US, Mexico reach NAFTA deal as pressure turns to Canada

  • 29 Aug 2018

US and Mexico agree to scrap the North American Free Trade Agreement, also known as NAFTA, to sign a new deal in which they hope Canada will be included.

Mexico's Foreign Minister Luis Videgaray (C), Mexico's Economy Minister Ildefonso Guajardo (3rdR), White House chief economic adviser Larry Kudlow (3rdR-standing) and Jesus Seade (R), Mexico's President-elect Obrador's representative in trade negotiations look on as US President Donald Trump (L) announces a deal to replace the North American Free Trade Agreement (NAFTA) at the White House in Washington, US, August 27, 2018. ( Reuters )

The US and Mexico reached a preliminary agreement Monday to replace a free trade deal that also included Canada.

US President Donald Trump announced he would be terminating the original trilateral agreement, known as the North America Free Trade Agreement (NAFTA). The agreement clears the way for Ottawa to join the trade pact if it can agree to terms with Mexico City and Washington.

TRT World's Harry Horton reports from Washington, DC.

US President Donald Trump and outgoing Mexican President Enrique Pena Nieto said talks with Canada would begin immediately, though Trump threatened he could put tariffs on Canadian-made cars if a three-way deal could not be reached.

"I think with Canada, frankly, the easiest we can do is to tariff their cars coming in. It's a tremendous amount of money and it's a very simple negotiation. It could end in one day and we take in a lot of money the following day," Trump said.

Negotiations between the three trade partners have dragged on for more than a year and repeated threats by Trump that he would ditch the 1994 accord have roiled financial markets, putting pressure on the Mexican peso and the Canadian dollar.

Following her first brief meeting with US Trade Representative Robert Lighthizer on Tuesday evening, Canada's Foreign Minister Chrystia Freeland said Mexico's willingness to make "tough decisions" on labour rights and auto requirements helped pave the way for a new regional agreement.

The Mexico-US discussions focused on crafting new rules for the automotive industry, which Trump has put at the heart of his drive to rework the pact he has repeatedly described as a "disaster" for American workers.

Canada would continue to negotiate, but would only sign a new agreement that is good for the country, a spokesman for Canadian Foreign Minister Chrystia Freeland said.

The United States, Mexico and Canada do more than 1 trillion dollars in trade between them every year.

The announcement of a US-Mexico agreement lifted financial markets. Trump said he would talk to Canadian Prime Minister Justin Trudeau soon. A senior US trade official said there are hopes that a final three-nation accord can be reached by Friday.

Trudeau spoke to Pena Nieto on Sunday and shared their commitment to reaching a successful conclusion of NAFTA "for all three parties" the prime minister's office said. Pena Nieto said on Twitter that he had urged Canada to return to the talks with the aim of concluding a three-nation accord "this week."

Auto group optimistic

Matt Blunt, president of the American Automotive Policy Council, which represents General Motors Co, Ford Motor Co and Fiat Chrysler Automobiles NV, said the group was optimistic about the new deal, though it was still reviewing the details.

The US-Mexico deal would require 75 percent of auto content to be made in the NAFTA region, up from the current level of 62.5 percent, a second US official said. A draft fact sheet specified the content would be made in the United States and Mexico.

The deal also would require 40 percent to 45 percent of auto content to be made by workers earning at least $16 per hour, the second official said.

"We are now inviting the Canadians in as well and hope that we can reach a fair and successful conclusion with them as well," a senior US trade official told Reuters in an interview.

"There are still issues with Canada but I think they could be resolved very quickly," the official said.

Trump is expected to send formal notice to the US Congress by the end of the week about his intentions to sign a new trade agreement within 90 days, which would give Mexico's Pena Nieto time to sign it before he leaves office, the senior US trade official said.

Some Republicans in the US Congress called the deal a positive step but said Canada must be part of the new pact to avoid hurting US jobs.

"Millions of jobs in Texas depend on an updated NAFTA, and it’s important that we get this right," said Senator John Cornyn, the No. 2 Senate Republican.

US, Mexican and Canadian stocks opened higher on Monday on optimism about a trade deal.

Mexican stocks jumped 1.4 percent to a seven-month high, while the peso firmed about 1.3 percent against the dollar, heading for its best one-day gain in more than a month.