Nafta Talks Set to Run Into Next Week as Canada Sits on Sideline

(Bloomberg) -- Nafta talks are poised to spill into next week, pushing up against the goal for a deal by the end of the month, as the U.S. and Mexico work out their issues in order to reincorporate Canada.

After two days of talks focused on rules for car production, Mexican Economy Minister Ildefonso Guajardo said that the U.S. and Mexico still haven’t resolved all their pending issues. Mexico won’t consider negotiations complete until Canada also agrees to a deal, Guajardo said, and that nation’s minister hasn’t attended talks in the past five weeks.

The U.S. and Mexico are running out of time to get a deal and have President Donald Trump and his counterparts sign it before Mexican President Enrique Pena Nieto leaves office in December. Some of the toughest issues, like an American demand for greater access to the Canadian dairy market and a clause that could end Nafta after five years, remain unsettled.

"We need to have engagement with Canada, and the only way it can happen is if we continue through the weekend and into next week," Guajardo told reporters Thursday afternoon. Mexican Foreign Minister Luis Videgaray said negotiators will be back to meet with U.S. Trade Representative Robert Lighthizer on Friday morning.

AMLO Factor

Nafta negotiators, who began their work one year ago, have missed a series of informal deadlines, from an original goal for a deal by last December to a revised objective for an agreement in the first half of this year. Mexican President-elect Andres Manuel Lopez Obrador now looms large over talks, with some advisers close to him wanting to remove rules for the oil industry from negotiations, an issue that could inject uncertainty if it became part of Mexico’s deal objectives under a new administration.

Canadian Prime Minister Justin Trudeau preached some caution on expectations for Nafta talks Thursday, saying he’s encouraged by the latest optimism but won’t sign just any deal.

The U.S. and Mexico in recent weeks have made progress on the thorny issue of car manufacturing, as the Trump administration pushes for a deal that would boost factory jobs in America. The U.S. has proposed tightening regional content requirements for car production and having a certain percentage of a car manufactured by higher-paid workers.

Content Rules, Auto Plants

While a U.S. proposal to increase tariffs on cars imported from Mexico that don’t meet stricter new content rules was a sticking point earlier this week, that issue appeared to be resolved by Thursday.

The U.S. agreed to keep the 2.5 percent tariff currently applied under World Trade Organization rules if the cars are made at factories that already exist, according to two people familiar with the plans, who asked not to be named discussing private negotiations.

That would leave open the possibility that cars that don’t meet the rules and are built at new plants could face tariffs of 20-to-25 percent, pending the results of a Section 232 national security investigation that Trump ordered up in May, the people said.

Lighthizer’s press office didn’t immediately return an e-mail seeking comment.

Other issues that still need to be resolved include the so-called sunset clause, which would kill the deal after five years unless the parties agree to renew it; rules for government procurement; and, dispute settlement mechanisms. Mexico’s position is that Canada needs to be at the table in order to reach a conclusion on those topics, because they affect all three countries.

Representatives from Mexico’s private sector are in Washington to support Guajardo’s team and advise on the rules that their industries would be willing to accept under a new agreement. Juan Pablo Castanon, president of the CCE group that comprises some of Mexico’s most influential industry associations, said Wednesday night that he expects key advances in the Nafta talks in the next few days.

While there was speculation earlier this week that the U.S. would announce a deal with Mexico on Thursday, the day came and went with no such statement. Guajardo said it’s still too early to declare victory.

"We’re trying to really get all the solutions that are required, and we’re well advanced, but we’re not there yet," Guajardo said. "I hope that soon we’ll be able to find a landing zone."

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