US and Mexico Reach Major Tentative Trade Deal; May Eventually Include Canada

August 27, 2018 Updated: August 28, 2018

The presidents of the United States and Mexico said that the two nations have reached a tentative trade deal. The bilateral agreement announced on Aug. 27 would replace the trilateral North American Free Trade Agreement (NAFTA) if Canada doesn’t join in, according to a senior administration official.

President Donald Trump said that the new agreement will be called the U.S.–Mexico Trade Agreement. The president, who has called NAFTA “the worst economic deal in U.S. history,” told reporters that the old name carried too many negative connotations.

“It’s a big day for trade. It’s a big day for our country,” Trump said. “A lot of people thought we’d never get here because we all negotiate tough. We do. So does Mexico. And this is a tremendous thing.”

U.S. Trade Representative Robert Lighthizer described the tentative deal as “absolutely terrific” with its capacity to create new jobs in the United States and Mexico. The agreement includes modernized and enforceable provisions on labor requirements, intellectual property, financial services, and automobile trade that are far better than any deal in history—”by a mile, not even close,” Lighthizer said.

He said that he expected to deliver a letter to Congress, which has to approve the agreement, outlining the deal before the end of the week. Lighthizer said he expects to have the deal signed by the end of November.

Should Canada make an agreement before the letter is delivered to Congress this week, the language in the missive would outline a trilateral deal, according to a senior administration official. If Canada fails to do so, the letter will describe a bilateral agreement that is open for Canada to join.

Ninety days after the letter is delivered to Congress, the heads of government are set to sign it to finalize the deal. A senior White House official said he’s confident the agreement would receive overwhelming bilateral support, since it improves on every point of NAFTA and includes labor provisions favored by Democrats.

“I think this is an extremely historic time,” Lighthizer said. “I think that we had a NAFTA agreement that had gotten seriously out of whack, that had led to large trade deficits, and that needed updating, it needed modernizing consistent with the way the economy works now.”

The deal includes a sunset clause, which was a major sticking point in negotiations, with Mexico and Canada both viewing it as a deal breaker. The U.S.–Mexico agreement will last 16 years, with a review every six years, according to a senior White House official. If the six-year review concludes that the deal should be renewed, the agreement will be extended for another 16 years. Should the review determine that a renegotiation is required, the two countries would meet every year to come to an agreement on another 16-year renewal.

The sunset clause is meant to protect investors, who look to the trade deal for stability.

The stock market reacted positively to the news of a provisional deal. The Dow Jones Industrial Average rose more than 1 percent on the announcement and NASDAQ hit another all-time high. Many companies have awaited news of a deal since the White House announced the start of talks in May last year. Negotiations have dragged, spanning seven rounds of talks, some of which included nearly 1,000 representatives from the three nations.

“We’ve now come out the other side of that process with Mexico,” Lighthizer said. “We hope that Canada can join and I would expect them to begin that process very soon. I think it’s going to set the rules for the future at the highest standards in any agreement yet negotiated by any two nations for things like intellectual property, digital trade, and financial-services trade.”

Trump told reporters at the Oval Office, with Mexican President Enrique Peña Nieto on speakerphone, that the decision on whether Canada can join the deal is still up in the air.

“We will see whether or not we will decide to put up Canada or just do a separate deal with Canada if they want to make the deal,” Trump said. “The simplest deal is more or less already made.”

Nieto said the deal is “something very positive” for both countries and lauded Trump for his political resolve. Nieto said that he hopes Canada will return to the negotiating table to turn the deal into a trilateral agreement.

“It is our wish, Mr. President, that Canada will now be able to be also incorporated in all this,” he said. “And I assume that they are going to carry out negotiations on the sensitive bilateral issues between Canada and the United States.”

The provisional agreement with Mexico wasn’t meant to pressure Canada to rush to the negotiating table, according to a White House official. Rather, the two-party talks paved the way for the more complex trilateral deal. Canada is well-aware of the negotiations, despite not taking part over the course of the past several weeks, the official added. Talks with Canada were set to start as early as Aug. 28.

Trump and Lighthizer indicated that the White House is willing to terminate NAFTA in favor of the current U.S.–Mexico agreement and warned Canada that a deal will be made, even though it may not like it.

“One way or another, we’ll have a deal with Canada,” Trump said. “It’ll either be a tariff on cars or it’ll be a negotiated deal. Frankly, a tariff on cars is a much easier way to go. Perhaps, the other would be much better for Canada.”

With more than $1 trillion in trade under its umbrella, NAFTA is the largest trade agreement of its kind in the world. Signed by President Bill Clinton in 1994, the deal progressively eliminated tariffs, duties, and restrictions between the United States, Canada, and Mexico. By 2008, the only remaining tariffs affected certain farm goods imported to Canada.

The deal resulted in a mass exodus of American jobs to Mexico, the suppression of wages in the United States, and the loss of more than a million farming jobs in Mexico, among other issues.

Jared Kushner, the president’s senior adviser, told reporters that the new deal was completed in record time and will serve as a springboard for resolving other issues between Washington and Mexico City.

“Hopefully, it will just continue to get better and will lead to an even better and prosperous and safer relationship between the two countries,” Kushner said.

Should Canada join the deal, officials say they would determine a new name for the agreement.

Follow Ivan on Twitter: @ivanpentchoukov
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