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NAFTA replaced by free trade pact

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

NAFTA replaced by free trade pact

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 autos, 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.

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