Trump embraces Mexico, threatens Canada with trade deal

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.”


“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. Any final deal must also be approved by Congress before it takes effect.

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, regardless of whether discussions with Canada are completed by then.

"We look forward to having this [agreement] either be joined by Canada or not, but go through to a very successful conclusion in the Congress, hopefully with overwhelming Republican and Democratic support," Lighthizer told reporters on a call.

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. The comments also took Mexican representatives by surprise.

“I think NAFTA has a lot of bad connotations for the United States, because it was a ripoff,” he said.

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.”

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Freeland will travel to Washington on Tuesday to continue negotiations “given the encouraging announcement today of further bilateral progress between the U.S. and Mexico,” her spokesman said.

The U.S. has already eased up on some of its early demands in the negotiations. Instead of automatically “sunsetting” NAFTA at five years absent a consensus to let it continue, the initial term of the pact would be for 16 years, with a review after six years. If countries agree the pact is working well at year six, it would be extended for another 16 years at that time. If countries feel that pact is not working well, there would be reviews in subsequent years to try to fix whatever problems have emerged.

In another area, the United States and Mexico agreed to establish two separate systems for handling disputes. Companies in the oil and gas, infrastructure, energy generation and telecommunications sectors that have contracts with either the U.S. and Mexican government will continue to enjoy the full protection of the existing system, but other industries will have to rely on a scaled down version.

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.

In the meantime, Mexico will keep $3 billion in retaliatory tariffs — much of it on U.S. farm products — in place, Guajardo added. In May, the Trump administration slapped duties on both Canada and Mexico on steel and aluminum. Canada, the U.S.’ largest steel supplier, is also still subject to the duties.

The countertariffs from both Canada and Mexico have taken a toll on American farmers. The Trump administration also announced an aid package on Monday to help farmers affected by retaliatory tariffs, but several agricultural groups say that the payouts do not begin to cover their losses in trade.

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 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.”

Other administration officials reiterated that the U.S. was prepared to move ahead solely with Mexico. "Indications are we're going to sign this document with them at the end of the week and we're going to move forward,” the White House chief economic adviser Larry Kudlow told reporters Monday afternoon. "Ultimately Congress has to pass something."

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.

Lorraine Woellert and Rebecca Morin contributed to this report.



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