As we reported previously, on August 27, 2018, Mexico and the United States announced that they had reached a preliminary agreement to replace the North American Free Trade Agreement (“NAFTA”). On August 31, 2018, President Trump notified Congress of his “intent to sign a trade agreement with Mexico – and Canada, if it is willing – 90 days from now.”
With the finalization of the agreement with Mexico, the United States and Canada continued to negotiate the terms of Canada’s possible inclusion in the free trade agreement. Until late Sunday, September 30, 2018, the two countries had failed to reach an agreement. On that date, however, the United States and Canada announced that they reached an agreement under which Canada would join the new Free Trade Agreement.
In a joint statement, US Trade Representative Robert Lighthizer and Canadian Foreign Affairs Minister Chrystia Freeland said that the new agreement “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 new agreement will be called the United States-Mexico-Canada Agreement (“USMCA”). Under the USMCA, the two countries have agreed that:
● The United States will be allowed to increase its dairy exports into Canada.
● Automobiles must have a higher percentage of their content manufactured in North America to qualify for duty-free treatment under the agreement. Moreover, a certain percentage of any vehicle must be manufactured in a factory where the average production wage is at least $16 an hour in order to qualify for a zero tariff rate.
● The agreement will retain the binational dispute panel process for reviewing antidumping and countervailing duty decisions of the United States, Canada and Mexico.
● For the time being, the national security tariffs on steel and aluminum will remain in place on Canada and Mexico, although this issue is subject to further negotiations. Canada and Mexico were able to secure a limitation on the applicability of any possible future national security tariffs on automobiles.
Canada’s prime minister, Justin Trudeau, stated that, “It’s a good day for Canada.” Industry groups appeared to support the agreement. Jay Timmons, president of the National Association of Manufacturers, said, “Manufacturers are extremely encouraged that our call for a trilateral agreement between the United States, Canada and Mexico has been answered.”
The new agreement was the result of an intense set of negotiations over the weekend of September 29-30, which resulted in the announcement of the new agreement Sunday night.
The provisional text of the agreement can be read here.
