Pact known as the United States-Mexico-Canada Agreement settles differences on dairy and auto industry products

This article is more than 1 year old

This article is more than 1 year old

The US and Canada have reached a deal on a “new, modernized trade agreement”, designed to replace the 1994 Nafta pact.

In a joint statement on Sunday night, the two nations said the new deal would be called the United States-Mexico-Canada Agreement (USMCA).

On Monday, Donald Trump greeted the “wonderful new trade deal” on Twitter.

“It is a great deal for all three countries,” the president wrote, “solves the many deficiencies and mistakes in Nafta, greatly opens markets to our farmers and manufacturers, reduces trade barriers to the US and will bring all three great nations together in competition with the rest of the world. The USMCA is a historic transaction!

“Congratulations to Mexico and Canada!”

Sign up for the US morning briefing

The rejigged pact will substantially boost US access to Canada’s dairy market and protect Canada’s auto industry from possible US tariffs – a key Trump threat.

“It’s a good day for Canada,” the prime minister, Justin Trudeau, told reporters after a late-night cabinet meeting to discuss the agreement, which triggered a jump in global financial markets.

Trump, who blamed Nafta for the exodus of manufacturing jobs to low-wage Mexico, had threatened to walk away from the deal unless major changes were made. But the president approved the “framework” deal with Canada just days after he criticised Trudeau and his negotiating team.

“It’s a great win for the president and a validation for his strategy in the area of international trade,” a senior administration official told reporters.

Negotiators from both sides spent two days talking by phone as they tried to settle a range of difficult issues.

The deal will preserve a trade dispute settlement mechanism that Canada fought hard to maintain to protect its lumber industry and other sectors from US anti-dumping tariffs, Canadian sources said.

But this came at a cost. Canada had agreed to provide US dairy farmers access to about 3.5% of its approximately $16bn annual domestic dairy market, the sources said, adding that the Canadian government was prepared to offer compensation to dairy farmers hurt by the deal.

The influential Dairy Farmers of Canada lobby group – which strongly opposes the idea – said in a statement that it insisted “any final Nafta deal should have no further negative impact on the dairy sector”.

Canada also agreed to a quota of 2.6m vehicles exported to the US in the event that Trump imposed 25% global autos tariffs on national security grounds, a side letter to the agreement showed.

The quota would allow for significant growth in tariff-free automotive exports from Canada above current production levels of about 2m units, safeguarding Canadian plants.

But the deal failed to resolve US tariffs on Canada’s steel and aluminum exports, the Canadian sources said.

“We celebrate the trilateral agreement. The door is closed to the fragmentation of the region,” Jesús Seade, president-elect Andrés Manuel López Obrador’s Nafta negotiator said on Twitter. “Nafta 2 will give certainty and stability to Mexican trade with its partners in North America.”

The Canadian dollar and Mexican peso both rallied as word circulated that a trilateral deal had been hammered out. The loonie was up 0.6% versus the greenback while the peso gained 0.8%.

The US trade representative, Robert Lighthizer, and White House adviser Jared Kushner had been keeping Trump updated through the weekend, according to a source, who was not authorized to speak about the talks publicly.

The White House trade adviser, Peter Navarro, said everyone involved had worked in good faith and reiterated the Sunday deadline.

US business groups had opposed turning Nafta into a bilateral deal because the three countries’ economies have become closely intertwined since the pact came into force in 1994.

Officials have blown through several deadlines since August 2017.