U.S., Mexico reach NAFTA deal; talks with Canada to start immediately

Muriel Colon
August 29, 2018

The Trump administration and Mexico have reached a preliminary accord to replace the North American Free Trade Agreement with a new deal that would be meant to encourage more manufacturing in the United States.

If talks with Canada are not wrapped up by the end of this week, Mr Trump plans to notify Congress that he has reached a deal with Mexico, but would be open to negotiations with Canada, US Trade Representative Robert Lighthizer told reporters.

In announcing the "United States-Mexico Trade Agreement", U.S. President Donald Trump declared the current NAFTA dead and threatened Canada with tariffs if it didn't sign on to the revised terms worked out with Mexico.

Nor will the Canadians be concerned about Mexico agreeing that for 40 per cent of content in autos, workers be paid $16 an hour, virtually tripling the cost of Mexican labour.

The agreement tried to offset incentives to move production further offshore by requiring that 75 percent of vehicle contents have to be made in the United States, Mexico, or Canada-though Canada has yet to agree to terms with the United States on trade and negotiations remain ongoing.

Earlier in the day, a spokesperson for Freeland said: "Canada is encouraged by the continued optimism shown by our negotiating partners".

"We will only sign a new NAFTA that is good for Canada and good for the middle class", he said, adding that "Canada's signature is required".

But Canada and the auto industry on both sides of our border should be very concerned about Trump's threats to impose tariffs or 20 to 25 per cent on Canadian automotive exports to the U.S.

Trump has frequently condemned the 24-year-old NAFTA trade pact as a job-killing "disaster" for American workers.

The new deal will keep tariffs on agricultural products traded between the United States and Mexico at zero and seeks to support biotech and other innovations in agriculture.

Analysts said it won't be easy to simply shut the door on the Canadians.

He said that deal would have to include, among other things, intellectual property reform and a reduction of tariffs on USA dairy imports.

"It was indeed a point of tension, of public and notorious differences between Mexico and the United States, but I think that the decision we made not to allow a difference to define the rest of the relationship, that we could see beyond that difference, today is giving very obvious results", Mr Videgaray said in an interview with Bloomberg in Washington.

Pointedly, the deal excludes Canada, one of the three original North American Free Trade Agreement signatories.

"We look forward to having this - either be joined by Canada or not", said Lighthizer, who called the current bilateral agreement between the USA and Mexico "absolutely terrific". Mexico and Canada both initially opposed including a sunset provision.

Officials have said that the agreement would remain in force for 16 years, with a review every six.

President Donald Trump made the announcement on Monday from the White House.

With the USA holding its mid-term elections on November 6, Heyman said the likelihood of Trump's trade threats toward Canada becoming reality is slim.

The agreement would require that 75% of the parts in any auto sold in North America be produced in the United States or Mexico to be exempt from tariffs. We're gonna call it the United States-Mexico Agreement.

None of that stopped Trump from giving the impression on Monday morning that he was "terminating" NAFTA "and going into this deal" with Mexico.

"Trump is working straight from his "Art of the Deal" playbook", he said.

The bilateral framework, which Trump has said may replace NAFTA and what he calls its "bad connotations", was constructed mainly around the auto sector.

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