WASHINGTON—Canada will join the U.S. and Mexico in a new free trade pact to replace the North American Free Trade Agreement, the U.S. and Canada have announced.
U.S. and Canadian negotiators reached agreement on the terms of the new pact late on Sept. 30, hours before a self-imposed deadline.
The new agreement will be known as the U.S.-Mexico-Canada Agreement, according to a joint statement issued by U.S. Trade Representative Robert Lighthizer and Canadian Foreign Affairs Minister Chrystia Freeland.
“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,” the statement said.
“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,” it said.
While full details of USMCA were not immediately available, it includes a provision that 75 percent of a vehicle must have been made by USMCA member countries to cross their borders duty-free, up from NAFTA's 62.5 percent. Also, 40 percent of the vehicle must have been assembled by workers making $16 or more per hour.
The agreement also grants the U.S. greater access to Canadian dairy markets and includes an automatic review of the agreement's provisions every six years.
Replacement of NAFTA, which President Trump has referred to as “a ripoff,” has been a major goal of the Trump administration since its beginning. The old agreement has been controversial since its inception on Jan. 1, 1994, with the United Steelworkers and other labor unions protesting its alleged displacement of jobs.
U.S. business interests reacted with dismay in August when the administration announced a new trade agreement with Mexico that did not include Canada.
The Motor & Equipment Manufacturers Association has long been an advocate of renegotiating NAFTA, but like many other business groups insisted that only a tripartite agreement would be effective.
“We are pleased that that the U.S., Mexico and Canada have been able to reach an agreement,” MEMA said in an Oct. 1 statement. “It is critical that all three parties be part of the agreement.”
“The potential strength and longevity of this agreement will be in the details,” MEMA said, adding that it would review USMCA's provisions carefully to see how they will affect its auto parts manufacturer members.
In a Sept. 30 statement, the National Association of Manufacturers essentially breathed a sigh of relief.
“Manufacturers are extremely encouraged that our call for a trilateral agreement between the United States, Canada and Mexico has been answered,” said NAM President and CEO Jay Timmons.
“Today, there's a massive amount of goods flowing across North America, meaning our countries' economies are inextricably linked,” Timmons said. “What's more, as the United States works to put an end to China's cheating and unfair trade practices, we are better off united with our North American allies.”
The National Retail Federation also hailed the new agreement.
“We are pleased a deal has been reached that preserves NAFTA's trilateral framework, which is critical to protecting North American supply chains that support millions of American jobs,” said Matthew Shay, NRF president and CEO.
Moody's Investors Service also expressed optimism about USMCA. The agreement, Moody's said, increases market confidence that a North American free trade agreement will remain in place.
“But its impact on the credit profile of firms reliant on the regional free trade agreement—such as in the auto, dairy, and agribusiness sectors—will vary depending on the specific details of the agreement,” it said.
At the close of business Oct. 1, the Dow Jones Industrial Average was up 192 points at 26,651, largely because of the news of the trade agreement with Canada.
Trump, Canadian Prime Minister Justin Trudeau and outgoing Mexican President Enrique Pena Nieto are expected to sign the agreement within the next 60 days, with Congress to consider the pact next year.