Mexico Shows Willingness to Compromise With U.S. on Nafta Review

(Bloomberg) -- Economy Minister Ildefonso Guajardo said Mexico is willing to review the North American Free Trade Agreement every five years, accepting part of a U.S. proposal, while insisting that there must not be any clause that would lead to automatic termination of the deal.

The Mexican counter-offer comes after U.S. President Donald Trump’s administration proposed a sunset clause, under which Nafta would end after five years unless the parties can agree to extend it. Guajardo told Mexico’s Radio Formula on Wednesday that the clause is unnecessary because the nations already have the ability to withdraw by giving six months’ notice.

"We’re going to bring a proposal that every five years we evaluate what has been happening with an agenda of analysis of what effects our agreement has had, and based on this each country can decide what they want to do going forward," Guajardo said. "But it wouldn’t have the impact of a sudden death, because this would send a bad signal to investors."

The Mexican peso pared its loss following Guajardo’s comments, falling 0.4 percent to 19.2509 per dollar in afternoon trading in Mexico City.

The fifth round of Nafta talks began in Mexico City on Wednesday with Guajardo, U.S. Trade Representative Robert Lighthizer and Canadian Foreign Minister Chrystia Freeland announcing that they’ll skip the talks for the first time and leave discussions to their negotiating teams. They held “substantial” discussions at a Asia-Pacific Economic Cooperation gathering in Vietnam last week, according to a joint statement Wednesday. This round of talks is scheduled to run through Nov. 21.

Guajardo said that while a U.S. Nafta withdrawal can’t be discarded entirely, the chance of that happening by the end of this year is not high. Negotiators in this round will try to wrap up talks on topics where work is already at an advanced stage, including telecommunications and e-commerce, and Mexico is pushing hard to finish work on anti-corruption measures, he said.

At last month’s round, the parties agreed to extend talks through March, abandoning a December deadline, after the U.S. introduced its toughest proposals that were essentially rejected by Canada and Mexico. The challenge remains to seal a deal before politics overwhelm the trade agenda next year when Mexico holds presidential elections and the U.S. has congressional midterms.

U.S. Commerce Secretary Wilbur Ross said on Tuesday it “would be an enormously complex thing” to get a deal by the end of scheduled talks in March, though he expects “some sort” of agreement for Trump to consider. “Nafta is on a very short time fuse,” he said.

There are 28 negotiating areas in total, with the most contentious U.S. demands being on dairy, automotive content, dispute panels, government procurement and the five-year sunset clause. All parties appear to be waiting for the other to blink first. Ross stood his ground this week, saying “the idea of a five-year sunset has been part of the president’s thinking since the campaign.”

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