In with the new
Canada inks new trade deal called USMCA with U.S., Mexico
A new era in North American free trade dawned in the dead of night Sunday as a 14-month NAFTA modernization effort between Canada, the U.S. and Mexico finally came to fruition with just hours to spare before an endof-weekend deadline.
What began as a marathon in the summer of 2017 ended in a flat-out sprint as negotiators in Ottawa and Washington worked around the clock to put the finishing touches on language adding Canada to the deal reached over the summer between the U.S. and Mexico.
“It’s a good day for Canada,” was all Prime Minister Justin Trudeau would say as he left a late-night cabinet meeting in Ottawa that capped several days of frenetic long-distance talks that included Foreign Affairs Minister Chrystia Freeland and U.S. Ambassador David MacNaughton. Details remained sparse, but U.S. administration officials say the deal - newly christened the U.S.-Mexico-Canada Trade Agreement, or USMCA - provides increased access to Canada’s dairy market for U.S. producers and limits the American impact of Canada’s controversial supply management system for dairy and poultry products, long a thorn in the side of President Donald Trump.
It also appears to preserve the key dispute-resolution provisions - Chapter 19 - which allow for independent panels to resolve disputes involving companies and governments, as well as Chapter 20, the government-to-government dispute settlement mechanism.
Canada fought hard to retain Chapter 19, a holdover from NAFTA that U.S. trade ambassador Robert Lighthizer worked tooth and nail to eliminate. “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,” Freeland and Lighthizer said in a joint statement.
“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.” On the matter of Section 232 tariffs, Trump’s trade weapon of choice, U.S. officials told a late-night conference call with reporters that the two sides had “reached an accommodation” on the issue.
A side letter published along with the main text of the agreement exempts a percentage of eligible auto exports from the tariffs. A similar agreement between Mexico and the U.S. preserves duty-free access to the U.S. market for vehicles that comply with the agreement’s rules of origin.
Those rules require that a certain percentage of an imported vehicle’s components be manufactured in the United States. Some have characterized the side letter as effectively establishing a quota on the number of autos that can be exported to the U.S. - anathema to the very principles of free trade. But Dan Ujczo, an international trade lawyer with the U.S. firm Dickinson Wright, said it would only apply to a very small percentage of vehicles that don’t comply with the origin rules.
“When people are saying there’s a cap on auto exports, it’s only in the limited situation where the goods are non-conforming with the rules of origin. So if you comply with the rules of origin, there’s no way you are subject to 232 tariffs,” Ujczo said.
“This objection is largely more philosophical than practical - the idea of having quotas as a side letter to a free trade agreement. The practical consequences are limited, if any.”