U.S. President Donald Trump speaks in the Roosevelt Room of the White House in Washington, D.C., U.S. (Photographer: Yuri Gripas/Bloomberg)

Trump Says He's Agreed on Mexico Trade Deal to Replace Nafta

(Bloomberg) -- 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 Monday 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.

Trump Says He's Agreed on Mexico Trade Deal to Replace Nafta

Canadian Foreign Minister Chrystia Freeland is leaving a trip in Europe early to travel to Washington for Nafta talks on Tuesday, spokesman Adam Austen said on Monday. 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 percent from the current 62.5 percent in Nafta, with 40 percent to 45 percent of production by workers earning at least $16 an hour, the U.S. Trade Representative’s office said in an emailed 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 peso rallied, and the Canadian dollar also advanced. U.S. stocks rose, with the S&P 500 Index closing just short of 2,900 and the Nasdaq Composite Index topping 8,000 for the first time. Automakers and railroads were among the top gainers.

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.”

‘Big Day’

While the president hailed it as “a big day for trade,” 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.

Trump Says He's Agreed on Mexico Trade Deal to Replace Nafta

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 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 Friday, said Trump’s trade representative, Robert Lighthizer, told reporters on Monday. 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 Senator 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 will still require its endorsement. “Canada’s signature is required,” Austen, Freeland’s spokesman, said in an email on Monday. “We will only sign a new Nafta that is good for Canada and good for the middle class.”

Pena Nieto said in a tweet on Monday that he spoke with Trudeau and stressed the importance of Canada rejoining Nafta talks.

Read More: Trump, Trudeau Agree to Continue ‘Productive’ Trade 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 on Monday, 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.”

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