President Donald Trump on Monday touted the renegotiated NAFTA deal between the US, Mexico and Canada as “truly historic news for our nation and indeed for the world.”
Trump, who has long railed against NAFTA, once again called the original agreement “the worst trade deal perhaps ever made” and said the new US-Mexico-Canada Agreement — dubbed the USMCA — will be a boon for the US economy.
“The factories were leaving, the jobs were leaving, people were being fired,” Trump said, describing the old agreement. “We have negotiated this new agreement based on the principle of fairness and reciprocity. To me, it’s the most important word in trade.”
“This new deal will be the most modern, up-to-date and most balanced trade agreement in the history of our country with the most advanced protections for workers,” Trump said during a Rose Garden speech.
The agreement represents the fulfillment of a signature campaign promise and the brokering of an agreement that just days ago seemed likely to unravel, threatening the decades-old North American free trade framework.
The negotiations between the US and Canada appeared to be going nowhere fast when Trump warned once again last week that he was prepared to exclude Canada from a renegotiated NAFTA agreement.
But on Friday morning, Trump’s senior adviser and son-in-law Jared Kushner got a call from Canadian Prime Minister Justin Trudeau’s chief of staff Katie Telford and senior adviser Gerald Butts who wanted to make a final push to reach a deal, two sources familiar close to the negotiations said.
The phone call set into motion a series of phone negotiations over the weekend involving Kushner and US Trade Representative Robert Lighthizer on the US side and the direct involvement of Trudeau’s most trusted advisers, leading to an 11th-hour deal late on Sunday night.
Late last month, the US reached an agreement with Mexico and turned to bringing Canada into the fold, all with Trump threatening to exclude Canada and move forward on a bilateral deal between the US and Mexico.
The two sides struggled to get past key sticking points for weeks after that, but sources credited the phone call from Trudeau’s advisers to the Canadians with setting in motion a good faith, in the weeds negotiations to resolve the final hurdles, reinvigorating Lighthizer’s negotiations with Foreign Secretary Chrystia Freeland.
Sources say it was Kushner’s close relationship with Telford that got the US and Canada to this breakthrough. It’s not the first time Kushner’s involvement has pushed negotiations past their toughest points. Kushner played a similar role with Mexico — in that case, his close relationship was with Luis Videgeray, the Mexican foreign secretary, helped propel those talks to fruition.
Here are the biggest changes between the nearly 25-year-old NAFTA agreement and the new provisional USMCA.
Opening up Canada’s dairy market
In a win for the United States, USMCA will open up some of Canada’s dairy market to US farmers. The issue was a big sticking point between the two negotiating teams.
Under the original NAFTA, Canada limited how much milk, cheese and other dairy products could come in from the United States.
But under the updated agreement, Canada will set new quotas for the United States. It will increase market access for US dairy, poultry and eggs. In return, the United States will allow more Canadian dairy, peanuts and peanut products, and a limited amount of sugar to cross the border, according to a document from US Trade Representative’s Office.
Canada has also agreed to end a system that had kept the price of some milk products, including milk protein, low. This change will also allow more US dairy products to enter the Canadian market.
The Dairy Farmers of Canada quickly came out to criticize the new trade agreement, claiming it puts the livelihood of Canadian dairy producers at risk.
Canada recently made concessions in the Trans-Pacific Partnership and a trade deal with the European Union that also opened up its dairy market.
The new deal will require more of a vehicle’s parts to be made in North America in order for the car to be free from tariffs.
It requires that 75% of the parts must be made in Canada, Mexico or the United States, about 12 percentage points higher than under the original NAFTA.
The provision will help keep the production of car parts in the United States and bring back some production that moved abroad, the USTR said.
Ford Motor Company applauded the agreement because it will “support an integrated, globally competitive automotive business in North America.”
Renew it or lose it.
The United States had wanted to include in the new agreement a clause that would kill NAFTA after five years unless all three countries agreed to renew it.
Instead, negotiators stitched into the updated treaty new terms of the deal, agreeing to keep the trade pact for 16 years, unless all three countries agreed to extend it.
That means the deadline could be extended far out into the future, if all three countries agreed to either renew or renegotiate the trilateral trade pact.
The United States, Canada and Mexico will be required to meet every six years to decide whether to do so.
The Trump administration had been seeking a shorter time frame of five years in an effort to keep the pact up to date. But Mexico and Canada were less in favor of that proposal arguing it would stunt investment in their countries if the future of the agreement was in question.
Exchange rate curbs
Tucked in the agreement is a foreign-exchange provision to deter countries from manipulating their currencies.
The language isn’t likely to impact all three NAFTA countries, which have a free floating exchange rate. Instead, it’s intended as a signal to other countries outside of North America.
Countries frequently commit to avoiding unfair currency manipulations. But the tougher language in the accord could give the United States more leverage in trade negotiations with countries like China.
When countries are found to be in violation of the agreement, there are hard and fast rules how to hold nations accountable. Embedded in the old NAFTA agreement were three kinds.
Two of those dispute settlement systems will remain basically intact, but will be renamed.
The first is a system to resolve state-to-state disputes, formerly known as Chapter 20. The second mechanism is NAFTA’s old Chapter 19, which resolves disputes between two countries on anti-dumping and countervailing duties cases. That will also remain untouched in the new agreement.
One difference is that another settlement process, formerly known as Chapter 11, will be phased out between the US and Canada. But will stick for certain key sectors like oil and gas, infrastructure and telecommunications between the US and Mexico.
One big question is how the three countries will resolve disputes over US tariffs on steel and aluminum imports from Canada and Mexico.
For now, that part, along with retaliatory tariffs countries have imposed, were left out of the deal.
That piece will have to be negotiated separately, senior administration officials said.
Help for American workers
The new trade agreement aims to support American workers in several ways.
Most notably, it requires that 40% to 45% of car and truck parts be made by workers earning at least $16 an hour. The goal is to level the playing field between American and Mexican auto workers and to incentivize manufacturers to build more in the United States. One of the main criticisms of NAFTA is that it prompted American car makers to shift production south of the border, where workers earn much less than their US counterparts.
The deal also mandates that 75% of a vehicle’s parts must be made in North America, up from the current 62.5% rule. The Trump administration argues that this will help incentivize billions in new auto sector production in the US.
Also, Mexico has committed to recognize workers’ right to collectively bargain, and the three countries agreed to enforce rights recognized by the International Labor Organization.
Experts, however, are still sifting through the documents to determine the actual impact of the agreement.
“The bottom line is that we simply do not have enough information at this time to know whether NAFTA 2018 is in the economic interests of the United States,” AFL-CIO Trade Policy Specialist Celeste Drake wrote in a blog post. “On labor, despite progress, more work remains to be done.”