Is the new Nafta a modern trade deal for the 21st century or just a politically palatable do-over for President Trump that’s of little consequence?
Only time will tell. But the new agreement struck by the U.S. and Canada on Sunday night does include major changes on disputed topics such as autos, dairy, drugs and the Internet.
Wall Street reactively positively. The Dow Jones Industrial Average DJIA, +0.49% jumped more than 250 points and the S&P 500 SPX, +0.19% also advanced.
Here are key points of what’s tentatively being called the United States Mexico Canada Agreement.
Autos
The new deal requires 75% of the contents of any auto imported into the U.S. to be made in North America in order to avoid tariffs. That’s up from 62.5% under the old North American Free Trade agreement that originally took effect in 1994.
The aim of the Trump administration is to help American manufacturers of auto parts.
Auto Workers
For its part, Canada won concessions giving it the right to effectively continue exporting cars and trucks to the U.S. at current levels — and then some — free of any other major regulatory hurdles.
The contents of as much as 45% of any auto imported duty-free into the U.S. must be made by workers making at least $16 an hour. What’s more, the new deal includes language meant to strengthen the ability of unions in Mexico to strike.
These provisions are unusual for a Republican administration and represent a victory of sorts for U.S. labor unions that chafe at lower wages in Mexico.
If anything, Canada will also benefit from this new wrinkle.
Dairy
Canada will open up more of its domestic market to American producers. It will also drop several controversial rules enacted recently that blocked U.S. products derived from dried milk and other dairy derivatives.
The dispute over dairy had been one of the biggest holdups to a new deal.
Drugs
Canada will extend patent protection for certain prescription drugs to 10 years from 8 eight years.
Internet commerce
The deal sets new rules for online shopping and Internet commerce, neither of which existed at the time of the 1994 agreement.
U.S. goods costing up to C$150 or less, for example, will no longer be subject to Canadian duties. That’s up from C$20. The higher threshold should help boost online stores in the U.S. selling to Canadian customers.
Lumber
The U.S. gave in to Canadian demands to retain several mechanisms to resolve trade disputes between the two countries. The concession protects Canadian lumber producers in a long-running dispute with the U.S. over charges of dumping.
One old provision that allowed companies to sue governments over alleged trade violations was scaled back, another surprising win for liberal critics of Nafta.
Steel
U.S. tariffs on foreign steel will remain in place and are subject to further negotiation between the three countries, but the expectation is that they will come to an accord in the near future. The White House has sought to protect American steel on national-security grounds
The new trade agreement could end after 16 years if the countries don’t extend the deal, a change demanded by Trump.
A senior U.S. official told reporters the sunset clause “will ensure that we never end up in this position again, with an agreement that is stale and outdated and unbalanced in a way that is not beneficial to the United States.”
The U.S., Mexico and Canada will review the agreement every six years, and if fresh problems arise, they’ll have to negotiate a fix or face the threat of the deal eventually lapsing.
“In a nutshell, Canada has made concessions, but is coming out quite clean considering the array of potentially negative options or threats that were on the table,” said Robert Kavcic of Toronto-based BMO Capital
