The United States and Mexico reached a two-way trade deal Monday, moving President Donald Trump one step closer to fulfilling a core campaign promise to revamp the North American Free Trade Agreement.
The development, which happened after U.S. and Mexican trade officials met regularly for five weeks, could clear the way for Canada to return to the table to try to reach a final updated agreement in the coming days, according to three sources close to the negotiations. But Trump also warned that efforts to revamp the 24-year-old pact could result in two different agreements and threatened Canada with tariffs on automobiles if Ottawa didn’t agree to negotiate “fairly.”
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“I think we’ll give them a chance to probably have a separate deal,” Trump said, referring to Canada. “We could have a separate deal, or we could put it into this deal.”
Though the announcement represents a bright spot in the trade war Trump has been waging with other countries around the globe, U.S. negotiators backed off on some of the president’s key demands, softening a proposal to end the pact after five years unless the countries agree to keep it going. And any final deal must first be approved by Congress.
“It’s a big day for trade. It’s a big day for our country,” Trump said from the Oval Office on Monday during a telephone conversation with Mexican President Enrique Peña-Nieto that was put on speaker for reporters.
At first, Trump couldn’t get Peña Nieto on the phone, and sound of camera shutters filled the awkward pauses as the president tried to connect.
“Are we in? It’s a big thing. A lot of people waiting,” Trump said.
Trump said the U.S. would reach an agreement with Canada “one way or the other.”
“It’ll either be a tariff on cars, or it’ll be a negotiated deal,” he said.
U.S. Trade Representative Robert Lighthizer said he would notify Congress of a completed deal by Friday, indicating the administration hopes to wrap up a deal with Canada by the end of the week.
In addition, Trump sowed confusion rather than clarity when he presented the deal.
Trump referred to the deal as the United States-Mexico trade agreement, telling reporters that he wanted to rename the pact.
“I think NAFTA has a lot of bad connotations for the United States, because it was a ripoff,” he said.
Instead of automatically “sunsetting” NAFTA at five years absent a consensus to let it continue, the U.S. offered a proposal that would set up a review at six years. If the countries don’t agree to perpetuate the deal at that time, NAFTA would end ten years after that point, one source close to the talks said.
The U.S. also offered a revised approach to how NAFTA handles disputes involving private firms seeking damages from a government for any violation of the pact’s investment rules.
The U.S. originally proposed making that process fully optional, reflecting U.S. Trade Representative Robert Lighthizer’s concerns that the process surrenders U.S. sovereignty.
The new approach would extend full investment protections, including the dispute-settlement process, to U.S. companies that have contracts with the government in the oil and gas, infrastructure and transportation services sectors, said a source with direct knowledge of the proposal.
U.S. companies with investments in other sectors in Mexico would be able to file disputes as well, but only on a limited basis, the source said.
Mexican Economy Secretary Ildefonso Guajardo cautioned that Canada must still go over all the solutions that the U.S. and Mexico reached. Canada is expected to return to the negotiating table now that the two countries have announced a breakthrough in the bilateral talks, and Guajardo has said that at least a week of three-way talks will be needed.
“A lot of these things imply Canada. Therefore, until we finish with the position of Canada, we will not be able to disclose the elements,” Guajardo said before talks Monday morning.
A spokesman for Canadian Foreign Minister Chrystia Freeland said progress between the U.S. and Mexico is a “necessary requirement” for a new agreement.
“We will only sign a new NAFTA that is good for Canada and good for the middle class,” Freeland’s spokesman said in a statement. “Canada’s signature is required.”
Peña Nieto tweeted that he spoke with Canadian Prime Minister Justin Trudeau and emphasized “the importance of [Canada] reincorporating itself to the process, with the purpose of concluding the trilateral negotiation this week.”
The preliminary framework between the U.S. and Mexico comes as welcome news to economic sectors that depend on North American trade, particularly agriculture, but some industry officials were taking a wait-and-see approach.
“It’s up to Canada, really, to decide if it’s ready to get this deal over the goal line,” said Maryscott Greenwood, the CEO of the Canadian American Business Council. “I think Canada has been smart up until now to basically keep its powder dry in terms of negotiating — and that has been frustrating, as we’ve seen, to the United States — but it’s been smart. So now is the time to roll up the sleeves and get to the table and get a deal done, if they want to get a deal done.”
Still, any export gains from the new NAFTA arrangement could be small, because the original agreement, which first entered into force in January 1994, phased out most tariffs between the three nations. However, reaching a final agreement would help ease the uncertainty that has surrounded the pact since Trump began blasting it on the campaign trail. U.S. farmers have been concerned about losing sales in two of their top export markets because of Trump’s earlier threats to withdraw from the deal.
A final agreement with Canada could open up that country’s highly restricted dairy market, but it remains to be seen whether Ottawa will be willing to give more ground in that area.
The NAFTA nations would need a three-way deal by Aug. 31 or Sept. 1, at the latest, in order for Peña Nieto to sign it before leaving office at the end of November. The U.S. International Trade Commission must do an economic analysis of any final agreement before Congress votes on the pact.
The U.S.-Mexico breakthrough follows months of stalemate and comes just over a year after negotiators from the U.S., Mexico and Canada first sat down to discuss modernizing the 24-year-old trade pact. Despite the progress between the U.S. and Mexico on issues that were widely seen as more integral to the U.S.-Mexico relationship, it remains unclear how long it will take NAFTA negotiators to resolve the remaining issues between the three countries. Canada has not been at the negotiating table for more than two months.
Doug Palmer and Rebecca Morin contributed to this report.