Mexico’s incoming government will pursue a bilateral deal with Canada if talks to overhaul the North American free-trade agreement falter, Mexican president-elect Andres Manuel Lopez Obrador said on Friday.

After more than a year of talks to modernize the NAFTA trade pact between the United States, Mexico and Canada, the United States and Mexico reached a side deal in late August.

Days later, Canada began negotiating with the United States to close a deal on the 24-year-old trade pact. But the talks have hit an impasse over U.S. threats to impose tariffs on Canadian auto exports.

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“We would like the government of the United States and the government of Canada to come to an agreement so the treaty can be trilateral, as it was originally signed,” said Mr. Lopez Obrador, a veteran leftist who takes office in December.

“But in the event that the governments of the United States and Canada do not come to an agreement ... we would have to maintain the bilateral deal with the United States and seek a similar deal with Canada.”

With just over a week to go before a U.S.-imposed Oct. 1 deadline to publish the text of a deal, the United States and Canada have still not agreed on terms, White House economic adviser Kevin Hassett said on Friday.

Speaking with Fox News, Mr. Hassett said the United States was getting “very, very close” to having to advance in its commercial deal with Mexico, leaving Canada behind.

Canadian Foreign Minister Chrystia Freeland left Washington on Thursday after two days of inconclusive talks with U.S. trade representative Robert Lighthizer.

Asked for a reaction to Mr. Hassett’s comments, a Freeland spokesman pointed to her repeated comments that Canada “will not be driven by a deadline but by reaching a good deal”.

Investor concerns over the future of the 1994 pact have regularly hurt stock markets in all three countries, the economies of which are highly integrated.

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A senior White House official on Friday said he hoped Canada would agree to join the U.S.-Mexico trade deal by the end of the month, adding he thought U.S. lawmakers would support a bilateral deal with Mexico if that did not happen.

But Canada says it does not believe U.S. President Trump has the power to unilaterally turn NAFTA into a two-nation agreement. U.S. business groups and some senior Democrats say NAFTA must be preserved as a trilateral grouping.

Access to Canada’s dairy market, trade dispute settlement panels and U.S. demands for the ability to impose auto tariffs on its northern neighbour remain sticking points.

“I’m a little surprised that the Canadians haven’t signed up yet,” Mr. Hassett said.

“I worry that politics in Canada is trumping common sense because there’s a very good deal that was designed by Mexico and the U.S. to appeal to Canada. And they’re not signing up and it’s got everybody over here a little bit puzzled.”

Ms. Freeland and Mr. Lighthizer are due in New York next week for the United Nations General Assembly, but it was unclear if they would meet.

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Markets in all three countries have suffered amid uncertainty about the future of the pact, which underpins US$1.2-trillion in annual trade.

Reuters