Canada, U.S. Reach Tentative Deal on NAFTA Update

Envoys from Canada and the U.S. reached a tentative agreement on Sunday that would include Canada in an earlier pact between Mexico and the U.S. to update the North American Free Trade Agreement.

Terms of the deal were reached Sunday afternoon and reviewed by a Canadian cabinet meeting late that night. Mexico’s senate also was rushing to appraise the package to meet a midnight deadline set by the White House.

Bowing to President Donald Trump’s disdain for “NAFTA,” the revised agreement will be called the United States-Mexico-Canada Agreement.

The Canadian accord was made possible by concessions by each side regarding two key issues. Canada agreed to reduce trade barriers that have protected its domestic dairy industry. And the U.S. relented on its demand to drop a NAFTA mechanism for handling trade disputes.

The tentative deal also raises the local content requirement to avoid tariffs to 75% from 62.5%. At least 40% of a car’s value must originate from workers paid at least $16 per hour. The pact will expire in 16 years unless the participating countries, which are to review it every six years, agree to renew.

The deal protects Canada from the tariffs that Trump has repeatedly threatened to impose on all imported vehicles unless he wins trade concessions from Europe and China. The White House indicated the exemptions for Canada and Mexico would apply to their current levels of shipments to the U.S.

The agreement does not erase Canada’s exposure to U.S. tariffs of 25% on steel and 10% on aluminum imposed in March for the sake of national security. The Trump administration dropped initial exemptions for Canada and Mexico in May to pressure the two countries into reaching agreement on NAFTA.