The United States and Canada pulled together a deal on Sunday evening, September 30 to salvage the North America Free Trade Agreement (NAFTA). The United States and Mexico had already completed a bilateral agreement in August. Negotiators worked frantically ahead of an imposed midnight deadline to settle differences with Canada.

Under the deal, which upon ratification, will replace the 1994 NAFTA  and will become the new United States-Mexico-Canada Agreement (USMCA).

Sources close to the action say the eleventh-hour deal came together as a result of deadline pressure, willingness to compromise, and President Trump’s threats of hitting Canada’s extensive auto industry with tariffs if it did not agree to a new deal.

Canada moved forward a proposal to open its dairy markets, which was enough for the U.S. to pull back on plans that were in motion to submit a deal that included only Mexico.

Negotiators from both sides spent two days talking by phone as they tried to settle a range of difficult issues.  President Trump has blamed NAFTA for the loss of American manufacturing jobs and wanted major changes to the pact.  Sunday’s deal rescued a $1.2 trillion open-trade zone that had been about to collapse after nearly a quarter century.  However, the new trade deal with Canada and Mexico leaves much of the old North American Free Trade Agreement intact.

“Throughout the campaign, I promised to renegotiate NAFTA, and today we have kept that promise,” President Trump said Monday in announcing the deal.  “It’s not NAFTA redone. It’s a brand-new deal.”

President Trump’s primary objective in reworking USMCA was to bring down U.S. trade deficits, a goal he has also pursued with China. While the new U.S.-Mexico-Canada agreement avoids tariffs, it will make it harder for global auto makers to build cars cheaply in Mexico and is aimed at bringing more jobs to the United States.

The deal will also preserve a trade dispute settlement mechanism that Canada fought hard to maintain to protect its lumber industry and other sectors from U.S. anti-dumping tariffs, U.S. and Canadian officials said. Canada has agreed to provide U.S. dairy farmers access to about 3.5 percent of its approximately $16 billion annual domestic dairy market.

The issue of looming U.S. tariffs on automobiles was the final detail to be nailed down.  In a discussion involving Canadian Foreign Minister Chrystia Freeland, U.S. Trade Representative Lighthizer, and their officials, Canada was given what amounts to a de-facto exemption:  no auto tariffs, ever, unless there is an improbable surge in Canadian exports. The deal also required a higher proportion of parts in a car to be made in areas of North America paying at least $16 an hour, a rule aimed at shifting jobs from Mexico.

Canada and Mexico each agreed to a quota of 2.6 million passenger vehicles exported to the United States in the event that President Trump imposed 25 percent global autos tariffs on national security grounds. The quota would allow for significant growth in tariff-free automobile exports from Canada above current production levels of about 2 million units, safeguarding Canadian plants.  It is also well above the 1.8 million cars and SUVs Mexico sent north in 2017.  However, the deal did not resolve U.S. tariffs on Canada’s steal and aluminum exports.

“It’s a good day for Canada,” Prime Minister Justin Trudeau told reporters after a late-night cabinet meeting to discuss the deal.  In a joint statement, Canada and the United States said it would “result in freer markets, fairer trade, and robust economic growth in our region.”

U.S. officials intend to the sign the agreement with Canada and Mexico at the end of November after which it will be submitted to the U.S. Congress for approval.