Canada and Mexico have both made clear that they favour renewing the USMCA for another 16 years, but the U.S. has signalled that it wants to renegotiate.SANDY HUFFAKER/AFP/Getty Images
Prime Minister Mark Carney said he’s not expecting to sign a renewal of Canada’s trade deal with the United States and Mexico when representatives from the three countries meet virtually on Wednesday for the scheduled six-year review of the agreement.
Canada and Mexico had both wanted to extend the United States-Mexico-Canada Agreement for another 16 years, but the U.S. has signalled that it wants to renegotiate the deal. That means the agreement will remain in place, but move into a period of annual reviews, setting the stage for protracted trade talks and continuing uncertainty for businesses.
Intergovernmental Affairs Minister Dominic LeBlanc is set to meet virtually with U.S. Trade Representative Jamieson Greer and Mexican Economy Secretary Marcelo Ebrard on Wednesday morning to mark the formal six-year review date. The process was written into the pact, which was agreed to in 2018 and took effect in 2020.
Speaking with reporters in Kuujjuaq, Que., on Tuesday, Mr. Carney played down expectations ahead of the discussions.
“We’re expecting a constructive exchange. I wouldn’t expect any drama tomorrow. I’m not looking for my pen,” he said, suggesting there is no deal on the table to be signed.
Canada must be ready to cut a USMCA deal if one arises, Carney says
A top Canadian trade official told The Globe and Mail that the U.S. has confirmed it will not renew the agreement on July 1. The Globe is not naming the source because they spoke in a background briefing on the confidential trade discussions.
If Mr. Greer makes this official on Wednesday, it will trigger annual reviews of the USMCA for the next 10 years. The agreement would remain in force and the three countries could renew it at any time during that period for another 16 years. If they didn’t, it would automatically expire in 2036. Separately, any country can pull out of the pact with six months’ notice.
“I’m not looking to renew it,” U.S. President Donald Trump told reporters in the Oval Office last week. “We don’t need anything that Canada has, we don’t need anything that Mexico has, but they need everything that we have, and they have to treat us better.”
The President said he wanted to erase the U.S.’s deficits in goods trade with Canada and Mexico. In Canada’s case, the deficit mostly exists because the U.S. is heavily dependent on imports of Canadian oil and gas.
The U.S. kicked off renegotiations with Mexico in May, continued them this month and has scheduled a third round of talks with its southern neighbour for July, making clear that the U.S. will not agree to the USMCA’s renewal as is.
U.S. President Donald Trump speaks before signing a presidential memo to the EPA on pollution control in vehicles, in the Oval Office of the White House, on Monday.Jacquelyn Martin/The Associated Press
During Mr. Trump’s first term in office, his administration negotiated the pact in 2017 and 2018 to replace the previous North American free-trade agreement. The USMCA made a number of protectionist changes while mostly leaving intact NAFTA’s tariff-free trade system.
Since returning to the White House last year, however, Mr. Trump has repeatedly disregarded his own trade deal. He imposed 50-per-cent tariffs on steel and aluminum, and 25 per cent on autos, all of which are supposed to be tariff-free under the USMCA.
He did, however, grant Canada and Mexico a carve-out from his baseline tariff on most other trading partners, allowing most Canadian and Mexican products that trade under the USMCA to continue entering the U.S. tariff-free.
In the first round of talks between the U.S and Mexico in Mexico City in May, the U.S. demanded that all autos traded between the three countries contain at least 50-per-cent U.S. content, a demand Canada and Mexico successfully rejected in the original USMCA talks during Mr. Trump’s first term.
So far, the U.S. has been negotiating primarily with Mexico in what appears to be a divide-and-conquer strategy, given Canadian and Mexican alignment on key issues. Mr. LeBlanc has, however, held more informal talks with Mr. Greer, including a sit-down in Washington earlier this month.
Mr. Greer has signalled that he wants to make individual side-deals with Canada and Mexico that would be layered on top of the USMCA, in a bid to sidestep the need for congressional approval of major changes to the pact.
Mr. Carney was asked on Tuesday about the likelihood that the three sides are moving to a process of annual reviews.
“We prefer the status quo over a bad deal,” he said in French. “That said, obtaining a new agreement is a priority.”
He then said an “update” is a better phrase to use than a “new deal.”
“Because it’s impossible in the American process to have a new agreement without the approval of Congress,” he said. “We are ready to negotiate improvements to this agreement.”
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In addition to its demands on autos, Washington is pushing for changes to Canada’s quotas on dairy imports, Canadian-content requirements for digital streaming companies and Buy Canadian policies. The Trump administration has also expressed displeasure that most Canadian provinces retaliated against its tariffs by banning U.S. alcohol from government liquor stores.
The U.S. wants to strengthen content rules for autos and other sectors in a bid to keep Chinese imports out of North America, increase investment oversight and get Canada and Mexico to align with its tariffs on China.
For Canada and Mexico, the main goals are to maintain the mostly tariff-free trade that has been the norm in North America since the start of NAFTA, and to get Mr. Trump to roll back his metal and autos tariffs.
Mr. Carney had tried last year to cut a deal with Mr. Trump to reduce his tariffs on steel and aluminum, but the President abruptly ended discussions in October over an Ontario government advertisement that featured an anti-tariff speech from former president Ronald Reagan.
“We are ready to continue those discussions,” Mr. Carney said on Tuesday. “It will take more time, but that’s been clear for a while.”
In addition to the economic drag imposed by Mr. Trump’s tariffs, the continuing uncertainty about the future shape of continental trade rules could stifle investment decisions while the trade war remains unresolved. It all comes at the time where the White House is already taking a beating on the economy, after months of high oil prices resulting from Mr. Trump’s war on Iran.
The 16-year “sunset clause,” which mandates the July 1 decision on whether to extend or review the pact, was one of the demands Mr. Trump’s negotiators had successfully included in the USMCA that did not exist previously in NAFTA.