United States and Mexico Are Nearing NAFTA Compromise

WASHINGTON — The United States and Mexico are edging closer to agreement on how to rewrite key portions of the North American Free Trade Agreement, with the two countries making progress on rules related to automobiles and other remaining issues during two days of meetings that ended Friday in Washington.

A preliminary agreement between Mexico and the United States would go a long way toward accomplishing President Donald Trump’s goal of revising the quarter-century-old trade pact, which he has frequently criticized as the worst trade deal ever. But talks this week have excluded the pact’s third member, Canada, leaving significant issues unresolved.

“The jury is still out on whether we’ll get to a final agreement,” said Michael C. Camuñez, the chief executive of Monarch Global Strategies and a former official at the Commerce Department. “But for the first time in negotiations, the U.S. seems to be negotiating from a genuine posture to get to a ‘yes.'”

The Trump administration has described Canada as recalcitrant and would prefer to do a bilateral deal with Mexico first. But Mexican officials have insisted that Canada must still be part of the final agreement, which governs trade terms across the continent.

But an initial agreement between Mexico and the United States could help bring Canada back to the negotiating table to resolve the remaining differences, said Lori Wallach, director of the Global Trade Watch at Public Citizen.

“I suspect their strategy to get Canada to re-engage is to settle their issues and then say to Canada, the water’s nice, come on in,” she said.

Speaking outside of the meetings on Thursday, Ildefonso Guajardo, the Mexican economy secretary, said there had been “very good advancement” in the talks.

One of the thorniest issues between the United States and Mexico has been the rules that govern whether automobiles qualify for zero tariffs under NAFTA. On this issue, Canada and the United States have much closer stances, said Antonio Ortiz-Mena, a senior vice president at the Albright Stonebridge Group.

“So if Mexico and the U.S. can agree on this, I think it should not be difficult for Canada to come on board,” he said. Mexico and the United States appear to be making progress on the issue, with Mexico expressing openness to a provision backed by the United States that would require a certain percentage of an automobile to be made with high-wage labor to qualify for NAFTA’s benefits.

Mexico and the United States are experiencing a new surge of motivation to close a deal after Andrés Manuel López Obrador was elected last month as Mexico’s next president.

Negotiations over NAFTA had reached a standstill this spring, with the three countries far apart on several key issues and Mexico taking a pause as it entered the final stages of its presidential campaign.

But now, with the election over, the departing administration of President Enrique Peña Nieto is eager to wrap up negotiations and secure a more business-friendly NAFTA deal as part of its legacy before López Obrador moves into office. And López Obrador has expressed approval of the plan, viewing NAFTA talks that would linger into his tenure as a potential distraction from his more domestic-focused policy agenda, analysts say.

But while Mexico may be more willing to compromise to reach a deal, the U.S. posture toward the talks also may have started to shift.

Trump’s tariff policies, and the retaliation they have prompted around the globe, have elicited criticism from Republican lawmakers and U.S. industries, especially farmers, who say reduced access to foreign markets is crippling their businesses.

The complaints have become a looming issue in the midterm elections, particularly as other countries like Japan and the European Union begin to strike their own trade deals that exclude the United States. The Trump administration also appears more eager to have the help of close allies like the European Union as it tries to force China to change its practices on trade. In late July, Trump announced that the United States would work on resolving trade issues with the European Union, and that the two would work together to make changes that target China at the World Trade Organization.

But time is still running short for the current Mexican administration to reach a new NAFTA agreement. Under current trade laws, the Trump administration must give Congress 90 days’ notice between when it concludes negotiating a trade agreement and when it is signed. For Peña Nieto to sign the agreement before he leaves office on Nov. 30, the three countries must seal a final deal before Aug. 27, Wallach said. Reaching an agreement could give the Trump administration ammunition to argue that it had fulfilled another major trade promise to revise NAFTA. That could help populist Republicans, who echo Trump’s trade views, win bragging rights before the elections. But many details remain unsettled and it is unclear just how much of a revamp Canada will be willing to accept.

Trump began negotiations last August promising to swiftly overhaul NAFTA, which he has long criticized for stealing U.S. jobs. But his proposals for significantly changing the agreement, including forcing more automobile manufacturing into the United States and allowing members to more easily leave the pact, soon ran into opposition from the other governments as well as U.S. businesses whose futures are tightly tied to NAFTA.

Over the past year of negotiations, the Trump administration has repeatedly said it was racing to resolve NAFTA talks before a deadline that it then failed to meet.

“In fairness we’ve seen this movie before,” Camuñez said of the current, more promising state of play. He said it was hard to get too excited about the possibility of a final deal until Trump had demonstrated he was firmly behind it.

“The administration giveth and the administration taketh away,” he said. “The president himself is prone to change his mind on a whim.”