US, Mexico reach NAFTA deal as attention turns to Canada

US President Donald Trump has announced a new trade “understanding” with Mexico that could overhaul the existing North American Free Trade Agreement (NAFTA), putting pressure on Canada to agree to new terms on auto trade and other issues in order to remain part of the three-country pact. 

Addressing reporters in the White House Oval Office on Wednesday, Trump praised the preliminary agreement as an “incredible deal” for both countries.

But the president hinted that all might not be smooth sailing from here, suggesting he could cut Ottawa out of the deal reached with Mexico and adding that he wanted to change the agreement’s name.

“They used to call it NAFTA. We’re going to call it the United States-Mexico trade agreement. We’ll get rid of the name NAFTA,” Trump said, adding that he would call Canadian Prime Minister Justin Trudeau to begin negotiations with the treaty’s third party “very soon”.

Mexican President Enrique Pena Nieto spoke to Trudeau on Monday and urged Ottawa to rapidly rejoin the talks with the goal of getting a final NAFTA rewrite this week.

Without Canada, the US’ number two trading partner, it’s unclear whether any new US trade agreement with Mexico would be possible.

Under Monday’s preliminary agreement, Mexico agreed to ensure that 75 percent of automotive content be produced within Mexico and the US, up from the current 62.5 percent, according to the Office of the US Trade Representative. The preliminary deal also says that 40 to 45 percent of the auto content must be made by workers earning at least $16 an hour.

December 1 deadline

Negotiators have been shuttling back and forth between the three countries for months to try to iron out the bilateral stumbling blocks, including rules for the auto market, before the end of August.

Talks ground to a halt in May, in part due to the July 1 presidential elections in Mexico.

The trilateral treaty has been a key target in Trump’s aggressive trade strategy and he has repeatedly threatened to scrap it altogether, branding it a “disaster”.

But after a year of intense negotiations to salvage NAFTA, US and Mexican negotiators are eager to seal a new deal before Pena Nieto hands power to President-elect Andres Manuel Lopez Obrador on December 1.

For that to happen, US Congress must be notified 90 days in advance, which means the administration must send the notice by the end of the week.

A Canadian foreign ministry spokesperson said earlier on Monday that Ottawa was encouraged by “progress” between the US and Mexico, but cautioned that any new version of NAFTA would need to be beneficial for Canada before being signed off on by officials.

Campaign promises

Al Jazeera’s Kimberly Halkett, reporting from Washington, DC, said Trump was “delivering” on promises made during his successful presidential campaign to renegotiate major trade deals affecting US workers.

“Essentially what this [deal] seems to do is update the 24-year-old agreement with respect, particularly, to the manufacturing sector, particularly when it comes to cars, an area that was decimated in many respects because of NAFTA,” Halkett said.

“A lot of [US-based] jobs went to Mexico, where the labour supply was cheaper,” she added.

NAFTA, which came into effect at the beginning of January 1994, lifted tariffs on virtually all goods traded among the US, Canada, and Mexico.

Trilateral trade between the three countries has exceeded $1tn annually in recent years, according to a 2017 report by the US’ Congressional Research Service, with Canada and Mexico ranking in the top three largest buyers from, or suppliers to, the US in 2016.

Job losses

But critics of the deal suggest it has led to significant job losses within the US market, with companies shifting operations to Mexico due to lower production costs.

According to the US-based Economic Policy Institute, about 700,000 jobs have been lost nationwide due to growing trade deficits with Mexico caused by NAFTA.

Al Jazeera’s John Holman, reporting from Mexico City, said outgoing President Nieto “probably had to make sacrifices” to protect a trade agreement with the US, with a possible consequence being the flight of car manufacturing companies from the country.

“Workers in Mexico might be the ones that come out of this well, because wages in certain sectors may have to go up as a result of the [new] trade deal,” Holman said.

“Wages are currently very low in Mexico and that is one of the reasons that car makers are attracted to the country, the low cost of labour, but it [the new deal] might also affect whether they want to stay in Mexico or go to Asia and the US,” he added.

Advisers of incoming President Lopez Obrador hailed the new deal, saying it represented progress on energy and wages for Mexico’s workers. 

Lopez Obrador is a leftist free-trade sceptic, and his landslide victory in Mexico’s July 1 elections had raised doubts about the future of the ongoing renegotiation of the North American Free Trade Agreement (NAFTA).

However, his transition team has been taking part in the talks and gave their blessing to the two-way deal.