The US and Mexico are getting close to a massive new trade agreement, but the whole thing could still fall apart

  • The Trump administration is expected to announce a preliminary agreement with Mexico on updates to a number of rules contained within the North American Free Trade Agreement, or NAFTA, particularly when it comes to automobiles.
  • The agreement would be a big step toward the ultimate goal of renegotiating NAFTA.
  • But work still remains, as Canada was left out of the bilateral talks and more issues must be resolved.

The US and Mexico are nearing a bilateral framework that would make changes to several rules in the North American Free Trade Agreement, or NAFTA, a kew breakthrough in the months-long talks over the seminal free trade agreement.

According to reports, the Trump administration plans to announce a breakthrough in the Mexico talks on Thursday. But given Canada’s exclusion from the talks and several outstanding issues, a redo of the trade agreement is not guaranteed.

How they got here

During the campaign, Trump called NAFTA the “worst trade deal in the history of the country” and argued that the current version of NAFTA was harming workers in the industrial areas of the US and enriching Mexico and Canada unfairly.

Trump kicked off the process of renegotiating NAFTA just a few days after stepping into the Oval Office with an executive order instructing a reexamination of the two-decade old deal.

But formal negotiations on the deal only started in August 2017, since several top trade posts needed to be filled in the administration. Between the kickoff a year ago and June, the sides made little progress on reaching a new deal.

Where they are

After the lack of progress in trilateral negotiations, the Trump administration decided to engage Mexico directly to try and solve some of the issues that lingered between the two countries.

The talks between the US and Mexico have mostly focused on contentious rules related to cars:

  • The US wants to increase the percentage of a car’s parts that have to be sourced from a NAFTA country for the finished product to move duty-free between the countries.
  • But Mexico wants to keep that level lower.
  • Additionally, the US is seeking to create a mandate that would force a certain percentage of auto workers to make more than $16 an hour for the car to move duty-free.

It’s unclear where the two sides have settled on these matters, but reports point to Mexico accepting a threshold increase to 75% from the current 62.5% in exchange for other US concessions.

Mexico’s economy minister, Ildefonso Guajardo, told reporters before entering negotiations Wednesday that a deal wasn’t far off.

“We hope that we’ll have a solution in the next couple of hours or next couple of days,” Guajardo said, adding that the two sides could “finish everything between the US and Mexico this week.”

There were also political reasons for the bilateral engagement. Mexico elected Andrés Manuel López Obrador as president on July 1. López Obrador’s leftist political views could complicate the talks when he takes office in September, so Trump and current Mexican President Enrique Peña Nieto are trying to nail down some of the more contentious details now.

What they have left to complete

While the breakthrough with Mexico is promising, it does not guarantee a new NAFTA deal.

The obvious, and giant, issue to resolve is Canada’s involvement. Any changes to which the US and Mexico agree would need to be approved by Canada . Canadian Foreign Minister Chrystia Freeland expressed optimism about the talks while talking to reporters Wednesday.

“We are very encouraged by what we’re hearing from our NAFTA partners,” she said.

But other issues that are not a part of the US-Mexico talks also need to be addressed..

For instance, the US has insisted that there be a five-year “sunset clause” that allows the members to walk away every half-decade. Both Canada and Mexico believe such a clause would sow economic uncertainty in their countries and have called the idea a deal-breaker.