OTTAWA/WASHINGTON - The United States and Canada forged a last-gasp deal on Sunday to salvage NAFTA as a trilateral pact with Mexico, rescuing a three-country, $1.2 trillion open-trade zone that had been about to collapse after nearly a quarter century.
In a joint statement, the two nations said the new United States-Mexico-Canada Agreement (USMCA) would "result in freer markets, fairer trade and robust economic growth in our region".
Negotiators worked frantically ahead of a midnight ET (0400 GMT) U.S. imposed deadline to settle differences, with both sides making concessions to seal the deal.
"It's a good day for Canada," Prime Minister Justin Trudeau told reporters after a late-night cabinet meeting to discuss the agreement, which triggered a jump in global financial markets.
President Donald Trump, who blamed NAFTA for the exodus of manufacturing jobs to low-wage Mexico, had threatened to walk away from NAFTA unless major changes were made.
"It's a great win for the president and a validation for his strategy in the area of international trade," a senior administration official told reporters.
Trump has approved the deal with Canada, a source familiar with the decision said.
U.S. officials intend to sign the agreement with Canada and Mexico at the end of November, after which it would be submitted to the U.S. Congress for approval, a senior U.S. official said.
The deal will preserve a trade dispute settlement mechanism that Canada fought hard to maintain to protect its lumber industry and other sectors from U.S. anti-dumping tariffs, Canadian sources said.
But it came at a cost.
Canada has agreed to provide U.S. dairy farmers access to about 3.5 percent of its approximately $16 billion annual domestic dairy market. Canadian sources said the Canadian government was prepared to offer compensation to dairy farmers hurt by the deal.
Canada also agreed to a quota of 2.6 million vehicles exported to the United States in the event that Trump imposes 25 percent global autos tariffs on national security grounds.
The quota would allow for significant growth in tariff-free automotive exports from Canada above current production levels of about 2 million units, safeguarding Canadian plants.
But the deal failed to resolve U.S. tariffs on Canada's steel and aluminum exports.
The Trump administration had threatened to proceed with a Mexico-only trade pact as U.S. talks with Canada foundered.
"It's a good night for Mexico, and for North America," Mexican Foreign Secretary Luis Videgaray said.
The news delighted financial markets that had fretted for months about the potential economic damage if NAFTA blew up.
U.S. stock index futures also rose, with S&P 500 Index e-mini futures rising by more than 0.5 percent, suggesting the benchmark index would open near a record on Monday.
The Canadian dollar surged to its highest since May against the U.S. dollar, gaining around 0.5 percent from Friday's close. The Mexican peso gained 0.8 percent to its highest against the greenback since early August.
"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.
"That will lead to a rise in trust in the U.S. economy, so it's easy for risk sentiment to improve."
Orrin Hatch, the Republican chair of the Senate Finance Committee, said he was pleased by the news.
"I look forward to reviewing this deal to confirm it meets the high standards of Trade Promotion Authority," he said in a statement.