August 27, 2018 11:00 AM, EDT

US, Mexico Agree on New Trade Deal

Canada Yet to Sign On as Trump Insists Agreement Won't Be Named 'NAFTA'
President Trump discussing NAFTA deal with MexicoPresident Trump announces Mexico agreement (Al Drago/Associated Press)

President Donald Trump said the U.S. is pursuing a new trade accord with Mexico to replace the North American Free Trade Agreement and called on Canada to join the deal soon or risk being left out.

Trump announced the agreement with Mexico in a hastily arranged Oval Office event Aug. 27 with Mexican President Enrique Pena Nieto joining by conference call. Pena Nieto said he is “quite hopeful” Canada would soon be incorporated in the revised agreement, while Trump said that remains to be seen but that he wanted those negotiations to begin quickly.

Canadian Foreign Minister Chrystia Freeland is leaving a trip in Europe early to travel to Washington for NAFTA talks on Aug. 28, spokesman Adam Austen said Aug. 27. Canada and the U.S. are still at odds over some key issues.

The U.S. and Mexico agreed to increase regional automotive content to 75% from the current 62.5% in NAFTA, with 40% to 45% of production by workers earning at least $16 an hour, the U.S. Trade Representative’s office said in an e-mailed statement. They agreed to review the deal after six years, softening a demand by the U.S. for a clause to kill the pact after five years unless it’s renewed by all parties. Duty-free access for agricultural products will remain in place, USTR said.

The S&P 500 Index closed just short of 2,900 and the Nasdaq Composite Index topped 8,000 for the first time. Shares of carmakers and parts producers in the equity benchmark surged more than 3.5%. The Dow Jones Industrial Average rose above 26,000 for the first since February. The peso rallied, and Canada’s dollar strengthened.

As he announced the move, Trump said he would drop the name NAFTA from the accord because of its unpopularity.

“We’re going to call it the United States/Mexico Trade Agreement,” he said. NAFTA “has a bad connotation because the United States was hurt very badly by NAFTA for many years.”

American Trucking Associations President Chris Spear commended Trump. "America relies on trucks to carry the bulk of goods that move across our borders, and so our industry knows full well the value and importance of free and fair trade," Spear said. "We look forward to productive work with our partners in Canada and examining this new agreement in detail to assess how it will affect motor carriers and the flow of commerce between our North American partners.”

‘Big Day’

While the president hailed it as “a big day for trade,” other groups representing American workers and companies withheld full endorsements.

The Business Roundtable, which represents CEOs at major U.S. companies, said it was encouraged by the progress but said NAFTA “must remain trilateral” and is concerned the announcement might not signal an improvement. A coalition of five unions including the AFL-CIO and United Steelworkers said more work is needed to fix NAFTA. “We are not done yet,” the unions said in a statement.

An accord between the U.S. and Mexico is the biggest development in talks that began a year ago, punctuated by Trump’s repeated threats to quit altogether. Significant breakthroughs came during the past several days of bilateral talks on automobiles and energy. The three countries trade more than $1 trillion annually, much of it under the pact.

But questions remain about how the Trump administration will steer a deal through Congress, and whether Canada will be part of the final pact. Trump has been authorized by Congress to seek a new NAFTA through his so-called fast-track authority, which allows the president to submit trade deals to lawmakers for a basic yes-or-no vote, provided the administration follows certain procedures.

Canada Hopes

The U.S. plans to submit a letter to Congress on Aug. 31, Trump’s trade representative, Robert Lighthizer, told reporters Aug. 27. The U.S. hopes Canada will join the pact this week, but it will have the option to sign on later, he said. That suggests the administration believes it has congressional authority to move ahead with its current plan as a two-way deal.

But some experts are less certain. Trump would have to go back to Congress to ratify a bilateral agreement with Mexico, said Mickey Kantor, who oversaw America’s entry into NAFTA as Bill Clinton’s first U.S. trade representative.

“They’d have to go back to the Congress,” he said. “To walk away from an arrangement with the two and try to set up bilateral deals would probably cause a tremendous political response.”

Canada firmly opposes a U.S. plan to scrap a measure that allows NAFTA countries to settle disputes in cases involving dumping and unfair subsidies, and has also warned it won’t totally dismantle protections for its dairy industry, as the U.S. would like.

Important Step

Republican Sen. Orrin Hatch, chairman of the Senate Finance Committee, called the deal with Mexico an important step but added that “a final agreement should include Canada.” As the main trade committee in the Senate, the finance panel’s approval will be key to any deal.

Canada, which has been on the sidelines of the talks since July as Mexico and the U.S focused on settling differences, said an overhaul of the trilateral pact still will require its endorsement. “Canada’s signature is required,” Austen, Freeland’s spokesman, said in an e-mail Aug. 27. “We will only sign a new NAFTA that is good for Canada and good for the middle class.”

Pena Nieto said in a tweet Aug. 27 that he spoke with Trudeau and stressed the importance of Canada rejoining NAFTA talks.

Trump doesn’t plan to invoke a clause to formally withdraw from the pact, which any country can do with six months’ notice, Lighthizer said. Since his election campaign, the president has repeatedly threatened to kill the pact.

Talks to update NAFTA began a year ago, but in recent weeks have been held between just the U.S. and Mexico. The U.S. president says the 24-year-old deal has led to hundreds of thousands of lost American jobs, and he promised to either change it to be more favorable to the U.S., or withdraw.

The U.S. push to finish NAFTA talks comes at the same time it’s in a spiraling trade war with China, and has threatened to place tariffs on cars imported from major manufacturing centers in Asia and Europe — efforts that have created new uncertainty for many businesses and investors.

“They want to talk,” Trump told reporters Aug. 27, referring to Chinese officials. But “it’s been too one-sided for too many years, for too many decades and so it’s not the right time to talk.”