By Julian E. Barnes and Valentina Pop in Brussels 

The European Union and Mexico have reached an agreement in principle to upgrade an 18-year-old trade deal, the European Commission said Saturday.

Negotiations between the EU and Mexico have been taking place for two years but have accelerated after U.S. President Donald Trump took office last year and forced Canada and Mexico to renegotiate the North American Free Trade Agreement, which went into effect in 1994.

The EU agreement is part of a push by Europe to forge more trade pacts. In 2016, the bloc and Canada signed a wide-ranging agreement, which went into force provisionally last year. National parliaments and some regional legislatures still have to give a final approval to allow the pact to take full effect.

The bloc has also sealed deals with Japan and Singapore and is pursuing agreements with Australia, New Zealand and Latin American nations.

The trade push, some officials have said, has been given a higher priority in Brussels in part because of the perception that the U.S. is pursuing a more protectionist trade policy.

Wide-ranging trade negotiations between Europe and the U.S. met with disapproval on both sides of the Atlantic and have been ended. But a narrower industrial trade deal is being discussed, officials said.

The new agreement in principle will end Mexican tariffs on European food and beverages and allow the bloc to sell more services in Mexico, European officials said. The agreement will also include a pledge by both sides to include protections for their workers and the environment.

The thorniest issues holding up the provisional deal was Mexico's request for more flexibility from the EU in accepting imported cars that were only partly produced in Mexico, and the access of European dairy products to the Mexican market.

While the agreement appears to give Europe what it sought on dairy access, it wasn't immediately clear what level of access Europe was going to grant the automobiles partially assembled in Mexico.

While details of the broad agreement weren't made public, the European Commission said it would ensure nearly all goods traded between the EU and Mexico will be duty-free. "Trade can and should be a win-win process and today's agreement shows just that," said Jean-Claude Juncker, the commission president.

Some technical details of the agreement, however, still must be negotiated, before a deal can be approved. The European Commission, the EU's executive arm, expects the final text to be ready by the end of the year.

Mexico's private sector reacted enthusiastically to the news, saying that the conclusion of a European free-trade agreement would help speed along approval of an 11-country Trans-Pacific Partnership deal between Latin American and Asian nations and help ratchet up pressure on the U.S. to come to a deal for a renegotiated Nafta in the next three weeks.

The agreement comes as Mexico enters a critical phase in talks with the U.S. and Canada to redraw the North American Free Trade Agreement.

The Nafta talks, which the U.S. and Mexico in particular are eager to complete before elections later this year, have been fraught with contention over rules of origin in the auto industry, dispute settlement mechanisms, and a proposal by the Trump administration to include a "sunset clause" that would allow the pact to expire after five years unless explicitly renewed.

The talks began last August and have been marked by threats from Mr. Trump to abandon Nafta if the U.S. doesn't get a good deal. The top trade negotiators from the U.S., Mexico and Canada met this week in Washington in an effort to move the talks forward, and are expected to meet again Tuesday.

"If the U.S. loses Nafta, it loses all market access versus Japan, the TPP-11 countries, and Europe," said Moises Kalach, co-head of the Mexican private sector roundtable advising on the Nafta talks.

Anthony Harrup and Robbie Whelan in Mexico City contributed to this article.

Write to Julian E. Barnes at julian.barnes@wsj.com and Valentina Pop at valentina.pop@wsj.com

(END) Dow Jones Newswires

April 21, 2018 23:20 ET (03:20 GMT)

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