US and Mexico reach a preliminary trade deal that could replace NAFTA

The United States and Mexico have reached an agreement to change parts of NAFTA, the trade deal that Preside...

Posted: Aug 28, 2018 5:56 PM
Updated: Aug 28, 2018 5:56 PM

The United States and Mexico have reached an agreement to change parts of NAFTA, the trade deal that President Donald Trump has derided for years as unfair.

Trump announced the agreement from the Oval Office Monday, with Mexican President Enrique Peña Nieto dialed in on a conference call.

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But the deal left open the question of whether Canada, the third country in NAFTA, would agree to the changes -- and Trump himself said he wanted to throw out the name NAFTA altogether.

"They used to call it NAFTA," Trump said. "We're going to call it the United States-Mexico trade agreement. We're going to get rid of NAFTA because it has a bad connotation."

US Trade Representative Robert Lighthizer said the agreement was "absolutely terrific" and would modernize a trade deal that had "gotten seriously out of whack." He said he hoped Congress would approve it with broad bipartisan support.

On a separate call with reporters, Lighthizer highlighted some big changes that negotiators from both countries agreed to.

  • Auto manufacturing: The new deal would require that 75% of the parts in any car sold in North America be produced in the United States or Mexico. Currently, about 62% of parts are required to be produced in the United States, Mexico or Canada.
  • Higher labor standards: The new deal would require that 40% to 45% of auto parts in cars sold be made by workers earning at least $16 USD per hour.
  • Sunset clause: The agreement will last for 16 years, and will be reviewed every six years.

Much of the business world has been worried about Trump's trade policies, and the stock market reacted positively to the news of a deal. The Dow closed nearly 260 points higher on Monday.

The agreement between the two countries could restart negotiations on NAFTA with all three parties -- the United States, Mexico and Canada.

Despite Trump's signal that the deal could lead to a bilateral trade agreement between the United States and Mexico, Peña Nieto, through a translator, expressed his "desire that now Canada will also be able to be incorporated in this."

Mexico and Canada have stood firm on the importance of maintaining the trilateral format of the NAFTA free trade deal, even as Trump has signaled a desire for individual deals with each country.

"Canada is encouraged by the continued optimism shown by our negotiating partners," said a spokesperson for Canadian Minister of Foreign Affairs Chrystia Freeland.

"Progress between Mexico and the United States is a necessary requirement for any renewed NAFTA agreement," he said.

Freeland will travel to Washington on Tuesday to continue negotiations.

Negotiations on rewriting the three-country NAFTA agreement began about a year ago.

The 24-year-old trade agreement generally prevents the three parties from imposing tariffs on imports from one another. But Trump has called the agreement "the worst deal maybe ever signed" and moved ahead with tariffs earlier this year.

In May, the United States imposed steep tariffs on steel and aluminum from much of the world, including Mexico. In response, Mexico slapped tariffs on $3 billion of US goods, including steel, pork, apples, potatoes, bourbon and different types of cheese. Canada imposed tariffs on $12.5 billion of US goods, including steel, toffee, maple syrup, coffee beans and strawberry jam.

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