US-Mexico trade deal text to exclude Canada, irritating US lawmakers

The Trump administration is expected to release the text of its trade agreement with Mexico as early as Friday, launching a contentious congressional approval process as it tries to coax Canada into a revamped North American Free Trade Agreement.

U.S. lawmakers briefed by U.S. Trade Representative Robert Lighthizer on Thursday said that they expect the long-awaited document to largely exclude language related to Canada, but were still hoping for Canada to join.

They expressed little optimism that a deal with Canada could be reached quickly, noting disagreements over dairy and dispute settlement provisions. Some Democrats said they could not support a NAFTA trade deal without Canada.

“Canada is exceptionally important. I think it would be malpractice, both for economic and political reasons, not to have a major agreement with Canada,” said Senator Ron Wyden, the top Democrat on the tax and trade Senate Finance Committee. “I think leaving Canada out of a new deal amounts to the Trump administration surrendering on fixing NAFTA.” Wyden is from Oregon, a state that trade more with Canada than Mexico.

A Trump administration official and congressional aides said the U.S.-Mexico text was due for release on Friday, but a USTR spokesman declined to comment on timing.

The text needs to be published by late Sunday night - 60 days ahead of a Nov. 30 deadline for President Donald Trump and Mexico’s president, Enrique Pena Nieto, to sign the deal before a new Mexican president takes office on Dec 1.

DETAILS ON AUTOS, LABOR

The text will flesh out an agreement in principle reached by the United States and Mexico on Aug. 27 that aims to rebalance automotive trade between the two countries and modernize the nearly 25-year-old NAFTA with new chapters on digital trade, stronger labor and environmental standards.

The text is expected to conform to details previously released on tighter automotive rules requiring an increase in regional value content to 75 percent from 62.5 percent previously, with 40-45 percent coming from “high wage” areas, effectively the United States.

Auto industry executives say it is unlikely those targets can be met if Canada is not part of the deal, given supply chains that crisscross NAFTA borders multiple times.

Details are also expected on an automotive side-letter that preserves the Trump administration’s ability to impose global national security tariffs on imports of autos and auto parts, granting Mexico a quota for tariff-free exports to the United States that allows some expansion of production..

Other key details expected to be revealed include how new labor standards will be enforced and trade dispute settlement arrangements between the United States and Mexico. The United States has said that Mexico agreed to eliminate a system of settlement panels to arbitrate disputes over anti-dumping and anti-dumping tariffs.

But a Mexican source close to the talks said that in exchange for this, the United States agreed to drop a demand for tariffs to protect U.S. seasonal produce growers.

Mexico also secured an exemption from U.S. “global safeguard” tariffs such as those imposed in January on washing machines and solar panels, the source said. Mexican-made products were hit by both of those actions aimed at protecting U.S. producers from import surges.

VOTE NEXT YEAR

The publishing of the text starts a months-long process for Congressional approval that will require a lengthy analysis study by the independent U.S. international Trade Commission and a series of notification periods before an up-or-down vote can occur.

Lawmakers briefed by Lighthizer said he told them the earliest that a vote could occur - either on a U.S.-Mexico deal or a trilateral deal including Canada - would be February or March 2019, after the Congress elected in November is sworn into office.

Democrats could significantly strengthen their numbers in the November elections or take control of the House of Representatives.

Several Democrats questioned whether the Trump administration has the legal authority to proceed with a Mexico-only deal when prior notifications under the “fast-track” trade negotiating authority law were for a trilateral deal including both Mexico and Canada.

“That’s not what’s being proposed right now,” said Representative Suzan DelBene of Washington state. “Obviously Congress will have a say in that.”

Additional reporting by Anthony Esposito in Mexico City; Editing by Nick Zieminski