US and Canada sign trade deal replacing NAFTA

Oct 1, 2018 15:29 IST
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Canada on September 30, 2018 agreed to sign a trade deal with the United States and Mexico, revamping the North American Free Trade Agreement after almost a year of negotiations. The new deal has been named the United States-Mexico-Canada Agreement (USMCA).

The trilateral pact is expected to be signed by the three North American countries before the end of November, after which it would be submitted to Congress. The deal was agreed upon by Canada just hours before the US imposed September 30 midnight deadline.

Significance

The deal is expected to re-balance US’s trade relations with Mexico and Canada.

It modernises what was covered by NAFTA by adding provisions on digital trade and intellectual property.

It also highlights new rules on the origin of autos and the market access to Canada's dairy sector.

Key Highlights of the deal

The new trade deal would make significant changes to the rulebook that has governed North America, trade since 1994.

It will for the first time set rules for financial-services and digital businesses that have emerged since the bloc was created.

It would allow US farmers greater access to Canada's dairy market and address concerns about potential US auto tariffs. The pact will come up for review every six years.

Under the agreement, Canada has agreed to export a quota of 2.6 million vehicles to the United States in the wake of 25 percent global autos tariffs imposed by the US on national security grounds.

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

The deal, however, failed to resolve U.S. tariffs on Canada's steel and aluminum exports.

Why September 30 deadline?

The Trump administration has been working to sign a new trade deal before Mexican President Enrique Pena Nieto leaves office on December 1. To meet that deadline, the text of the agreement had to be submitted to Congress before October.

The US Congress, which has to approve the deal, was against leaving Canada behind. Hence, following the signing, the deal will now be sent to the Congress, which will start its 60-day review period, during which it can suggest changes to the deal. After the approval of the Congress, it will be sent to Trump for his assent.

Background

The agreement with Canada and Mexico — two of the United States' biggest trading partners — follows through President Donald Trump's campaign pledge to renegotiate NAFTA.

President Donald Trump had threatened to end 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 Canada had failed to sign the deal on before the midnight deadline.

Canada, America's second-largest trading partner, was left out when the US and Mexico had reached a preliminary deal in late August to revamp NAFTA. Canada was expected to join the talks after that but both US and Canada stayed deadlocked over the trade of dairy products.

US President Donald Trump has held NAFTA largely responsible for the loss of American manufacturing jobs and so, he wanted to initiate major changes to the pact.

Vehicles, machinery and agricultural products make up much of the goods traded between the three countries.

About North American Free Trade Agreement

The North American Free Trade Agreement is an agreement signed by Canada, Mexico and the United States, creating a trilateral trade bloc in North America.

The agreement came into force on January 1, 1994. It superseded the Canada–United States Free Trade Agreement between the U.S. and Canada.

NAFTA has two supplements: the North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAALC).

NAFTA has reportedly been beneficial to the North American economies and the average citizen, but harmed a small minority of workers in industries exposed to trade competition.

The impetus for a North American free trade zone began with US President Ronald Reagan, who made the idea part of his campaign when he announced his candidacy for the presidency in November 1979.

  US and Canada sign trade deal replacing NAFTA

In 1988, Canada and the United States signed the Canada–United States Free Trade Agreement (FTA) and shortly afterwards Mexican President Carlos Salinas de Gortari decided to approach US president George HW Bush to propose a similar agreement in an effort to bring in foreign investment following the Latin American debt crisis.

Following diplomatic negotiations dating back to 1990, the leaders of the three nations signed the agreement in their respective capitals on December 17, 1992. The signed agreement then needed to be ratified by each nation's legislative or parliamentary branch.

The goal of NAFTA was to eliminate barriers to trade and investment between the US, Canada and Mexico.

The implementation of NAFTA brought the immediate elimination of tariffs on more than one-half of Mexico's exports to the US and more than one-third of US exports to Mexico.

In the case of US–Canada trade, most was already duty-free but NAFTA sought to eliminate non-tariff trade barriers and to protect the intellectual property rights on traded products.

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