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What you need to know about the trade deal formerly known as NAFTA

For starters, it's called — wait for it — the United States-Mexico-Canada Agreement.

by Steven Zhou
Oct 1 2018, 7:29pm

Canada reached a new trade deal with the U.S. and Mexico Sunday night that overhauls the North American free trade agreement (NAFTA), following a year of often contentious negotiations that kept the agreement in the crosshairs of Donald Trump.

Renamed the much less catchy United States-Mexico-Canada Agreement (USMCA), the new deal sees, among other things, Canada give up a larger share of the Canadian dairy market for exemptions from auto tariffs and the preservation of a dispute-resolution process.

“Modernizing a new NAFTA deal was no easy feat,” Prime Minister Justin Trudeau said diplomatically on Monday at a press conference in Ottawa, hours after meeting a midnight deadline imposed by Trump. The year-long process included several points of tension between the prime minister and President Trump, who has been slamming NAFTA as the “worst deal ever made” stretching back to his own election campaign. Mexico had already hammered out its side of the agreement with the U.S., but remained part of the negotiations, with the incoming president Andres Manuel Lopez Obrador stating that he wanted the agreement to remain trilateral and that the country wouldn't turn its back on Canada.

All parties have since praised the new deal, with Minister of Foreign Affairs Chrystia Freeland saying in a statement that it’s going to, “strengthen the middle class, and create good, well-paying jobs and new opportunities” for all North Americans.

Here’s what we know so far:

Dairy and Poultry

Perhaps Canada’s most significant concession, American farmers now have access to about 3.6 percent of Canada’s dairy market.

The new trade deal effectively dismantles Class 7 — an agreement between Canadian farmers and their processors that lowered dairy ingredient prices and had basically shut out American producers from the Canadian market.

Though dairy makes up a miniscule 0.1 percent of all U.S.-Canada trade ($680 billion last year), the dairy industry holds significant political sway in the U.S. Trump thus made Canada’s dairy trade policy a central gripe of his with NAFTA, even though Canada’s overall impact on American farmers is limited. It carries similar political weight in Canada, too, with Trudeau being questioned on Monday about how it would play out for him in next year’s election, in particular Quebec.

The U.S. also significantly increased its access to Canada’s chicken market, along with a better deal for related products, like turkey and eggs.

Cars and Autoparts

One of Trump’s favourite threats in the year leading up to the new deal — other than freezing Canada out of negotiations altogether — was to slap 20-25 percent duties on Canadian auto imports.

Canada successfully eluded this threat, which falls under Section 232 of national security tariffs. Canadian auto exports still fall well below the point where the U.S. starts charging its tariffs. Mexico also avoided similar duties as long as their exports don’t grow beyond 40 percent.

This is important for Canada as a 25 percent tariff on auto imports into the U.S. would have threatened about a-fifth of jobs at Canadian car dealerships, among other areas, according to the Canadian Automobile Dealers Association this past summer.

Labour

The new deal raises the bar for labour rights in Mexico, which has agreed (in theory) to make union organizing easier, while also increasing safety standards for trucks crossing the US border. New rules also make it harder for global automakers to build cars cheaply in Mexico, since 40-45 percent of vehicles now have to be made by workers making at least $16/hr to avoid duties.

Dispute Resolution

Canada also succeeded in keeping Chapter 19, a section in the old NAFTA deal that allows companies to seek arbitration before expert panels if they feel that unfair duties had been slapped on their goods.

The provision has been around since the 1980s, when the U.S. and Canada negotiated their first trade deals. It’s also been at the heart of U.S.-Canada tensions for these trade negotiations, even though it’s not been a heavily used mechanism. On Monday, Trudeau highlighted it as a key win.

Agreeing to keep Chapter 19, the Americans had to drop their proposal for a different resolution system called “Chapter 20.” Both countries also agreed to eventually get rid of “Chapter 11,” which allowed companies to directly sue governments for unfair interference.

Cultural Preservation

In an effort to prevent American corporations from being able to buy up Canadian media companies and outlets, Canada was insistent, and successful, in keeping “cultural exemptions” in the new trade deal.

Trudeau had long referred to these exemptions as a redline for Canada that would upend the entire deal if cut out.

Others…

Other significant aspects of the new USMCA include an increase in protection for pharmaceutical patents up to a decade by Canada, which weakens the country’s ability to keep its drug prices low.

Also, Canadians shipping goods to the U.S. won’t have to pay duties unless their shipments are worth at least $150. Conversely, the threshold is $40 (up from $20) for American goods shipped into Canada.

Canada was unable to get rid of American tariffs for steel and aluminum imports that had been imposed by Trump at the height of NAFTA tensions. Freeland told reporters that those are separate negotiations.

Cover image of President Donald Trump being greeted by Canadian Prime Minister Justin Trudeau in La Malbaie, Quebec on June 8, 2018. Photo by Michael Kappeler/DPA via ZUMA Press.

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