The United States and Canada have reached an 11th hour deal to keep alive a three-country trade alliance with Mexico and prevent a disruptive break-up.
After more than a year of negotiations, the 25-year-old North American Free Trade Agreement (NAFTA) is to be replaced by a new United States-Mexico-Canada Agreement (USMCA).
The deal comes despite Donald Trump’s multiple trade wars, which have seen the US president impose taxes on imports from both Canada and Mexico, bringing retaliation in kind.
The US had imposed a deadline of midnight on Sunday for differences to be settled. In the end both sides made concessions, and both governments have welcomed the outcome.
What’s in the new deal?
In a joint statement, US and Canadian trade representatives said the agreement “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”.
Canadian sources say the deal will preserve a trade dispute settlement mechanism, to protect its lumber industry and other sectors from US anti-dumping tariffs.
Canada had resisted American moves to remove the provision, keen to be able to challenge US trade penalties.
But Canada has been obliged to make concessions, in particular allowing US dairy farmers access to about 3.5 percent of its $16 billion (13.8€ billion) domestic market.
Car exports from Canada to the US are to be capped at 2.6 million vehicles, if Trump imposes global tariffs on cars on national security grounds. The quota would increase current exports, safeguarding Canadian plants.
However, the deal has failed to resolve US tariffs on Canada’s steel and aluminium exports.
How come NAFTA has been saved?
Donald Trump has repeatedly threatened to rip up NAFTA outright or break it up into little pieces. The US president has regularly called it a “disaster” for American workers and manufacturers.
Frustrated at what it saw as Canadian intransigence, his administration had been focusing instead on a bilateral pact with Mexico, and sealed a deal in August. Just a few days ago Trump attacked Canadian Prime Minister Justin Trudeau and his negotiating team, and had demanded major changes to NAFTA.
However, opposition was growing to a revised accord without Canada. Both Republicans and Democrats in Congress, as well as business and trade unions, indicated they would be unlikely to support such a move.
The last-minute push to keep Canada on board involved frenzied diplomatic activity behind the scenes at last week’s United Nations session in New York.
What’s been the reaction and what happens now?
“It’s a good day for Canada,” the country’s Prime Minister Justin Trudeau told reporters after a late-night cabinet meeting.
“It’s a great win for the president and a validation for his strategy in the area of international trade,” a senior Trump administration official said.
“It’s a good night for Mexico, and for North America,” added Mexican Foreign Secretary Luis Videgaray.
The news delighted financial markets which had been alarmed at the potential collapse of NAFTA. The Canadian dollar and Mexican peso both rose against the dollar.
A US official quoted by Reuters said the aim was for the agreement to be signed by the end of November before being submitted to the US Congress for approval.