U.S. and Canada agree free trade deal

US President Donald Trump and Canadian Prime Minister Justin Trudeau

McNaughton says he isn't sure if they will reach an agreement by Monday but that he's cautiously optimistic.

The political stakes are high on both sides of the US-Canadian border: Trump needs to look strong heading into the November midterm elections, where his Republican Party is fighting to keep control of Congress, while Trudeau does not want to be seen as caving before next year's general election.

"The heavy lift is going to be getting a trade deal through the next Congress in 2019 as well as ratification by Mexico's new Congress and in Canada during a federal election year".

"Though markets were already anticipating an agreement, one source of worry will be swept away if a deal is made", Yukio Ishizuki, senior currency strategist at Daiwa Securities in Tokyo, said.

US lawmakers and business have urged the administration to keep Canada in the deal but the trilateral nature had been in jeopardy after Trump on August 27 announced he reached a deal with Mexico that Canada could join if it's willing to make concessions.

Keeping chapter 19 will not affect Washington's enforcement of anti-dumping and anti-subsidy laws, said a US official.

Canada and the United States have been working hard to resolve their NAFTA differences since the end of August after American and Mexican officials reached a bilateral agreement of their own.

"There are several sticking points", he acknowledged.

Some have characterized the side letter as effectively establishing a quota on the number of autos that can be exported to the USA - anathema to the very principles of free trade.

Canada's dairy industry, in particular, has been in American crosshairs for months, with the United States demanding more access to this country's market, as well as changes to parts of Canada's domestic milk pricing system. But details remained to be worked out Sunday evening.




Conversely, Canada won on its demand to maintain NAFTA's "Chapter 19" dispute resolution mechanism-a demand that the US opposed because it saw the mechanism as infringing on USA sovereignty.

Just hours before a midnight deadline, the United States and Canadian governments agreed to a deal that would allow USA farmers greater access to Canada's dairy market and address concerns about potential U.S. auto tariffs, officials from both countries said.

In Ottawa, PMO officials said there would be another cabinet meeting Monday and a news conference likely as well.

USA and Canadian negotiators have been negotiating around the clock this weekend to make a deadline that would allow the countries to sign the deal as the final act before Mexico's outgoing President Enrique Pena Nieto leaves office at the end of November.

Officials said they wanted the deal signed before the new Mexican president, left-wing populist Andrés Manuel López Obrador, took office in case he sought changes. Canada and Mexico rank first and second among export markets for USA companies. In force since 1994, Nafta eliminated tariffs on most goods and governs more than US$1 trillion in trade on the continent.

Peter Navarro, White House trade adviser, said on Sunday Morning Futures, that the goal for the agreement is to restore "North America as a manufacturing powerhouse".

The pact also requires that vehicle manufacturers source at least 70 percent of their steel and aluminum from within the three countries.

But the treaty was controversial from the start.

A new era in North American free trade dawned in the dead of night Sunday as a 14-month NAFTA modernization effort between Canada, the US and Mexico finally came to fruition with just hours to spare before an end-of-weekend deadline. Critics included American labor unions and Ross Perot, a businessman and third-party presidential candidate, who warned of a "giant sucking sound" as employers would relocate jobs to low-wage Mexico.

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