New NAFTA deal looks like the old one
SLGI Portfolio Management Team
Opinions as of October 1, 2018
Canada and the U.S. have agreed to update NAFTA, replacing it with the United States-Mexico-Canada Agreement. It appears to leave much of the existing NAFTA deal in place. “We think this agreement is a good one for Canada,” says Sun Life Global Investments Chief Investment Officer Sadiq S. Adatia. “Most of the previous deal remains with only minor changes, but keeps important elements like the dispute mechanism firmly in place.”
FIVE KEY TAKEAWAYS
U.S. President Donald Trump threatened to place tariffs on Canada’s auto industry. But the agreement actually raises the number of vehicles Canada can export to the U.S. Canada also appears to have negotiated an exemption on any future tariffs that the U.S. imposes on vehicle imports.
The U.S. demanded greater access to Canada’s dairy market. Canada resisted, but in the end, American farmers were given access to 3.6% of Canada's current dairy market. As well, recent import restrictions on so-called “Class 7” dairy products were lifted.
Canada was adamant in its demand that Chapter 19 (an independent dispute resolution mechanism) must continue to be part of the agreement. Chapter 19 forces all three countries to abide by the agreement. It was strongly opposed by the U.S. which would have preferred that trade disputes be decided in U.S. courts.
Canada was steadfast in opposition to the U.S. demand that the trade deal expire in five years, without the agreement of all three parties. However, the five-year expiry period was lengthened to a 16-year term with a review in six years.
Steel and aluminum tariffs remain
Canada had hoped that the tariffs on steel and aluminum the U.S. had imposed would be lifted. But they may remain until an agreement on quotas can be reached.
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