The US and Mexico have reached common ground on key trade terms as pressure mounts to complete renegotiation of the 25-year-old 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 remains in doubt with Canada, the third country in the pact, due to rejoin talks on Tuesday.
Mr Trump has triggered a year of talks, after threatening to pull out of Nafta.
He demanded renegotiation of the 1994 trade agreement, which he blames for a decline in US manufacturing jobs, especially in the auto industry.
US shares rose and the Mexican peso strengthened on news of the preliminary treaty on Monday.
What has Trump said?
In a televised appearance at the White House, Mr Trump said the US and Mexico had agreed on terms that would make for an "incredible" deal that was "much more fair".
Negotiators have been rewriting the Nafta treaty over the past year, but in the last five weeks, Canada has not been part of the discussions.
"We will see whether or not we decide to put up Canada or just do a separate deal with Canada," Mr Trump said.
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".
Where does Canada stand?
Canadian Prime Minister Justin Trudeau has spoken with Mr Trump since the breakthrough with Mexico was announced.
They "had a constructive conversation" and "look forward to having their teams engage this week with a view to a successful conclusion of negotiations," Mr Trudeau's office said. Canadian negotiators are set to meet their US counterparts on Tuesday.
Mr Trudeau also spoke to outgoing Mexican President Enrique Pena Nieto on Sunday, and the leaders shared their commitment to reaching a successful conclusion of Nafta "for all three parties".
Why now?
Negotiators want to strike a deal before the newly elected Mexican president, Andres Manuel Lopez Obrador, takes office in December. Mr Obrador has been reluctant to continue Mr Pena Nieto's opening up of Mexico's energy sector, which could complicate negotiations.
In order to meet that deadline, the Trump administration must present the US Congress with a deal at least 90 days in advance - by the end of this month, which is Friday.
However, President-elect Obrador said on Monday that a 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," he told journalists on Monday. "The free-trade agreement should remain as it was originally conceived."
Will Canada join?
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 Mr Trump, which was televised, Mexican President Enrique Pena Nieto stressed the importance of an agreement that includes Canada.
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 pact would be good for 16 years, the US said. 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.
Can they meet the tight deadline?
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 into the fold and has bipartisan support," he said.
The US Chamber of Commerce, a powerful business group that supports Nafta, also said it is critical that the agreement remain trilateral.
BBC
