U.S. And Mexico Reach Trade Deal; Trump Wants To Drop NAFTA Name

Aug 27, 2018
Originally published on August 28, 2018 9:36 am

Updated at 5:40 p.m. ET

The United States and Mexico have reached an "understanding" on several critical trade issues following bilateral talks to renegotiate the North American Free Trade Agreement. They will now likely re-engage with Canada to reach a final deal on NAFTA, a primary goal of the Trump administration.

Speaking at the White House on Monday, President Trump said he wanted to change the NAFTA name to the U.S. Mexico Free Trade Agreement. He also reframed the negotiations as two bilateral trade deals.

"We've made a deal with Mexico, and we'll get started with Canada immediately," Trump said. He also said he would "be terminating the existing [NAFTA] deal very soon" because NAFTA has "a lot of bad connotations" and has been a "bad deal" for the United States.

The breakthrough between the U.S. and Mexico involved an agreement on the amount of North American content a vehicle must have in order to pass duty-free across borders. The percentage was moved up to 75 percent from its current level of 62.5 percent. Negotiators also agreed to increase the percentage of vehicles built in factories paying an average wage of at least $16 an hour.

U.S. automakers have opposed raising the North American content requirement, but the United Auto Workers union has supported it.

The third NAFTA partner, Canada, has not been at the negotiating table for many weeks. It will now presumably re-engage.

Prior to Trump's remarks, Canadian Foreign Minister Chrystia Freeland said through a spokesman that "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."

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

The three nations had hoped to wind up negotiations by the end of this week.

U.S. law requires a three-month waiting period after a deal is completed before Congress can ratify it. Mexico will swear in its incoming president, Andrés Manuel López Obrador, on Dec. 1. If a NAFTA deal isn't signed before then, López Obrador could demand changes — and a deal that took years to negotiate could unravel. But Trump and U.S. Trade Representative Robert Lighthizer said Monday that they plan to send a Mexico-U.S. deal to Congress by Friday to start the clock on the waiting period.

It's not clear Congress would accept a deal without Canadian participation. President Trump suggested he could pressure Canada to sign the deal by placing import tariffs on Canadian automobiles.

The deal does not include the sunset clause Trump had proposed, which would have ended the new agreement after five years, unless all countries explicitly agreed to extend it. Instead, the trade treaty is set for 16-year terms, with a six-year review that could recommend changes to the treaty.

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The U.S. and Mexico have tentatively agreed to a trade deal. And in today's announcement, President Trump wanted to make one thing clear. This new deal will not be called NAFTA, the old North American Free Trade Agreement.


PRESIDENT DONALD TRUMP: This has to do - 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. It has a bad connotation because the United States was hurt very badly by NAFTA.

CHANG: All right, NPR's John Ydstie joins us now to talk about this new deal. Hey, John.


CHANG: So President Trump touted this deal, this morning when talking to the Mexican president on the phone, as a great accomplishment. Can you just put that into perspective for us? Is this a great accomplishment?

YDSTIE: Well, it's a step toward the renegotiation that the president promised during the campaign. But there's still a long way to go. This is a tentative agreement only with Mexico. And there's another critical party in the NAFTA agreement - Canada.

CHANG: Right.

YDSTIE: Canadian officials today signaled they're ready to come back to the negotiating table. They've been sitting on the sidelines for some time. In fact, Canada's foreign minister cut short a trip to Europe and is flying to Washington today. But she said she'll only sign a deal that is good for Canada.

CHANG: And the president said, in his appearance this morning, that negotiations with Canada will start shortly. But then in the very next breath, he threatened Canada. Let's take a listen to that.


TRUMP: I think with Canada, frankly, the easiest thing we can do is to tariff their cars coming in. It's a tremendous amount of money. And it's a very simple negotiation. It could end in one day, and we'd take in a lot of money the following day. But I think we'll give them a chance to probably have a separate deal. We could have a separate deal, or we could put it into this deal.

CHANG: OK, so let me get this straight. We could end up with having two separate agreements - one with Mexico, one with Canada - instead of a North American Agreement. Is that how this is going to work?

YDSTIE: Probably not. The president's strategy here appears to be flawed. The Congress gives a president the authority to negotiate trade deals. In the case of NAFTA, it's a three-country agreement. And all three parties need to be onboard to renew it. Taking this deal with Mexico to Congress separately would take a long, long time.

Now, despite the president's bluster, the administration would actually like to get official notice to Congress of a deal that includes Canada by the end of this week. Under any fast-track deal, there needs to be a 90-day waiting period, so Congress has time to consider the trade deal before it's signed by the leaders of each government. Threatening Canada with car tariffs, the way the president did today, may or may not speed things up.

CHANG: And the rush has to do with Mexico getting a new president on December 1, right?

YDSTIE: Yeah, that's right. Mexico has elected a new president. And while his representatives have been involved to some extent on the Mexican side, it's possible he could ultimately object to some provision in the deal. And it could all unravel when he takes office. And that's a concern.

CHANG: So give us a sense of what is in this agreement between the U.S. and Mexico.

YDSTIE: Well, among the most important provisions are changes in rules governing automobile manufacturing. The amount of North American-made parts that cars have to have to cross borders duty-free would rise to 75 percent under this deal. That's up from 62.5 percent now. Another change would require higher wages for autoworkers in Mexico, and a large number of cars made in Mexico would have to be built in factories where workers earn at least $16 an hour.

But the deal also affects trade in other areas - from chemicals to textiles. It contains new rules for digital technology and intellectual property. The stock market rose on the news today. But, again, its progress towards a new trade regime in North America but still a long way to go.

CHANG: NPR's John Ydstie, thank you very much.

YDSTIE: You're welcome. Transcript provided by NPR, Copyright NPR.