US, Canada agree to revised NAFTA deal hours before deadline

US, Canada agree to revised NAFTA deal hours before deadline
President Donald Trump (left) and Canadian Prime Minister Justin Trudeau participate on June 8 in a working session of the G7 Summit in La Malbaie, Quebec, Canada. The United States and Canada have agreed to a new trade deal to replace NAFTA. (SAUL LOEB/AFP/Getty Images)

The United States and Canada have reached an agreement on a new trade deal to replace the North American Free Trade Agreement, with just hours left before the end of the Sept. 30 deadline. The U.S. had already reached an agreement with Mexico.

What’s new in this deal?

This new trade deal will be known as the United States-Mexico-Canada Agreement. It will replace the North American Free Trade Agreement, which has governed trade between the U.S., Canada, and Mexico since it first went into effect on Jan. 1, 1994. Trump had referred to NAFTA as  “the worst trade deal in history.”

One sticking point for Trump was the United States’ ability to put tariffs on auto imports from Canada. Both Canada and Mexico have signed “side letters” with the U.S., which allow them to continue to ship cars into the U.S. at the same rate they always have without being hit by tariffs. However, any additional cars could possibly be hit by tariffs.

Under the USMCA, 75 percent of a car will need to be made in North America to avoid being hit by any tariffs. Under NAFTA, that percentage was 62.5. The deal also mandates that 30 percent of the work involved in building a vehicle will have to be done by workers who earn at least $16 per hour by 2020. That share will go up to 40 percent by 2023.

While this could keep U.S. companies from outsourcing production to Mexico where the average worker makes less than workers in the U.S. or Canada, some critics worry that it could also force automakers to outsource production of any vehicles that they plan to ship outside the U.S., to keep labor costs down.

Canada also won its argument for keeping Chapter 19, a mechanism that allowed any country in NAFTA to contest anti-dumping or countervailing duties by any of the other nations in front of a panel made up of people from each nation. Without this, Canada would have to challenge U.S. duties in the U.S. court system, were it would be less likely to sin.

Meanwhile, the U.S. got Canada to agree to allow U.S. farmers to export more dairy products to Canada.

Under this new agreement, Mexico will have to improve its labor laws, allow its workers to form unions more easily, and make sure that Mexican trucks that travel into the U.S. meet higher safety regulations.

The current version of the USMCA does not address the global steel and aluminum tariffs that the Trump administration has imposed.

What did Trump say?

On Monday, Trump tweeted that the USMCA was a “great deal” for all three nations that “solves the many deficiencies and mistakes in NAFTA.”

Canadian Prime Minister Justin Trudeau also tweeted about the deal, calling Monday a “good day for Canada & our closest trading partners.”