NAFTA re­placed by free trade pact

The Phnom Penh Post - - BUSINESS - Heather Scott

CANADA and the US reached a dead­line deal on a new free trade pact that will in­clude Mex­ico, the gov­ern­ments an­nounced late on Sun­day, af­ter more than a year of talks to re­vamp a pact Pres­i­dent Don­ald Trump had la­belled a dis­as­ter.

The US-Mex­ico-Canada Agree­ment (USMCA) up­dates and re­places the nearly 25-year-old North Amer­i­can Free Trade Agree­ment (NAFTA), which Trump had threat­ened to can­cel.

The re­write “will re­sult in freer mar­kets, fairer trade and ro­bust eco­nomic growth in our re­gion”, said a joint state­ment from US Trade Rep­re­sen­ta­tive Robert Lighthizer and Canada’s For­eign Af­fairs Min­is­ter Chrys­tia Free­land.

Sun­day’s an­nounce­ment capped six weeks of in­tense dis­cus­sions.

In the end, the gov­ern­ments over­came their dif­fer­ences with both sides con­ced­ing some ground, and hail­ing the agree­ment for a re­gion of 500 mil­lion res­i­dents that con­ducts about $1 tril­lion in trade a year.

“It’s a good day for Canada,” Cana­dian prime min­is­ter Justin Trudeau said, while Mex­i­can for­eign min­is­ter Luis Vide­garay tweeted that the deal was good for his coun­try “and for North Amer­ica”.

‘A big win’

Trump, who pur­sues an “Amer­ica First” pol­icy on trade, needs to look strong head­ing into the Novem­ber midterm elec­tions where his Repub­li­can Party is fight­ing to keep con­trol of Congress, while Trudeau does not want to be seen as cav­ing be­fore next year’s gen­eral elec­tion north of the bor­der.

Canada had risked be­ing frozen out of an Au­gust US-Mex­i­can deal.

The Cana­dian dol­lar jumped Mon­day to a five-month high in Asian trade af­ter re­ports of the deal.

At around 11am in Tokyo (0200 GMT), the loonie was up 0.7 per cent from its Fri­day close at 1.2814 to one US dol­lar.

Ottawa will now open its dairy mar­ket fur­ther to US pro­duc­ers, and – in re­turn – Wash­ing­ton left un­changed the dis­pute set­tle­ment pro­vi­sions.

The agree­ment will al­low them to sign the agree­ment be­fore Mex­ico’s Pres­i­dent En­rique Pena Ni­eto leaves of­fice De­cem­ber 1, the date that was the cause of the last-minute flurry of ac­tiv­ity.

Un­der US law, the White House is re­quired to sub­mit the text to Congress 60 days be­fore sign­ing – and of­fi­cials barely made it by the mid­night dead­line.

Un­der Canada’s sup­ply-man­aged dairy sys­tem, Ottawa ef­fec­tively sets pro­duc­tion quo­tas and the price of milk, which raises prices to con­sumers but pro­vides farm­ers with a sta­ble in­come. Tar­iffs of up to 275 per cent have kept most for­eign milk out of the Cana­dian mar­ket.

Canada had op­posed US de­mands to weaken or elim­i­nate NAFTA’S dis­pute res­o­lu­tion mech­a­nism, whose ar­bi­tra­tion pan­els Ottawa used to re­solve trade con­flicts, and to de­fend against US anti-dump­ing and coun­ter­vail­ing du­ties, no­tably against its im­por­tant lum­ber in­dus­try.

Even late last week of­fi­cials had warned that time was run­ning out for a new agree­ment.

But a se­nior US ad­min­is­tra­tion of­fi­cial said the fi­nal re­write is a “fan­tas­tic agree­ment” and he called it “a big win for the US, Mex­ico and Canada”.

Along­side changes to the dairy mar­ket in Canada, of­fi­cials said it in­cludes stronger pro­tec­tions for work­ers, tough new en­vi­ron­men­tal rules, and up­dates the trade re­la­tion­ship to cover the dig­i­tal econ­omy and pro­vides “ground­break­ing” in­tel­lec­tual prop­erty pro­tec­tions.

‘Sun­set clause’

In ad­di­tion, it adds pro­vi­sions to pre­vent “ma­nip­u­la­tion” of the trade rules, in­clud­ing cov­er­ing cur­rency val­ues, and con­trols over out­side coun­tries try­ing to take ad­van­tage of the duty-free mar­ket, the of­fi­cial said.

One of the most im­por­tant sec­tors con­cerns the auto sec­tor, which NAFTA rev­o­lu­tionised.

The US had sought in­creased Amer­i­can con­tent in­stalled in duty-free au- tos, and the new text fore­sees rules to en­cour­age North Amer­i­can sup­ply of com­po­nents.

While the pact should pro­tect Mex­ico and Canada from Trump’s threat­ened 25 per cent tar­iffs on cars, still pend­ing are the du­ties on steel and alu­minium, which of­fi­cials said was on a “sep­a­rate track”, han­dled by the Com­merce Depart­ment.

Canada will main­tain its sub­sidised cul­tural sec­tor, de­spite ob­jec­tions by the US.

Cana­dian and Mex­i­can ne­go­tia­tors, as well as US in­dus­try, had re­jected the Amer­i­can de­mand that any new NAFTA con­tain a “sun­set clause” re­quir­ing the agree­ment’s reau­tho­ri­sa­tion ev­ery five years.

Un­der Sun­day’s deal, the trade pact will re­main in force for 16 years but will be re­viewed ev­ery six years.

More than two-thirds of Cana­dian ex­ports go to the US, equiv­a­lent to 20 per cent of its Gross Do­mes­tic Prod­uct, while Canada is the largest ex­port mar­ket for the US.


US, Mex­ico and Canada have agreed to free trade deal to re­place the 25-year-old North Amer­i­can Free Trade Agree­ment.

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