Just the Facts

Five Facts on Trade Negotiations Between the United States and Canada

By Emma Petasis
September 28, 2018 | Blog

President Trump has long been an outspoken critic of the North American Free Trade Agreement (NAFTA) and had previously threatened to withdraw from it if it was not revised with terms more favorable to the U.S. In late August, he announced that the U.S. and Mexico had come to a preliminary agreement on a new trade deal.  However, in recent days negotiations with Canada, which has yet to agree to the deal, have broken down, complicating the future of a potential NAFTA 2.0. Here are Five Facts on trade negotiations between the United States and Canada.

The original NAFTA was signed by President George H.W. Bush in December 1992

Talks on NAFTA began in 1990 when President Bush and Mexican President Salinas de Gortari ordered talks surrounding a free trade deal between the two countries to begin.  The U.S. and Mexico were joined by Canada in 1991, which paved the way for three-way negotiations.  The deal eliminated most tariffs on trade between the three countries and created the largest free-trade area in the world.  While NAFTA has had its critics, many of whom claim it has sent U.S. jobs down to Mexico, it has also helped to increase trade between the three countries by 390%.

On August 27, more than a year after negotiations began, President Trump announced that the United States and Mexico had agreed to terms on a 16-year trade deal

On a call with reporters, U.S. Trade Representative Robert Lightizer outlined several key provisions of the new deal.  If the deal is passed by Congress it will include several new requirements including a notable one on cars: For an automobile to qualify for tariff-free status between the two countries, 75% of its parts must be produced in the U.S. or Mexico — under the current NAFTA agreement, only about 62% of parts are required to be produced in the U.S., Mexico or Canada.  In addition, the new deal would require that 40% to 45% of auto parts in cars sold in North America be made by workers earning at least $16 USD per hour.  Finally, the deal has several provisions designed to address the current deficiencies when it comes to digital commerce. It was agreed that the deal would be good for 16 years and that it would be reevaluated every six.

Mexican and U.S. officials, as well as many members of Congress have made it clear that they would prefer Canada to be part of the deal

Lightizer stated that “Ideally we’ll have the Canadians involved,” while Mexican President Enrique Pena Nieto added that “It is our wish … that now Canada will also be able to be incorporated in all this.” However, President Trump has taken a harder line, stating “We will see whether or not we decide to put up Canada or just do a separate deal with Canada—if they want to make the deal.” In addition, both Democrats and Republicans have indicated that they would prefer a trilateral deal. Democrat Ron Wyden of Oregon stated “It would be a big mistake, a monumental mistake to do this without Canada,” while Rep. Kevin Brady (R-TX) stated “I think it is in their [Canada’s] interest.”

Canada has been strongly opposed to several provisions in the new trade deal and has refused to sign until their issues are addressed 

Much of the deal’s future and scope will depend heavily on Canadian Prime Minister Justin Trudeau’s decision whether to join. At the moment, there are reportedly three major sticking points: disputes of high tariffs for U.S. dairy exports to Canada, cultural exemptions that protect Canada’s publishing and media companies from being acquired by American companies, and a revision that would make it harder for NAFTA members to challenge U.S. trade penalties, a change that Mexico has accepted but has concerned Canadian officials.

The Wall Street Journal reports that President Trump has given up on trade talks with Canada and has accepted that a deal will not be reached before the self-imposed September 30 deadline

In recent days, Lightizer admitted that there is still a fair amount of distance” over “very large issues,” while Trump stated, “we’re not getting along at all with their negotiators.” However, despite the current impasse, it has been reported that those close to the negotiations do not believe this will signal the end of the continent-wide free-trade zone. Instead, it is more likely that trade talks between the two countries will resume next month and that there will then be a vote on the new deal in the first half of 2019. As Mr. Lighthizer stated, “I think there’s still time to have Canada come into that agreement. It certainly is my hope that they do.”

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