The US and Mexico have reached common ground on key trade terms as pressure mounts to complete renegotiation of the North American Free Trade Agreement.
US President Donald Trump, a frequent critic of the existing deal, announced the apparent breakthrough on Monday.
The final outcome remained in doubt as Canada, the third country in the treaty, has not signed off.
The development follows about a year of talks triggered by Trump, who had threatened to pull out of the pact.
He demanded renegotiation of the 1994 trade agreement, which he blames for a decline in US manufacturing jobs, especially in the auto industry.
In a televised appearance at the White House, Trump said the US and Mexico had agreed on terms that would make for an “incredible” deal that was “much more fair”.
US officials said they expected to resume talks shortly with Canada, which has not participated in the discussions in recent weeks.
But Trump also said he is not committed to a three-country agreement and would be willing to strike separate, bilateral deals.
He also threatened Canada with tariffs on cars and said he wanted to get rid of the name Nafta, which he said has “bad connotations”.
“We will see whether or not we decide to put up Canada or just do a separate deal with Canada,” he said.
The Canada question
Negotiators want to strike a deal before the newly elected Mexican president, Andres Manuel Lopez Obrador, takes office in December.
In order to meet that deadline, negotiators must present the US Congress with a deal at least 90 days in advance – by the end of this month.
A spokesman for Canadian Foreign Minister Chrystia Freeland said the country is “encouraged” by the progress made by the US and Mexico but did not comment on the specific terms.
The US and Canada have been at loggerheads on a range of trade matters, including Canadian protections for its dairy industry and US tariffs on steel and aluminium.
“We will only sign a new Nafta that is good for Canada and good for the middle class. Canada’s signature is required,” spokesman Adam Austen said.
In a telephone call with Trump, which was televised, Mexican President Enrique Pena Nieto stressed the importance of an agreement that includes Canada.
Pena Nieto also wrote on Twitter that he hoped all three sides would be able to conclude negotiations this week.
But Mexico’s Foreign Minister Luis Videgaray said his country is prepared to strike a bilateral US-Mexico deal.
“If for any reason the government of Canada and the United States do not reach a Nafta agreement, we already know that there will still be a deal between Mexico and the United States,” he said at a news conference in Washington.
What’s in the agreement?
Nafta covers more than $1tr (£780bn) in annual trade.
The update is to include provisions to govern intellectual property, digital trade and investor disputes, among other issues.
In the preliminary agreement announced on Monday, the US and Mexico agreed that 75% of a product must be made in the two countries to receive tax-free treatment, which is more than in the existing deal, the US said.
On cars, the two sides also settled on rules that will require 40%-45% of each vehicle to be made by workers earning at least $16 an hour.
That provision is aimed at discouraging firms from locating plants in lower-wage Mexico.
The two sides also agreed to review the trade pact every six years – but that review will not carry the threat of automatic expiration as the US had initially proposed.
Legislatures in all three countries have final say over trade pacts.
In the US, Republicans, who typically support free trade, have pressed the White House to strike a deal, arguing that the relatively open borders have benefited US farmers and other groups.
Senator John Cornyn, a Republican from Texas, called the development a “positive step”.
“Now we need to ensure the final agreement brings Canada in to the fold and has bipartisan support,” he said.
US shares gained on Monday. The Mexican peso also climbed.
But labour unions and industry groups said they wanted more clarity on final terms before celebrating the deal.
Farmers for Free Trade, which represents pork producers, corn growers and others, has spoken frequently of the risks to farmers of the president’s efforts to re-write trade relationships.
“While any news of progress on restoring Nafta certainty is reassuring for American farmers, there are questions that remain on the nature of a final deal,” Brian Kuehl, the organisation’s executive director, said in a statement.
“It will be necessary for Canada to rejoin the negotiations and for an agreement to be reached among all parties before a judgement can be made.”
The US Chamber of Commerce, a powerful business group that supports Nafta, also said it is critical that the agreement remain trilateral.
“We’re reviewing the details of today’s announcement and will assess the completed deal when a final agreement is reached between the US, Mexico, and Canada,” a spokesperson said.