In an eleventh-hour breakthrough that may have saved the North American Free Trade Agreement, the Trump administration and top Canadian officials came to terms late Sunday on a deal — opening the way for the United States, Canada and Mexico to sign a renewed trade pact at the end of November.
The agreement still needs to be ratified by legislatures in all three countries, which won’t happen until next year at the earliest. But in striking an accord with Canada after settling with Mexico in late August, negotiators hit a crucial U.S.-imposed Sunday midnight deadline that otherwise could have pushed President Trump toward a breakup of the trilateral accord.
The U.S.-Canada deal came after furious negotiations in recent days and repeated threats from Trump and his chief negotiator, Robert Lighthizer, that the administration was prepared to leave Canada behind.
The agreement marks a milestone in Trump’s efforts to rewrite the United States’ most consequential free-trade pact, which he promised to overhaul or tear up. And it may help soften criticisms of his overbearing negotiating style and heavy use of tariffs, as the administration can now lay claim that it successfully completed a revamping of a major trade agreement.
“It’s a great win for the president and a validation of his strategy in the area of international trade,” said a senior administration official, in a briefing with reporters as midnight was approaching.
Trump has repeatedly denounced NAFTA as a disaster for U.S. industries and workers. Administration officials said the new agreement would be renamed the U.S.-Mexico-Canada Agreement, or USMCA.
Lawmakers, business interests, labor and other civic groups reacted more cautiously to the news, saying they would carefully analyze details of the text of the new agreement.
Administration officials said the revisions to NAFTA include notable rule changes on auto sourcing, investor-state disputes and labor rights, as well as new or updated provisions on digital trade, financial services and other areas of commerce that were not major factors when the pact was ratified a quarter-century ago under the Clinton administration.
NAFTA took effect in 1994, and over the years it has eliminated tariffs, integrated the economies and boosted trade among the three countries to more than $1 trillion last year. Many feared a collapse in negotiations would cause huge disruptions to sales and supply chains.
Lighthizer, the U.S. trade representative, however, did not succeed in winning concessions in some important areas that he had sought. While Canada gave ground in opening up its protected dairy market, Ottawa fended off another top U.S. priority to eliminate an existing NAFTA dispute-resolution mechanism that has allowed Canada to challenge U.S. anti-dumping duties on lumber and other goods. There also was no substantive change in government procurement rules, despite the U.S. bid to rewrite “Buy American” rules.
Negotiators spent a considerable amount of time on auto rules. NAFTA requires that 62.5% of the content of cars is produced in North America to qualify for tariff-free trade. Lighthizer initially sought to raise that threshold to 80% and establish a new requirement that 50% of the auto contents be sourced in the United States for zero-tariff treatment. Those moves were intended to curb offshoring to Mexico and increase auto investment and production in the United States.
In the end, the parties settled on raising the North American rule of origin for autos to 75%. And they agreed to a novel scheme that 40% to 45% of the content of cars must be produced by workers making at least $16 an hour, which Trump officials hope will shift more production and jobs to the U.S.
But it was unclear how that formula will be implemented and when it would bear fruit. And analysts said important details were needed to ensure that the new labor rules negotiated would be enforceable.
“More work remains to be done,” said Lori Wallach, director of Public Citizen’s Global Trade Watch. “Unless there are strong labor and environmental standards that are subject to swift and certain enforcement, U.S. firms will continue to outsource jobs to pay Mexican workers poverty wages, dump toxins and bring their products back here for sale.”
U.S. business groups took comfort in that the U.S. and Canada met the deadline, salvaging the trilateral agreement. “Manufacturers are extremely encouraged that our call for a trilateral agreement between the United States, Canada and Mexico has been answered,” said Jay Timmons, president of the National Assn. of Manufacturers.
Lawmakers and other groups also said it was too early to estimate the potential gains from the deal for American workers and companies. The White House previously had released publicly only a few pages summarizing some of the changes. People familiar with the substance of the accord that was struck with Mexico, most of which Canada earlier also had negotiated, had said some important details have yet to be hammered out.
Late Sunday, Trump administration officials were briefing key members of Congress, and a full text was expected to be posted before midnight.
Trade officials for the three countries have been at it for more than a year. Earlier this summer Lighthizer took a different tack by negotiating separately with Mexico and ultimately forging a bilateral agreement, putting pressure on Ottawa to join or face the possibility of being left out. Just before Labor Day, Trump sent a notice to Congress of his intention to sign a new trade pact solely with Mexico.
Trump’s hardball tactics have not made it easy for Canadian officials to cede ground.
The U.S. and Mexico sought to complete the talks by the end of September, to satisfy a congressional procedural requirement so they could sign a renewed trade pact Nov. 30. That was an important political consideration for Mexico, as its president-elect takes office Dec. 1 and did not want NAFTA hanging over him at the start of his term.
Canada’s prime minister, Justin Trudeau, faced considerable domestic pressure to stand up to Trump, who is highly unpopular in Canada. At the same time, Trudeau did not want to risk of a breakup of the trilateral pact and the potential damage to Canada’s economy.
In addition to his repeated threats to withdraw from NAFTA, Trump also slapped tariffs on steel and aluminum from Mexico and Canada, among other countries, to gain leverage in negotiations. Analysts were hopeful that those duties — a bargaining chip for Trump but bitterly resented by Canada — would be lifted soon, but trade officials said Sunday there were no changes as of yet on the status of those tariffs.