US, Mexico tentatively set to replace NAFTA

Associated Press

WASHINGTON

Snubbing Canada, the Trump administration reached a preliminary deal Monday with Mexico to replace the North American Free Trade Agreement – a move that raised legal questions and threatened to disrupt the operations of companies that do business across the three-country trade bloc.

President Donald Trump suggested that he might leave Canada, America’s No. 2 trading partner, out of a new agreement. He said he wanted to call the revamped trade pact “the United States-Mexico Trade Agreement” because, in his view, NAFTA had earned a reputation as being harmful to American workers.

But first, he said, he would give Canada a chance to get back in – “if they’d like to negotiate fairly.” To intensify the pressure on Ottawa to agree to his terms, the president threatened to impose new taxes on Canadian auto imports.

Canada’s NAFTA negotiator, Foreign Minister Chrystia Freeland, is cutting short a trip to Europe to fly to Washington on Tuesday to try to restart talks.

“We will only sign a new NAFTA that is good for Canada and good for the middle class,” said Adam Austen, a spokesman for Freeland, adding that “Canada’s signature is required.”

“There is still a great deal of uncertainty – trepidation, nervousness – a feeling that we are on the outside looking in,” said Peter MacKay, a former Canadian minister of justice, defense and foreign affairs who is now a partner at the law firm Baker McKenzie.

Critics denounced the prospect of cutting Canada out a North American trade pact, in part because of the risks it could pose for companies involved in international trade. Many manufacturers have built complex but vital supply chains that cross all three NAFTA borders.

Trump was quick to proclaim victory, though, pointing to Monday’s surge in stock prices, which was fueled in part by the apparent breakthrough with Mexico.

“We just signed a trade agreement with Mexico, and it’s a terrific agreement for everybody,” the president said. “It’s an agreement that a lot of people said couldn’t be done.”

Trump has frequently condemned the 24-year-old NAFTA trade pact as a job-killing “disaster” for American workers. NAFTA reduced most trade barriers between the three countries. But the president and other critics say it encouraged U.S. manufacturers to move south of the border to exploit low-wage Mexican labor.

The preliminary deal with Mexico might encourage more manufacturing in the United States. Yet it is far from final. Even after being formally signed, it would have be ratified by lawmakers in each country.

The U.S. Congress wouldn’t vote on it until next year – after November midterm elections that could end Republican control of the House of Representatives.

“There are still a lot of questions left to be answered,” MacKay said. He noted, for example, that Trump said nothing Monday about dropping U.S. tariffs on Mexican or Canadian steel – tariffs that were imposed, in part, to pressure those countries to reach an agreement on NAFTA.

But at least initially, it looks like at least a tentative public-relations victory for Trump, the week after his former campaign manager was convicted on financial crimes and his former personal attorney implicated him in hush money payments to two women who say they had affairs with Trump.