Agreement in principle reached after more than a year of intense negotiations
Unrestricted trade. It's written into the title of the North American Free Trade Agreement.
But as details of the newly renegotiated deal (the United States-Mexico-Canada Agreement or USMCA) emerge, questions remain about what Canada's signature guarantees in terms of protections, and what concessions were made.
As the smoke of heated NAFTA
talks clears, here's a look at what will be included in a trade deal
between the three countries — and what that could mean for Canadians.
Canada seems to have escaped the president's favourite sledgehammer — Section 232 national security tariffs — which would slap 20- to 25-per-cent duties on cars and auto parts imported into the U.S.
Trump has agreed that no hard limit will be placed on Canadian auto exports to the U.S., though if the U.S. moves forward with the imposition of worldwide 232 tariffs on autos, those would also apply to Canada.
However, what Ottawa has negotiated is effectively an exemption, because it would still be able to export cars and parts tariff-free up to a certain amount well above what Canada currently sends south of the border.
Mexico secured an agreement to have 232 tariffs suspended, so long as their auto exports don't grow by more than 40 per cent — growth that would exceed U.S. production.
The cap is a ceiling Canada can likely live with, since the majority of exports to the U.S. are parts, not completed vehicles.
"Pure free traders in both countries will go crazy, but in practical terms I don't see how the automakers come off any worse," said Dan Ujczo, a leading Canada-U.S. trade lawyer who represents clients in the auto industry.
Canada exported $71 billion in cars and vehicle parts to the U.S. last year, according to the United States Trade Representative.
Ontario would be hardest hit by punitive measures, as the majority of Canada's 120,000 auto jobs are located in that province.
It was one of the final sticking points as talks dragged long into the night on Sunday.
The new deal gives American farmers greater access to Canada's dairy industry. It's unclear exactly how much will be given, but U.S. administration officials say it's above the 3.25 per cent set out in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
Watch this brief explainer of supply management:
But as details of the newly renegotiated deal (the United States-Mexico-Canada Agreement or USMCA) emerge, questions remain about what Canada's signature guarantees in terms of protections, and what concessions were made.
The auto sector
After U.S. President Donald Trump lobbed threat after threat at Canada's auto industry, peace has been tentatively achieved.Canada seems to have escaped the president's favourite sledgehammer — Section 232 national security tariffs — which would slap 20- to 25-per-cent duties on cars and auto parts imported into the U.S.
Trump has agreed that no hard limit will be placed on Canadian auto exports to the U.S., though if the U.S. moves forward with the imposition of worldwide 232 tariffs on autos, those would also apply to Canada.
However, what Ottawa has negotiated is effectively an exemption, because it would still be able to export cars and parts tariff-free up to a certain amount well above what Canada currently sends south of the border.
Mexico secured an agreement to have 232 tariffs suspended, so long as their auto exports don't grow by more than 40 per cent — growth that would exceed U.S. production.
The cap is a ceiling Canada can likely live with, since the majority of exports to the U.S. are parts, not completed vehicles.
"Pure free traders in both countries will go crazy, but in practical terms I don't see how the automakers come off any worse," said Dan Ujczo, a leading Canada-U.S. trade lawyer who represents clients in the auto industry.
Canada exported $71 billion in cars and vehicle parts to the U.S. last year, according to the United States Trade Representative.
Ontario would be hardest hit by punitive measures, as the majority of Canada's 120,000 auto jobs are located in that province.
Access to the dairy market
Access to Canada's dairy market soured Trump even before NAFTA renegotiations began, as the U.S. has long dealt with chronic overproduction of milk products.It was one of the final sticking points as talks dragged long into the night on Sunday.
The new deal gives American farmers greater access to Canada's dairy industry. It's unclear exactly how much will be given, but U.S. administration officials say it's above the 3.25 per cent set out in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
Watch this brief explainer of supply management:
The National
Supply management: The argument for and against, and why Trump hates it
00:00
01:11
Those tariffs were a particular irritant for Trump, who demanded the dismantling of the supply management system after the G7 summit in Quebec this summer.
Prime Minister Justin Trudeau stood by the existing procedures.
The way the government protects Canadian farmers was also an issue during negotiations with the European Union.
As part of the The Comprehensive Economic and Trade Agreement (CETA), which has yet to be fully ratified, Canada agreed to nearly double the amount of duty-free cheese imports — the first time it had awarded a new cheese quota since the 1970s.
National security tariffs
National security was the catalyst of the all-out tariff battle this summer, and it looks like that could continue.Canada was scrambling to secure an exemption from steel and aluminum tariffs, but it became clear the Trump administration wasn't budging easily.
"There isn't any agreement on that at this point. There's been talk about potential discussions there but that's on a completely separate track," a senior U.S. official told reporters Sunday night.
A source with knowledge of the negotiations said Canada hopes the duties will be gone by the time a deal is signed.
Initially Canadian officials were treating the Section 232 duties — the part of the Trade Expansion Act which allow the U.S. administration to charge import fees on grounds of national security without consulting Congress — as a separate issue from the NAFTA talks. As time went on, it became clear that wasn't a sustainable strategy.
During the summer, Trump's announcement that Canada would be subject to tariffs on steel and aluminum drew gasps from the halls of Parliament Hill. Canada quickly punched back with equal $16.6 billion-dollar counter tariffs on a plethora of carefully chosen U.S. products, including bourbon, household appliances, playing cards and sailboats.
"I think the case with steel and aluminum was the test case," Phil Levy told CBC Radio's The House.
He explained Trump was likely trying to measure potential backlash from consumers and industries before the Trump administration decided whether to impose auto tariffs.
Canada exported about $24 billion in steel and aluminum to the U.S. last year. Canada produces about five per cent of the world's steel, equalling over 3,200 tonnes a year.
Dispute resolution
Canada was unwavering in its demand for Chapter 19. Why? According to the prime minister, it's because Trump "doesn't always follow the rules."Chapter 19, the section of NAFTA that allows companies to request arbitration if they feel their products have been unfairly hit with anti-dumping or countervailing duties, was personally detested by U.S. negotiator Robert Lighthizer.
"There hasn't been any significant changes with respect to those chapters," the U.S. official explained.
That particular red line for Canada has a history rooted in lumber exports.
In the early 2000s, lumber exporters took their case to a NAFTA panel, and won.
However, the U.S. didn't want to comply with the ruling and Canada eventually negotiated a settlement that didn't refund all the industry's money.
When that brokered peace expired, the U.S. industry demanded another investigation and the country's Commerce Department levied additional duties, reigniting the dispute.
Concerned about a repeat, Trudeau was unequivocal about its inclusion in a new pact.
"We need to keep the Chapter 19 dispute resolution because that ensures that the rules are actually followed," he said at the beginning of September.
Chapter 19 has historically been a minefield for the two countries. It was developed as part of Canada's first trade deal with the U.S., negotiated back in the 1980s under Prime Minister Brian Mulroney.
One of its architects, former Canadian negotiator Gordon Ritchie, recalls holding secret meetings with James Baker, the U.S. secretary of state at the time, after Mulroney refused to take a call from President Ronald Reagan until the Americans relented.
"OK, you can have your damn dispute settlement proposal," Ritchie recounts Baker saying.
Sunset clause
One headline item you're unlikely to see in the text of the new agreement is the controversial sunset clause — at least in its originally pitched format."None of the things we put on the table was as challenging as [an] American sunset clause that said after five years this thing goes away unless all three parties agree," David MacNaughton, Canada's ambassador to the U.S., told Politico.
Cultural exemptions
Unchanged from the original version of NAFTA, cultural exemptions will remain in the new deal, according to senior Canadian sources.This particular segment became a Canadian must-have, Trudeau argued, because otherwise it could enable American companies to buy Canadian newspapers or TV stations.
"It is inconceivable to Canadians that an American network might buy Canadian media affiliates, whether it's newspapers or TV stations or TV networks," Prime Minister Justin Trudeau told reporters in September.
Groups representing Canadian artists and others who make their living producing Canadian content were quick to man the barricades — particularly in Quebec, where French-language cultural programming is seen as a bulwark protecting the province's unique identity in North America.
About the Author
Canada, U.S. have reached a NAFTA deal - now called the USMCA
Trudeau says it's 'a good day for Canada,' but does not elaborate
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Full coverage of the new U.S.-Mexico-Canada Agreement LIVE
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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-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.
Prime
Minister Justin Trudeau leaves the Office of the Prime Minister and
Privy Council after an agreement was reached in the NAFTA negotiations
in Ottawa. (Justin Tang/Canadian Press)
"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."
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.
In
a background briefing with reporters, a senior Trump administration
official heralded the USMCA as a win for all three countries.
"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."
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.
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.
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.
(Chapter 11, however, will be phased out between the U.S. and Canada, Trump officials said. This chapter, which outlines the investor-state dispute settlement, allowed corporations to sue governments at special tribunals for interfering in their business.)
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.
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.
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.
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.
"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.
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.
Foreign
Affairs Minister Chrystia Freeland and United States Trade
Representative Robert Lighthizer, shown in January, released a joint
statement late Sunday. (Graham Hughes/Canadian Press)
"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."
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. Its preservation, save for a few tweaks, will be pitched as a success story by the governing Liberals.
"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."
Milk
is pictured at a grocery store in North Vancouver late last month. 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. (Jonathan Hayward/Canadian Press)
Canadian sources told CBC News they hope to resolve the 232 issue before ratifying NAFTA.
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.
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.
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.
Sources could not immediately confirm the exact number of cars or parts that would be allowable, but U.S. officials said there has been an "accommodation" reached.
The Canadians have already said they are pleased with what the U.S. had negotiated bilaterally with Mexico on changes to "rules of origin" around autos, championing the changes as good for middle-class workers on both sides of the border.
The revised USMCA deal will require 75 per cent of auto content to be made in North America, up from 62.5 per cent under the current NAFTA.
It would also require 40-45 per cent of auto content made in Mexico to be made by workers earning at least $16 US an hour, placating unions in Canada and the U.S. concerned about high-paying jobs moving to Mexico's low-wage economy.
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 deal 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 agreement. Lighthizer has previously cited Canada's broadcasting content and telecommunication ownership rules as an irritant.
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.
A
Trump administration official said Trudeau, Trump and Mexican
President Enrique Pena Nieto will sign the USMCA at the end of November.
It will then be up to the next Congress — which could be fundamentally reconstituted after November's midterm elections — to ratify the agreement before it comes in to force.
"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.
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.
'A good day for Canada'
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."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."
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.
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.
Chapter 19 preserved word for word
Chapter 19 will be preserved word for word, though it will be renumbered in the new agreement, U.S. officials said Sunday.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.
(Chapter 11, however, will be phased out between the U.S. and Canada, Trump officials said. This chapter, which outlines the investor-state dispute settlement, allowed corporations to sue governments at special tribunals for interfering in their business.)
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.
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.
Dairy concessions could be politically challenging
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.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'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.
Trump officials say dairy changes major breakthrough
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.
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. Its preservation, save for a few tweaks, will be pitched as a success story by the governing Liberals.
Steel and aluminum imports still an open question
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."
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.
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.
No hard limit on auto exports
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.
Sources could not immediately confirm the exact number of cars or parts that would be allowable, but U.S. officials said there has been an "accommodation" reached.
U.S.-Mexico deal came first
Last month, Trump announced his negotiators had reached a bilateral deal with Mexico.The Canadians have already said they are pleased with what the U.S. had negotiated bilaterally with Mexico on changes to "rules of origin" around autos, championing the changes as good for middle-class workers on both sides of the border.
The revised USMCA deal will require 75 per cent of auto content to be made in North America, up from 62.5 per cent under the current NAFTA.
It would also require 40-45 per cent of auto content made in Mexico to be made by workers earning at least $16 US an hour, placating unions in Canada and the U.S. concerned about high-paying jobs moving to Mexico's low-wage economy.
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 deal 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 agreement. Lighthizer has previously cited Canada's broadcasting content and telecommunication ownership rules as an irritant.
Deal to be sent to Congress
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.
It will then be up to the next Congress — which could be fundamentally reconstituted after November's midterm elections — to ratify the agreement before it comes in to force.
About the Author
With files from the CBC's Katie Simpson, Chris Hall
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