trilateral trade deal with Mexico that includes some key concessions on issues of import to both countries — and also a reworked name: the United States, Mexico and Canada Agreement (USMCA).

"​USMCA 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," Foreign Affairs Minister Chrystia Freeland and U.S. Trade Representative Robert Lighthizer said in a joint statement released late Sunday.

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.

"It will strengthen the middle class, and create good, well-paying jobs and new opportunities for the nearly half billion people who call North America home," the statement said. "We look forward to further deepening our close economic ties when this new agreement enters into force."

The Trump official said there had not been substantial changes on the issue of the “TN” visas for professional workers. And the official said the deal includes a “review and termination provision” on the agreement, but did not make clear what it includes; the U.S. had previously pushed for some kind of auto-termination “sunset clause” Trudeau had not wanted.

After 14 months of intensive and often fractious negotiations between the two countries, Prime Minister Justin Trudeau convened a late-night meeting of cabinet to brief ministers because a deal had been reached only hours before a U.S.-imposed midnight deadline.

The Trump official said there had not been substantial changes on the issue of the “TN” visas for professional workers. And the official said the deal includes a “review and termination provision” on the agreement, but did not make clear what it includes; the U.S. had previously pushed for some kind of auto-termination “sunset clause” Trudeau had not wanted.

Leaving the meeting about an hour and 15 minutes after it began, Trudeau said only that it was "a good day for Canada" and that he'd have more to say to reporters on Monday.

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.

In a background briefing with reporters, a senior Trump administration official heralded the USMCA as a win for all three countries.

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.

"This is a big win for the U.S., Mexico and for Canada and it fulfils one of the president's most important campaign promises," a senior Trump administration official said. "We think this is a fantastic agreement. It's a great win for the president and a validation of his strategy in the area of international trade."

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.

At the heart of the deal is a trade-off between greater U.S. access to Canada's dairy market, which is heavily protected by a system of supply management, and Canadian demands for the maintenance of a dispute resolution process.

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 two sides have agreed to keep Chapter 19, NAFTA's dispute resolution mechanism, intact. That's a major victory for Canadian negotiators who have long sought to keep some sort of process to challenge anti-dumping and countervailing-duty cases — which Canada has deployed in the past over the softwood lumber file.

Canadians, initially divided on NAFTA, 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.

Chapter 19 will be preserved, word for word, though it will be renumbered in the new agreement, U.S. officials said Sunday.

Canadians, initially divided on NAFTA, 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.

U.S. Trade Representative Robert Lighthizer has steadfastly opposed this chapter as he believes it's a violation of U.S. sovereignty to have a multinational panel of arbiters decide on the acceptability of U.S. tariffs.

A Trump administration official deflected Sunday when asked if preserving Chapter 19 was a win for Canada. "From our perspective we think there's really, really great things in this agreement. We're excited about those parts of it," the official said.

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.

​In exchange for some U.S. concessions on a dispute mechanism, Canada is expected to give U.S. farmers greater access to Canada's dairy market by increasing the quota on foreign imports.

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.

Under the current supply management system, Canada imposes tariffs on dairy imports — which can run as high as 300 per cent — that exceed the established quota. Trump has railed against these tariffs as unfair to American farmers, as they are designed to keep foreign products out while privileging Canadian sources.

Some of what Canada has agreed to could be politically challenging for the Liberal government, especially in Quebec, where dairy farmers hold electoral sway in certain ridings.

Canadian 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.

Under the new NAFTA, the U.S. will have roughly the same access to the Canadian dairy market as what was given up by Trudeau when he signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) trade deal with 10 Asia-Pacific countries earlier this year.

“We celebrate the trilateral agreement. The door is closed to the fragmentation of the region,” Jesus Seade, President-elect Andres Manuel Lopez Obradors NAFTA negotiator said on Twitter. “NAFTA 2 will give certainty and stability to Mexican trade with its partners in North America.”

Under that agreement, those 10 countries will have market access that equals 3.25 per cent of Canada's annual milk production. The exact percentage extended to U.S. dairy exporters was not immediately clear — but it will be marginally higher than that 3.25 per cent now open to Asian countries.

President Donald Trump had threatened to splinter the nearly 25-year-old North American Free Trade Agreement into a bilateral pact with Mexico and tax Canadian vehicle exports to the United States if Ottawa had failed to sign on before a midnight Sunday deadline.

"We've achieved levels of market access, from the perspective of the U.S., that are a better deal than what the prior administration negotiated in TPP," a Trump administration official said of what former U.S. president Barack Obama squeezed out of the Canadians on the dairy front.

Canada had agreed to provide U.S. dairy farmers access to about 3.5 percent of its approximately $16 billion annual domestic dairy market, the sources said, adding that the Canadian government is prepared to offer compensation to dairy farmers hurt by the deal.

But, perhaps most importantly for dairy producers, Canada has agreed to end what's called class 7 pricing, a milk class created in March 2017 that slashed prices on some Canadian-produced milk ingredients — like protein concentrates, skim milk and whole milk powder — used to make cheese and yogurt. The co-ordinated price cut made the American equivalents uncompetitive.

Trump administration officials pounced on this change Sunday, touting it as a major breakthrough for American farmers, especially in Wisconsin and New York, where dairy farmers are eager to offload some of their product on Canada as they grapple with severe oversupply.

"On the dairy issue, we have a great result for our dairy farmers … and this was one of the president's key objectives," the Trump administration official said. "Canada has agreed to eliminate the class 7 milk pricing system, which is something that was very problematic."

But Trump has approved the “framework” deal with Canada, a source familiar with the decision said, just days after he sharply criticized Canadian Prime Minister Justin Trudeau and his NAFTA negotiating team.

At the outset of the NAFTA talks, the U.S. demanded Canada dismantle supply management entirely — something that Trudeau has always maintained was a non-starter.

Canada is also expected to sign on to this new NAFTA without any reassurances that the U.S. will lift its so-called "section 232" tariffs on steel and aluminum imports — a coup for the economic nationalists that surround Trump who believe that protectionist measures like these punitive tariffs can help salvage the declining U.S. steel industry.

"There isn't any agreement on that at this point," a Trump administration official said. "There's been talk about potential discussions there, but that's on a completely separate track."

The quota would allow for significant growth in tariff-free automotive exports from Canada above current production levels of about 2 million units, safeguarding Canadian plants.

Those tariffs were levied on "national security" grounds using presidential authority granted under Section 232 of the Trade Expansion Act of 1962, which gives the president broad powers to impose tariffs without consulting Congress. Canada responded to Trump's move with counter-tariffs on billions of dollars worth of U.S. goods.

Negotiators from both sides spent two days talking by phone as they tried to settle a range of difficult issues, such as access to Canadas closed dairy market and U.S. tariffs.

While technically separate from NAFTA talks, the U.S. has used the threat of further 232 tariffs on autos to extract concessions from Canada and Mexico — a frightening proposition for the Canadians.

But the deal failed to resolve U.S. tariffs on Canadas steel and aluminum exports, the Canadian sources said.

Importantly for Canadian negotiators, Trump has agreed that no hard limit will be placed on Canadian auto exports to the U.S.

That said, should the U.S. move forward with the imposition of worldwide 232 tariffs on autos, they would also apply to Canada.

However, Ottawa has negotiated what is effectively an exemption, as it would still be able to export cars and parts tariff-free up to a certain amount that is well above what Canada sends south of the border.

"We've discussed with Mexico, Canada. We've reached an accommodation with them, particularly in light of the changes that will be made on the rules of origins," a Trump administration official said.

According to the U.S. Trade Representative, Canada ships more than $56 billion US worth of autos — cars and parts alike — to the U.S. each year. The auto industry employs more than 120,000 people in Canada, with most of those jobs concentrated in southwestern Ontario.

Canada has also secured exemptions for its creative industries. The existing NAFTA deals includes a cultural exemption clause, which means cultural goods are not treated like other commercial products — and that will continue under the new terms of the deal. Lighthizer has previously cited Canada's broadcasting content and telecommunication ownership rules as an irritant.

U.S. negotiators have been gunning for a new NAFTA by month's end to get a text of the agreement to Congress for its mandatory 60-day review period. That could allow for a deal to be signed before Dec 1., when Mexico's new, left-leaning president takes office.

Under U.S. law, while Congress can extend fast-track negotiating authority to Trump administration officials — as it has with NAFTA — legislators retain the right to review any proposed trade agreement and decide whether it will be implemented. That relationship is governed by a set of strict, legislated timelines that allow Congress enough time to study a deal before delivering a decision.

He outlined the deadline  — Sept. 30 at midnight — for the text of that deal to be submitted to Congress. Canada would be allowed on board, he explained, but they'd have to agree to the terms spelled out in the bilateral agreement. 

Trump made it clear Canada's failure to join would be unacceptable, with hefty auto tariffs as a consequence.

John Paul (J.P.) Tasker is a reporter in the CBC's Parliamentary bureau in Ottawa. He can be reached at [email protected]

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