U.S., Mexico reach tentative trade deal that could replace NAFTA

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"This is a good time for Canada to re-enter talks with a mandate to close and conclude", said Adam Taylor, a former trade official under the Conservatives who is now a principal with Export Action Global, an Ottawa-based consultancy. Canadian Foreign Minister Chrystia Freeland arrives in Washington for talks Tuesday, and U.S. Trade Representative Robert Lighthizer wants to notify Congress of a deal by Friday. A fact sheet describing the bilateral agreement specified the content would be made in the United States and Mexico.

"I think our objective is to try to get Canada on board quickly", he said, speaking to CNBC on Tuesday.

Videgaray said in Washington on Monday that scope for making changes with Canada to what the United States and Mexico had agreed was "significantly larger" this week, though he did not rule out alterations after that. Senate Finance Committee Chairman Orrin Hatch, a Republican from Utah, said "a final agreement should include Canada".

The US President's promise to make Mexico pay billions of dollars for a wall to stop illegal immigration hasn't been a part of recent conversations between the nations as they worked to update Nafta, he said.

"I think with Canada the easiest things we can do is tariff their cars coming in", Trump insisted.

Mexico and Canada have stood firm on the importance of maintaining the trilateral format of the NAFTA free trade deal, even as Trump has signaled a desire for individual deals with each country.

Trump announced the agreement from the Oval Office Monday, with Mexican President Enrique Peña Nieto dialed in on a conference call.

Donald Trump has said that he could go ahead without Ottawa in the new agreement. "Perhaps, the other would be much better for Canada".

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Investors are betting on a deal materializing soon between Canada and the USA, according to analysts, who say the Canadian market will follow its number one trading partner higher, despite the hurdles facing an agreement. Trump threatened he still could put tariffs on Canadian-made cars if Canada did not join its neighbors and warned he expected concessions on Canada's dairy protections.

"Canadians really need to look at what the us and Mexico just completed as an example of what can be done if there's good faith negotiating and a willingness to compromise in the interest of both parties", Kudlow said. The Office of the U.S. Trade Representative said Monday that Mexico had agreed to ensure that 75 percent of automotive content be produced within the trade bloc (up from a current 62.5 percent) to receive duty-free benefits and that 40 percent to 45 percent be made by workers earning at least $16 an hour.

The Trump administration will now work in partnership with Mexico to bring Canada to the table for a new and potentially separate deal. "I like to call this deal the United States-Mexico trade agreement".

The pact also requires greater use of United States and Mexican steel, aluminum, glass and plastics.

The deal would require 75 percent of auto content to be made in the NAFTA region, up from the current level of 62.5 percent, a United States trade official said.

The US wants to increase the percentage of every vehicle that must be sourced from a NAFTA nation to move freely across the borders of the three NAFTA nations.

A sunset clause: The agreement is written to last for 16 years, but would allow the countries involved to revise or modernize aspects of the deal every six years. Both currencies gained against the USA dollar on Monday, but the peso weakened on Tuesday. But according to Reuters, Mexico's incoming trade negotiator told reporters in Washington that the US had softened its stance on the so-called sunset clause.

The new deal will affect farmers, although the president hasn't released specific details on the agriculture changes.

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