Donald Trump. Picture: REUTERS
Donald Trump. Picture: REUTERS

Donald Trump has signed off on a bilateral agreement with Mexico to revamp the North American Free Trade Agreement (Nafta), according to three people familiar with the matter, and the president will make a trade announcement shortly.

"A big deal looking good with Mexico!" Trump tweeted earlier on Monday. Trump will make an announcement on trade from the Oval Office in Washington at 8pm SA-time, according to a statement from the White House.

There is no deal reached yet with Canada, the people said, which has been on the sidelines of the talks since July as Mexico and the US focused on settling differences.

It’s the biggest development in talks that began a year ago, punctuated by Trump’s repeated threats to quit altogether. Significant breakthroughs between Mexico and the US came during the past several days on vehicles and energy. The three countries trade more than $1-trillion annually, much of it under the pact.

There is one bilateral difference left to iron out, Mexican economy minister Ildefonso Guajardo told reporters early on Monday as he entered the Washington office of the US trade representative’s office where negotiations are going on. He declined to identify the issue.

Canada approval

While it could be more of a Nafta tweak than an overhaul, several issues remain to update the 1994 accord. Canada will now need to rejoin talks — the US hadn’t invited them for weeks — and sign off on the deal, as well as resolve its own irritants. Monday’s bilateral agreement and the threat of vehicle tariffs could pressure Canada, which has warned it will not rubber stamp anything.

Talks to update Nafta began a year ago, but in recent weeks have been held between just the US and Mexico. The US president says the deal has led to hundreds of thousands of lost US jobs, and he promised to either change it to be more favourable to the US, or withdraw.

The US push to finish Nafta talks comes at the same time it’s in a spiralling trade war with China, and has threatened to place tariffs on cars imported from major manufacturing centres in Asia and Europe — efforts that have created new uncertainty for many businesses and investors.

Talks between the US and Mexico had focused largely on cars. The US wanted to bring back vehicle manufacturing jobs that had gone to Mexico. The countries are said to have agreed that car makers who do not comply with the new Nafta rules will pay a 2.5% tariff, the same as they would if they skirted the existing Nafta, while any new Mexican plants would not have a guarantee. That could potentially expose them to US vehicle tariffs of between 20% and 25%, which Trump is considering under national security grounds. The new rules would also likely require key components to have more domestic content.

Jesus Seade, the Nafta representative for Mexican president-elect Andres Manuel Lopez Obrador, has predicted that the nations will agree on a softened version of a so-called "sunset clause," an automatic expiration after five years — a key US demand. The recent push for a deal is in part to have it signed before the new president takes office in December.

That would be essential, as the sunset clause was a major sticking point — erupting, for instance, at the Group of Seven summit. Other key issues are chapter 19 antidumping panels, which the US wants to kill but which may be a deal-breaker for Canada, as well as Canada’s dairy sector, which Trump is targeting.

How quickly Canada will rejoin talks remains unclear. Canada’s minister responsible for Nafta, Chrystia Freeland, is in Europe this week. Even once Canada agrees, any Nafta deal between the three countries would have to be ratified. Timelines set out under US trade law mean that would almost certainly be done by the next US Congress, raising the prospect of further hurdles.

With Mark Niquette

Bloomberg