President Donald Trump on Monday announced a preliminary 16-year trade deal with Mexico to revise major key portions of the North American Free Trade Agreement (NAFTA) that could replace the agreement, while calling on Canada to join the revised agreement or risk being left out.
“It’s a big day for trade, a big day for our country,” Trump said in the Oval Office with Mexican President Enrique Peña Nieto on the speaker phone. “A lot of people thought we’d never get here because we all negotiate tough. We do, and so does Mexico. And this is a tremendous thing.”
Trump has made renegotiating NAFTA a centerpiece of his economic and foreign policy agendas, arguing that the trade deal is a disadvantage for American workers due to U.S. jobs and companies being shipped overseas.
In announcing the move, Trump said the name NAFTA will be replaced to “United States-Mexico Trade Agreement,” because the name has “a bad connotation.”
They used to call it NAFTA. We’re going to call it the United States-Mexico Trade Agreement, and we’ll get rid of the name NAFTA. It has a bad connotation because the United States was hurt very badly by NAFTA for many years. And now it’s a really good deal for both countries, and we look very much forward to it.”
US and Mexican negotiators after a year long talks agreed to have a new deal announced by the end of August, just in time for Nieto to sign before leaving office in December. Before the announcement, Trump hinted the announcement on Twitter.
A big deal looking good with Mexico!
— Donald J. Trump (@realDonaldTrump) August 27, 2018
Missing from the new agreement is Canada, the third partner in NAFTA, who has not been at the negotiating table due to both being in disagreement over trade policy for weeks.
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. Canada and the U.S. are still at odds over some key issues.
“It is our wish, Mr. President, that now Canada will also be able to be incorporated in all this,” Nieto said. “I assume that they going to carry out negotiations of the sensitive bilateral issues between Mexico rather, between Canada and the United States.”
On Twitter, Nieto said that he had spoken with Canadian Prime Minister Justin Trudeau and expressed the “importance of rejoining the process, with the goal of concluding the trilateral negotiation this week.”
However, Trump also announced the possibility of a separate agreement with Canada, causing major confusion among lawmakers who would have to approve the trade deal. Any deal without Canada is likely to face legal challenges and opposition from Congress.
“As far Canada is concerned, we haven’t started with Canada yet,” Trump said. “We wanted to do Mexico and see if that was possible to do. Canada will start negotiations shortly. I’ll be calling the Prime Minister very soon. And we’ll start negotiation, and if they’d like to negotiate fairly, we’ll do that.”
U.S. law requires a three-month waiting period after a deal is completed before Congress can ratify it. The White House plans to send Congress a letter before Friday that will formally start a 90-day process for changing NAFTA.
“We will see whether or not we decide to put up Canada or just do a separate deal with Canada, if they want to make the deal,” Trump said. “The simplest deal is more or less already made. It would be very easy to do and execute.”
It’s not clear Congress would accept a deal without Canadian participation. Trump suggested he could pressure Canada to sign the deal by placing import tariffs on Canadian automobiles.
“One way or the other, we have a deal with Canada,” Trump said. “It will either be a tariff on cars, or it will be a negotiated deal. And, frankly, a tariff on cars is a much easier way to go. But perhaps the other would be much better for Canada.”
The revised NAFTA includes updated provisions regarding the digital economy, automobiles, agriculture and labor unions. The agreement will run for an initial 16 years, with an option to revisit issues in six years, and to extend for another 16 years.
But, the core of NAFTA will remain in place that will allow American companies to operate in either Mexico and Canada without any tariffs implemented. The U.S. also agreed to keep the 2.5 percent tariff currently applied under World Trade Organization rules if the cars are made in factories already existing, which leaves open the possibility that automobiles that are built at new plants could face tariffs of 20 percent to 25 percent.
According to the United States Trade Representative, 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. Both countries agreed to review the deal after six years.
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.
Canadian Foreign Minister Chrystia Freeland is expected to rejoin negotiations in Washington on Tuesday. According to the Canadian Foreign Minister spokesperson, Canadians have been in regular contact with NAFTA negotiators and would only sign the new NAFTA is “its good for Canada.”
“Canada is encouraged by the continued optimism shown by our negotiating partners. Progress between Mexico and the United States is a necessary requirement for any renewed Nafta agreement,” a spokesman for Canada’s minister of foreign affair, Chrystia Freeland, said on Monday after the announcement. “We will only sign a new Nafta that is good for Canada and good for the middle class. Canada’s signature is required.”