U.S. reaches deal with Canada, Mexico on revised USMCA trade pact

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The United States has reached a deal with Canada and Mexico to revise the new North American trade pact and satisfy demands from congressional Democrats, paving the way for ratification of U.S. President Donald Trump’s top legislative priority even as he faces impeachment.

The deal for the U.S.-Mexico-Canada Agreement (USMCA) contains some victories for Canada, including strengthening dispute-resolution provisions and weakening protections for big pharmaceutical companies.

The agreement also creates tougher consequences for Mexican factories that violate the agreement’s labour standards, tightens environmental regulations and ensures more North American steel is used in cars and trucks. It does not, however, provide the continental aluminum industry, primarily based in Quebec, the same advantages it confers on steel producers.

The development caps nearly three years of trade fighting between the U.S. and its closest neighbours that created persistent uncertainty for business and consumed significant political bandwidth in all three countries.

Deputy Prime Minister Chrystia Freeland described the deal as a “win-win-win agreement" as she signed it on Tuesday at the National Palace in Mexico City, alongside U.S. Trade Representative Robert Lighthizer and Jesus Seade, Mexico’s chief negotiator, as Mr. Trump’s son-in-law Jared Kushner looked on.

“This negotiation has been an existential challenge for our country and, at times, an existential drama,” Ms. Freeland said.

Replacing the North American free-trade agreement was a top campaign pledge of Mr. Trump’s. In September, 2018, U.S. negotiators reached the USMCA agreement with Canada and Mexico. But when the Democrats won control of the House of Representatives, they demanded changes in exchange for passing it. The administration has spent the past several months in four-way negotiations with the Democrats and the two other countries.

“This is a day we’ve all been working to and working for on a path to yes,” House Speaker Nancy Pelosi told a Capitol Hill news conference on Tuesday morning.

The House of Representatives will likely hold a ratification vote before Christmas, around the same time it is also expected to vote on impeaching Mr. Trump. USMCA’s passage through the Senate could be delayed for weeks or months as legislators conduct a trial of the President under the impeachment process. Canada and Mexico will also have to ratify the agreement, but are not expected to have any trouble doing so.

Some of the changes the Democrats forced the Trump administration to make were things Canada wanted, but failed to get in the original negotiations.

These included removing a provision that protected pharmaceutical companies from competition on new biologic drugs for 10 years and would have made prescriptions more expensive in Canada. The U.S. also agreed to end “panel-blocking,” a tactic that allowed countries to thwart the deal’s dispute-resolution system by refusing to appoint members to arbitration tribunals.

The largest sticking point was labour. The Democrats wanted U.S. inspectors to be able to go into Mexican factories to make sure they were upholding USMCA’s protections for workers. Mexico agreed to allow international panels to investigate accusations of violations and impose penalties on factories found guilty. The U.S. will also appoint special “attachés” in Mexico to monitor implementation of the labour rules.

Such measures were key to getting support from U.S. organized labour, which is close with much of the House Democratic caucus. “We demanded a trade deal that benefits workers and fought every single day to negotiate that deal; and now we have secured an agreement that working people can proudly support,” tweeted Richard Trumka, president of the AFL-CIO labour umbrella group.

However, Mr. Lighthizer got one additional concession in the most recent negotiations: Steel will have to be “melted and poured” in North America to count toward a USMCA requirement that 70 per cent of the metal used in cars and trucks manufactured on the continent come from within the free-trade zone. The higher standard will not apply to aluminum, as Mr. Lighthizer had wanted. Ms. Freeland spent much of a press conference later Tuesday trying to assuage the fears of the Quebec industry, arguing that USMCA is still “a great deal for the Canadian aluminum sector” because of the 70 per cent requirement.

Flavio Volpe, the head of the industry association for Canadian auto-parts manufacturers, said such rules – which could make goods more expensive by restricting factories’ buying options – were workable for his sector.

“The USMCA is the first trade agreement in the last 30 years that actually pushes local economic activity,” he said in an interview. “I’m glad the politics are out of the way. Let’s get to it.”

Ms. Pelosi, who, less than an hour before her USMCA announcement, had held a separate press conference laying out articles of impeachment, addressed the juxtaposition between helping Mr. Trump with his top legislative priority and trying to throw him out of office. Not only does the deal contain policies Democrats have long wanted, but it allows them to show they can get legislation passed even as they push forward on impeachment.

“Not any one of us is important enough to hold up a trade agreement that is important for American workers because of collateral benefit that might accrue to any one of us,” she said.

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