US reaches NAFTA deal with Canada

Trade ministers from the U.S., Mexico and Canada have reached a deal to revamp the North American Free Trade Agreement, the Trump administration announced late Sunday night.

The new pact, which is being called the U.S.-Mexico-Canada Agreement, is a major step toward completing one of Trump’s signature campaign promises and gives the president a concrete policy win to tout on the campaign trail this fall. It also sets the stage for what is sure to be a high-stakes fight to get the agreement passed by Congress before it can become law.

The Trump administration already formally notified Congress at the end of August of its plans to sign a new pact and faced a deadline of the end of September to provide a draft of the agreement.

U.S. Trade Representative Robert Lighthizer said in late August that officials are planning to sign with their Canadian and Mexican counterparts by the end of November — a date that would also satisfy Mexico, which is eager to have current President Enrique Peña Nieto sign the deal before his successor takes over Dec. 1.

“It’s a great win for the president and a validation for his strategy in the area of international trade,” a senior administration official said on a call with reporters late Sunday.

People briefed on the outlines of a revamped deal described changes in language governing dairy imports, dispute resolution between countries, limits on online shopping that can be done tax free, and limits on the U.S. threat of auto tariffs.

“It’s a good day for Canada,” Prime Minister Justin Trudeau said as he left the office late Sunday night. He said he would save other comments for an official announcement on Monday.

It is still an open question whether lawmakers — including members of the president’s own party who have repeatedly clashed with him on trade — will fall in line to support the deal.

Republicans are expected to pay close attention to the final details regarding dispute settlement and intellectual property issues, while Democrats will likely be looking for stricter labor and environmental standards.

Lawmakers from both parties, along with powerful business and industry groups, are also examining whether new provisions, such as stricter automotive rules, may end up making life more difficult for domestic companies rather than easier.

All three countries still have to go through a series of steps to get the agreement passed through their respective legislatures before it can take effect.

The new agreement is said to open up the Canadian dairy market to U.S. exports at a level slightly more than the opening under the Trans-Pacific Partnership, which opened 3.25 percent of Canada’s dairy market.

In exchange, Canada was able to preserve dispute settlement language. Canada has historically insisted on an international panel to judge whether the U.S. improperly uses duties as a commercial weapon.

Canada also agreed to an “accommodation” to its auto exports in response to tariffs Trump is expected to impose on vehicle imports for national security reasons, the senior administration official said.

That arrangement will likely involve Canada agreeing to a side deal that would restrict its auto exports to a level well above the current volume of trade that flows south of the border, sources close to the talks said.

Depending on the outcome of November’s midterm elections, control of the House of Representatives may well turn over to Democrats, who may have little incentive to work with a president from the opposite party to ratify a deal that they may not like. Lighthizer has for months said he expects a significant number of Democrats to join with Republicans to get the legislation to the president’s desk, but trade-friendly Democrats have expressed frustration with what they see as insufficient communication from the U.S. trade representative.

One strategy that circulated earlier this year was a plan to force a vote by withdrawing from the existing NAFTA agreement before the new one takes effect — thus forcing members of Congress to choose between the renegotiated deal or no deal at all.

Trump indicated last month that he would pursue such tactics, telling reporters in the Oval Office that he would “be terminating the existing deal and going into this deal.”

Several prominent lawmakers, however, expressed cautious optimism with the new pact.

“Maintaining a trilateral North American deal is an important prerequisite to preserving and extending those gains and the Trump administration has achieved that goal,” said Sen. Orrin Hatch (R-Utah), chairman of the Senate Finance Committee. “I look forward to reviewing this deal to confirm it meets the high standards of Trade Promotion Authority.”

Even without congressional approval, having the preliminary deal in hand will give the administration and vulnerable Republicans up for reelection at least the skeleton of a policy achievement to use on the trail.

Officials have said that changes made to automotive rules to increase the amount of content that must be sourced from within NAFTA countries should play well in manufacturing states concerned about the offshoring of jobs.