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 Mr 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, Mr 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 Mr 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.
Nafta covers more than $1tr 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 USD 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.
