Trump & the Supply Chain
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US, Canada and Mexico Agree to NAFTA Replacement

The new deal will be called the U.S.-Mexico-Canada Agreement, or USMCA.

The U.S. and Canada agreed to a trade deal with Mexico, setting the stage for their leaders to sign the accord by late November in a region that trades more than $1 trillion annually.

The three countries reached an agreement to replace the 24-year-old North American Free Trade Agreement, according to a joint statement from U.S. Trade Representative Robert Lighthizer and Canadian Foreign Affairs Minister Chrystia Freeland on Sunday. The new deal will be called the U.S.-Mexico-Canada Agreement, or USMCA.

The accord involves improved access to Canada’s dairy market for U.S. farmers, stronger intellectual property provisions, and tighter rules of origin for auto production, according to two senior Trump administration officials who spoke to reporters on condition of anonymity.

Canadian auto exports up to a certain threshold will not be impacted by any U.S. tariffs on foreign cars, according to three people familiar with the matter. The agreement offers Canada some cover from the Trump administration’s threat to impose duties on car imports for national security reasons.

The deal caps a turbulent period for relations between the U.S. and Canada, traditionally close allies on national security and trade. But the alliance was severely tested by President Donald Trump’s aggressive negotiating style and Prime Minister Justin Trudeau’s willingness to stand his ground on key issues such as dairy and dispute settlement.

Last-Minute Push

U.S. and Canadian negotiators worked around the clock this weekend to make a Sunday midnight deadline that would allow the countries to sign the deal with Mexico’s outgoing President Enrique Pena Nieto before he leaves office on Dec. 1.

A revised NAFTA would be a landmark for Trump, who has called the current deal a “disaster” and vowed to reduce America’s yawning trade deficit and revive manufacturing jobs.

The president had threatened repeatedly to pull out of the pact, a scenario that business leaders warn would wreak havoc on their supply chains. In force since 1994, NAFTA eliminated tariffs on most goods. The Trump administration had already agreed last month to an updated pact with Mexico, which increased pressure on Canada to make concessions to join the deal.

Approval Pending

Lawmakers from the three countries still need to approve the pact. The new deal likely won’t be voted on by the U.S. Congress until 2019. The Democrats may take control of the House in midterm elections in November, which could undermine Trump’s ability to win approval.

Under U.S. trade law, the administration was required to publish the text by the end of September.

Republican Senator Orrin Hatch said he was pleased the administration was able to keep the three-way structure intact, noting that NAFTA has been a “proven success” for the U.S. Hatch is chairman of the Senate finance committee, the main panel in the upper chamber responsible for trade.

The deal will include side letters on quota arrangements for Mexico and Canada that would shield their current auto exports as well as future production from tariffs that Trump has threatened to impose, one of the officials said, but declined to comment on specifics.

Under the car-tariff reprieve for Canada, current production levels of roughly 1.8 million units would not be affected by any tariffs on foreign cars, three people familiar with the talks said. Tariffs would not kick in until Canadian auto exports to the U.S. topped 2.6 million units annually, two of the people said.

Steel and aluminum tariffs that Trump imposed on both countries earlier this year remain in effect and will be dealt with separately, according to the officials. They did not offer a timeline for when those tariffs could be removed.

The so-called Chapter 19 dispute-settlement mechanism -- which hears bi-national anti-dumping and countervailing duties cases and was a major sticking point in the trade talks -- remains untouched in the new agreement, the officials said.

Investor-state dispute settlement will be gradually phased out between the U.S. and Canada but remain in place for certain sectors between the U.S. and Mexico, the officials said.

Canada agreed to raise the threshold for applying duties to cross-border purchases, a key demand from the U.S. Canada’s new so-called de minimis level will be C$150 (US$117) for customs duties, up from C$20 now, and C$40 for sales taxes.

By Jenny Leonard, Josh Wingrove, Jennifer Jacobs and Andrew Mayeda

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