After 13 months of contentious negotiations, the US and Canada have agreed on a new trade deal with Mexico that replaces the North American Free Trade Agreement (NAFTA) but remains a trilateral bloc.

The agreement was struck at the last minute - just before a deadline was set to arrive at midnight local time Sunday - and bridges differences on thorny areas such as the auto and dairy industries.

The trade pact, which will be known as the US-Mexico-Canada Agreement (USMCA), was hailed by Canadian Prime Minister Justin Trudeau on Twitter as ‘a good day for Canada & our closest trading partners.’  ‘USMCA will give our workers, farmers, ranchers, and businesses a high-standard trade agreement that will result in freer markets, fairer trade and robust economic growth in our region,’ said a joint statement from US Trade Representative Robert Lighthizer and Canadian Foreign Affairs Minister Chrystia Freeland.

‘It will strengthen the middle class and create good, well-paying jobs and new opportunities for the nearly half billion people who call North America home,’ the statement added.

NAFTA, which was originally concluded in 1994 among the three countries, governs one of the largest free trade areas in the world. It affects nearly 500 million people and covers an area with an economic output of almost 23 trillion dollars.

 The US trade volume with the two neighbouring countries has almost quadrupled since 1994 to 1.3 trillion dollars.

The trade talks began more than a year ago and have stalled repeatedly over the past few months.

The deal marks a significant win for President Donald Trump, who has repeatedly threatened to pull out of NAFTA, arguing it burdens the world's largest economy and caused the loss of manufacturing jobs.

Under the new agreement, Canada relaxed dairy market protections to allow greater access to US farmers.

The United States, for its part, agreed to Ottawa's demand to retain an independent tariff-dispute mechanism. Washington had wanted Canadian complaints to be handled in US courts.

Canada also won protections against Trump's threat to impose auto tariffs, unnamed sources told the Toronto Star newspaper. The president said last month he could cause the ‘ruination’ of Canada by taking such a measure.

The US and Mexico already reached a preliminary agreement for a new trade agreement at the end of August. The two states said that a bilateral agreement would go into force if no agreement was reached with Canada before Monday's deadline.

Related Story