The US and Mexico have agreed to revamp the North American Free Trade Agreement NAFTA, in what Donald Trump called a “really good deal” for both countries.
The US President, Donald Trump who has frequently criticised the existing deal, made the announcement on Monday.
Canada, the other member of Nafta, is yet to agree to the new terms and will hold more discussions on Tuesday.
Mr Trump had threatened to pull out of the deal, triggering a year of talks.
He demanded a renegotiation of the 1994 trade agreement, which he blames for a decline in US manufacturing jobs, especially in the car industry.
US shares rose and the Mexican peso strengthened on news of the preliminary deal on Monday.
Canadian Prime Minister Justin Trudeau has had a “constructive conversation” with Mr Trump since the deal with Mexico was announced, his office said.
Canadian foreign minister Chrystia Freeland is expected to travel to Washington DC for talks on Tuesday.
Negotiators want to agree a deal before the newly elected Mexican president, Andres Manuel Lopez Obrador, takes office in December. He has been reluctant to continue Enrique Pena Nieto’s police of opening up Mexico’s energy sector, which could complicate negotiations.
In order to meet that deadline, the Trump administration must present Congress with a deal at least 90 days in advance, meaning the deadline is this Friday.
However, Mr Obrador said on Monday that the two-way agreement with the US was just the first step in a new treaty.
“We’re very interested in it remaining a three-country deal. The free-trade agreement should remain as it was originally conceived.” he said
NAFTA covers more than $1tn (£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, higher than in the existing deal.
On cars, the two sides also settled on rules that will require 40% to 45% of each vehicle to be made by workers earning at least $16 an hour to discourage firms from moving production to lower-wage Mexico.
The pact would last for 16 years, the US said, and be reviewed every six years, but will not carry the threat of automatic expiration.