U.S., Mexico reach 16-year trade agreement; deal does not include Canada — yet

Washington Post

The Trump administration said Monday it had reached a new, 16-year trade deal with Mexico, setting in motion a rapid chain of events that could redraw the world's largest trade agreement.

The ultimate scope of the deal could hinge on whether Canadian Prime Minister Justin Trudeau, after months of feuding with President Donald Trump, decides to sign on.

White House officials said the agreement, centered largely on manufacturing, would help U.S. workers by making it harder for countries like China to ship cheap products through Mexico and then into the United States.

Harmonizing labor and environmental rules would also protect U.S. jobs and salaries, the officials said, by making it less attractive for U.S. companies to move operations to Mexico.

A senior administration official acknowledged the changes could make certain products, such as automobiles, more expensive for American buyers because the costs that go into production were expected to increase.

A number of key factors remain unresolved in Trump's effort to replace the North American Free Trade Agreement — with Canada's role the biggest among them. Trump and Mexican leaders also failed to resolve whether the U.S. tariffs on metals imports will remain in place.

The next phase of negotiations will pose a major test for Trump's unique style of diplomacy, which has shown flashes of both creativity and impulsiveness throughout the process.

"It's a big day for trade. It's a big day for our country," Trump told reporters gathered in the Oval Office, where they watched him speak at length by phone with Mexican President Enrique Peña Nieto.

Trump has long told top advisers that once he was able to cut a single trade deal with another country, it would lead to a flurry of agreements. That's because it would prove to other leaders that he is serious about cutting deals. Some aides are hopeful that the Mexico agreement could serve as a template for other talks.

But Trump also has a tendency to tout deals before they are complete, and a rebuke from either Congress or Canada could scuttle the talks before they are finalized.

Top White House officials appeared split on whether they would proceed at all if Canada didn't sign on to the agreement. Trump left open the possibility of cutting Canada out of the final deal, but U.S. Trade Representative Robert Lighthizer told reporters later that every effort would be made to include Canada, even if it took weeks or longer for them to agree to changes.

There were also signs of division about what the agreement means for NAFTA. Trump said that the new deal with Mexico would lead to the termination of NAFTA and that he would rename it the United States-Mexico Trade Agreement. "NAFTA has a lot of bad connotations for the United States because it was a rip-off," Trump said.

He said that he would terminate "the existing deal," although it was unclear whether Trump has the power to do so unilaterally and Lighthizer cautioned that no decision had been made about this.

Lighthizer said the White House planned to send Congress a letter by Friday that formally starts a 90-day process for changing NAFTA. He said it was still unclear precisely what the letter would say. It could say the United States has reached a deal with Mexico, he said, or it could say that an agreement has been reached with Mexico in the hopes that Canada would be brought into the package at a later date.

The agreement announced Monday will run for an initial 16 years, with an option to revisit issues in six years, and to extend for another 16 years.

It would increase the percentage of each car that must be made in the United States or Mexico to qualify for duty-free treatment. Currently 62.5 percent, the figure would go up to 75 percent.

The agreement would also require a significant portion of each vehicle to be made by workers making at least $16 per hour — a big increase for Mexico.

The White House and Mexican officials were unable to reach an agreement about the steel and aluminum tariffs Trump imposed several months ago, and those discussions are ongoing. "That's the issue we still have to deal with. It's not dealt with," Lighthizer said.

And there were fundamental questions marks about the role of Canada and the future of a regional trade agreement. Peña Nieto, speaking with the president on speaker phone, mentioned several times that he wanted Canada to be involved.

The surprising scenes of Trump and the Mexican president congratulating each other in front of news cameras on successful bilateral negotiations that left Canada out appeared designed, in part, to pressure Canada.

Peña Nieto wrote on Twitter that he had spoken with Trudeau and expressed the "importance of rejoining the process, with the goal of concluding the trilateral negotiation this week."

Peña Nieto's administration wants to reach an agreement soon so that the Mexican Congress has enough time to ratify the deal before President-elect Andrés Manuel López Obrador takes office on Dec. 1.

López Obrador has been supportive of the negotiations but would be likely to seek changes if the treaty is not completed before he assumes the presidency.

Canadian Foreign Minister Chrystia Freeland is expected to rejoin negotiations in Washington on Tuesday.

A spokesman for Freeland said an agreement would require careful review and more discussions.

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

Leading congressional Republicans cautiously welcomed Trump's announcement, while making it clear that they would not embrace a NAFTA 2.0 that leaves out Canada.

"A final agreement should include Canada" to ensure that NAFTA continues to benefit American businesses and families, said Senate Finance Committee Chairman Orrin Hatch, R-Utah.

No. 2 Senate Republican John Cornyn, R-Texas, said, "This is a positive step, and now we need to ensure the final agreement brings Canada in to the fold and has bipartisan support."

Even if a deal does make its way to Capitol Hill, Congress is certain to struggle to pass it, given divisions over trade within both parties. The difficulties would only increase if the pact is not finalized before the November midterm elections and Democrats retake control of the House.

Trump has made renegotiating NAFTA a centerpiece of his economic and foreign policy agendas, arguing that the trade deal disadvantages American workers by luring U.S. jobs and companies overseas.

This approach has alarmed many Republicans, who support NAFTA's free trade roots and worry about how Trump's approach would affect farmers. Democrats have been split, as some agreed with Trump's focus on manufacturing jobs and others worried about Trump's take-it-or-leave-it negotiating style.

The NAFTA renegotiation has been a rocky one. The president over the past year repeatedly lambasted the 1994 treaty, calling it a "bad joke."

One year ago, Lighthizer kicked off the negotiations by calling for a major overhaul of trade rules to take into account nearly a quarter-century of economic changes and to rectify the imbalance in trade between the United States and its southern neighbor.

Trump, he said, was "not interested in a mere tweaking of a few provisions."

Though trade deals are complex affairs that typically require years of glacial bargaining, administration officials initially hoped to finish the job by the end of 2017. They failed to meet that ambitious timetable and also blew through revised deadlines for the end of March and late May.

This time, the deadline may be real, given a congressional requirement for 90 days notice of an impending trade deal. If the administration doesn't formally notify Congress that it has reached agreement with both Canada and Mexico by the end of August, Peña Nieto, the outgoing Mexican president, will not be able to sign it before he leaves office.

The Washington Post's Joshua Partlow in Mexico City and Alan Freeman in Ottawa contributed to this report.

First published by The Washington Post

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