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US, Mexico reach preliminary trade understanding: Trump

Washington — The United States announced Monday it had reached a preliminary trade agreement with Mexico that would help provide stability and certainty to companies entering Mexico's recently liberalized energy market.

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"It's a big day for trade, big day for our country," US President Donald Trump said.

Related story: US, Mexico trade agreement does not address metals tariffs: minister

The bi-lateral deal Trump touted Monday as the United States-Mexico Trade Agreement would replace the North America Free Trade Agreement, or NAFTA, originally implemented in 1994. The US has yet to work out a trade deal with Canada, the third partner in the NAFTA agreement, but Trump said discussions with Canada will start "pretty much immediately."

Details released Monday on the agreement focused mostly on automobile and agricultural trade, but officials noted extensive cooperation in the energy sector amid a regime change in Mexico as President Enrique Pena Nieto and President-elect Andres Manuel Lopez Obrador, who is planning vast energy reform in the nation, worked together in crafting the new deal.

Jesus Seade, Lopez Obrador's designated NAFTA negotiator, said Monday the preliminary agreement with the US is an important signal of certainty for investors in Mexico that the new administration will work alongside the private sector.

Lopez Obrador has been historically opposed to private investment in Mexico's energy sector and seeks to make his country energy self-sufficient.

Officials from both countries said the new trade agreement would not alter the investor-state dispute, or ISDS, a mechanism already established in the original NAFTA deal that helps protect foreign investors in the oil and natural gas industry.

INVESTMENT SECURITY

Sources told S&P Global Platts on Monday the trade agreement should provide security to US energy companies investing in Mexico amid the change of administration.

Gonzalo Monroy, managing director of the Mexican energy consulting firm GMEC, told Platts conclusions can be drawn even without the details of the final agreement.

Monroy said that the minimum to be expected in this new energy chapter are similar conditions European companies enjoy under the EU-Mexico Global Agreement.

"American officials wouldn't accept anything less, as this would put US companies such as Chevron and Exxon at a disadvantage with European counterparts like Shell and BP," Monroy said.

Fluvio Ruiz Alarcon, one of the main architects behind Lopez Obrador's energy program, has told Platts a primary concern of the incoming administration is potential national content restrictions for the energy sector under the new agreement.

Monroy said the issue on national content is addressed in the EU-Mexico agreement, which allows local content rules as long as these aren't discriminatory and restrictive to foreign participation.

STEEL TARIFFS REMAIN

There was hope in the steel and aluminum industries that a renegotiated US-Mexico trade deal could mean removing Section 232 tariffs on those metals, but officials said there has been no such change.

Mexican Economy Secretary Ildefonso Guajardo said Monday the quotas on aluminum and steel continue, but sides remain in negotiations.

"We are still stranded on this issue beyond an action and a balanced and proportional reaction, but we don't discard the possibility in the horizon, closer to the [trade agreement] signing, that we retake this dialogue to find a solution," Guajardo said.

In May, the White House imposed a 25% tariff on steel and 10% tariff on aluminum for NAFTA trading partners. The administration said it was imposing duties because the US had not reached satisfactory trade agreements with them that "meet the national security requirements of the United States."

Canada and Mexico are important partners in steel and aluminum supply chains.

-- Jim Levesque, with Rebecca Grenham and Justine Cone in Washington, Daniel Rodriguez in Mexico City, newsdesk@spglobal.com

-- Edited by J. Robinson, newsdesk@spglobal.com