Trump Strikes Nafta Deal With Mexico and Threatens to Freeze Out Canada

President Trump with Mexico’s trade negotiators on Monday.CreditCreditDoug Mills/The New York Times

WASHINGTON — President Trump on Monday said the United States and Mexico had reached agreement to revise key portions of the North American Free Trade Agreement and would finalize it within days, suggesting he was ready to jettison Canada from the trilateral trade pact if the country did not get on board quickly.

Speaking from the Oval Office on Monday, Mr. Trump touted the preliminary agreement with Mexico as a new trade pact that could replace Nafta and threatened to hit Canada with auto tariffs if it did not “negotiate fairly.”

“They used to call it Nafta,” Mr. Trump said. “We’re going to call it the United States Mexico Trade Agreement,” adding that the term Nafta — which he has called the “worst” trade deal in history — had “a bad connotation” for the United States.

Yet while Mr. Trump may want to change the name, the agreement reached with Mexico is simply a revised Nafta, with updates to provisions surrounding the digital economy, automobiles and labor unions. The core of the trade pact — which allows American companies to operate in Mexico and Canada without tariffs — remains intact.

Now, the question becomes whether a trilateral pact becomes a bilateral deal — or if Mr. Trump’s threats pressure Canada to return to the negotiating table and accede to many of the United States’ demands.

The president’s apparent willingness to move on without Canada prompted confusion and concern among lawmakers, who said it may not be legally permissible, let alone smart, and businesses whose supply chains depend on a deal encompassing Canada, Mexico and the United States.

“Because of the massive amount of movement of goods between the three countries and the integration of operations which make manufacturing in our country more competitive, it is imperative that a trilateral agreement be inked,” Jay Timmons, president and chief executive of the National Association of Manufacturers, said in a statement.

Mexican officials said on Monday that they wanted to have Canada back in the process and were working toward a trilateral deal by the end of the week. Mexican President Enrique Peña Nieto, who joined the White House announcement via phone, said “It is our wish, Mr. President, that now Canada will also be able to be incorporated in all this.”

But later in the day, Luis Videgaray Caso, Mexico’s foreign minister, signaled that Mexico might be willing to move forward without Canada.

“We’ll put all our effort, 24/7, to promote that Canada continues to be a part of this agreement and we work on this extremely hard,” Mr. Videgaray told reporters on Monday.

Both the Mexicans and Americans have been eager to reach a fully revised Nafta deal by the end of August, a date that would give the Trump administration enough time to notify Congress that a deal had been finalized and still have that deal be signed by the outgoing Mexican administration of Mr. Peña Nieto.

“Ideally we’ll have the Canadians involved,” Robert E. Lighthizer, the United States trade representative said, adding that the administration planned to officially inform Congress by Friday of its intent to sign a new deal, a step that is required before Congress votes on a trade pact. “If we don’t have Canada involved, we will notify that we have a bilateral agreement that Canada is welcome to join.”

Chrystia Freeland, the Canadian foreign minister, will travel to Washington, D.C. on Tuesday to continue negotiations, Adam Austen, her spokesman, said Monday.

“We will only sign a new Nafta that is good for Canada and good for the middle class. Canada’s signature is required,” Mr. Austen added.

The revised deal with Mexico makes significant alterations to rules governing automobile manufacturing, in an effort to bring more car production back to the United States from Mexico. Those changes are being watched carefully by the United States auto industry, which has expressed concern that the Trump administration’s efforts to rewrite Nafta could raise prices of American-made cars and trucks. Automakers like General Motors and Ford have set up plants in Canada and Mexico, and American automakers routinely import car parts from other countries.

Under the changes agreed to by Mexico and the United States, car companies would be required to manufacture at least 75 percent of an automobile’s value in North America under the new rules, up from 62.5 percent previously, in order to qualify for Nafta’s zero tariffs. They will also be required to use more local steel, aluminum and auto parts, and have 40 percent to 45 percent of the car made by workers earning at least $16 an hour, a boon to both the United States and Canada and a win for labor unions, which have been among Nafta’s biggest critics.

“Automakers urge the U.S. and Mexico to quickly re-engage with Canada to continue to build on this progress,” the Alliance of Auto Manufacturers, which represents most carmakers that sell vehicles in the United States, said in a statement. “The industry is hopeful that any changes to Nafta auto rules of origin continue to strike the right balance by incentivizing production and investment in North America while keeping new vehicles affordable for more Americans.”

In a briefing Monday, administration officials said that the United States and Mexico had also come to an agreement on a controversial “sunset clause,” proposed by the Trump administration, that would cause Nafta to automatically expire unless the three countries voted to extend it.

The two countries agreed to a review of the trade pact every six years that would extend its lifetime for 16 more years, officials said. That longer time horizon would give lawmakers a chance to review the trade pact’s progress, while also giving businesses certainty for the immediate future.

The countries also came to an agreement that would limit the kinds of legal challenges that investors can currently make against foreign government under Nafta. The oil and gas, infrastructure, energy generation and telecom industries are exempted from these more restrictive rules, and will continue under their previous terms, Mr. Lighthizer said — a win for those industries.

It is unclear how eager Canada will be to sign on to a deal containing these revisions. But any agreement that doesn’t involve Canada is likely to face legal challenges and intense opposition from Congress, which had granted the Trump administration authority to renegotiate Nafta as a trilateral deal.

Senate Finance Committee Chairman Orrin G. Hatch, a Republican from Utah, said in a statement that improving Nafta would help American businesses, manufacturers and farmers but that a bilateral deal was not the answer. “To achieve that goal, a final agreement should include Canada,” he said.

“Once again, President Trump is announcing a victory before he has an agreement,” said Lloyd Doggett, a Democratic Congressman from Texas. “While avoiding a trade war against Mexico, our #1 Texas trading partner, we cannot secure a complete, improved North American agreement without Canada, our #2 trading partner.”

Senator Ben Sasse, a Nebraska Republican, said “there is reason to worry that this might be a step backward from Nafta for American families — especially on fundamental issues of presumed expiration of the deal, and empowering government bureaucrats rather than markets to determine the components in cars and other goods.”

Industry groups applauded the progress with Mexico but also said a final agreement must include Canada.

“Coming to terms with Mexico is an encouraging sign, but threatening to pull out of the existing agreement is not,” said Matthew Shay, CEO of the National Retail Federation. “The administration must bring Canada, an essential trading partner, back to the bargaining table and deliver a trilateral deal.”

The president, flanked by advisers including Mr. Lighthizer and Jared Kushner, hailed the preliminary agreements as “a big day for our country,” adding that “many people” had thought that no one could make a deal with Mexico.

Mr. Peña Nieto, who has at times exchanged harsh words with Mr. Trump as the two countries have squabbled over funding for a wall along the border of the two countries, added a moment of praise on Monday.

“I recognize your political will,” Mr. Peña Nieto said, “and your participation in this.”

Elisabeth Malkin contributed reporting from Mexico and Catherine Porter from Toronto.

Follow Ana Swanson on Twitter: @AnaSwanson.

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