Nafta Partners Prolong Talks Into Next Year

By Jacob M. Schlesinger and William Mauldin Features Dow Jones Newswires

Senior U.S., Canadian and Mexican officials, citing "significant conceptual gaps" in talks to update the North American Free Trade Agreement, say they won't meet their end-of-year deadline for the negotiations.

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U.S. Trade Representative Robert Lighthizer, reading from a joint statement Tuesday in Washington, said the next round of talks will start in Mexico City on Nov. 17, instead of later this month as expected.

The three countries expect talks to continue through the first quarter of 2018, Mr. Lighthizer said. Previously U.S. and Mexican officials had sought to wrap up talks around the end of the year.

Mr. Lighthizer cited some progress in less controversial parts of the talks, saying officials "substantively competed discussions on the competition chapter" of the agreement. Officials also notched some agreement in customs, trade facilitation, digital trade, regulatory practices, and Nafta annexes related to specific sectors, he said.

"The agreement has become very lopsided and needs to be rebalanced," Mr. Lighthizer said in a joint event with his Mexican and Canadian counterparts. President Donald Trump has repeatedly threatened to exit Nafta if trading partners don't agree to new provision to balance trade, a position Mr. Lighthizer echoed Tuesday.

But in recent weeks Mexican and Canadian officials -- joined by major American business groups -- have objected to "America first" language proposed by the Trump administration that could make it harder to trade auto parts and other goods in the trade bloc, for example.

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"Proposed new U.S. national content requirements would severely disrupt these supply chains," Canadian Foreign Minister Chrystia Freeland said Tuesday. She said some proposals would violate commitments nearly all trading nations have made through the World Trade Organization.

Ms. Freeland said she hopes officials can come together next month in Mexico City with "fresh creative perspective."

"None of us wants to leave this process empty-handed," Mexico's economy minister, Ildefonso Guajardo, said.

The round of talks that concluded Tuesday offered the most detailed look at the U.S.'s proposals for overhauling a pact Mr. Trump has labeled a disaster for Americans.

The administration's broad goal is to weaken the force of an agreement they argue has done more to help Mexico than the U.S., and to reorient it in a way that would do more to "incentivize production in the U.S.," as one U.S. official told a gathering of business lobbyists Sunday.

Specific proposals the U.S. floated this round included: a "sunset" clause that would terminate Nafta after a few years unless all three parties agreed to renew it; measures to dilute the pact's three provisions governing disputes among the countries and companies based in them; and a demand that half the content of automotive products be made in the U.S. to qualify for Nafta's tariff-free benefits.

The U.S. had in the earlier round proposed to slash by about 90% the amount of U.S. government procurement available to Canada and Mexico, to a level that, one Canadian negotiator said, would put the country the same level of access as Bahrain.

Mexican and Canadian officials have branded all of those concepts unacceptable, but they haven't declared the proposals fatal to the talks.

Still, the just-concluded session has stoked a growing fear among Nafta supporters -- business groups, members of Congress, as well as officials from Mexico and Canada -- that the gaps are so wide the discussions may ultimately prove futile, and the end result could be the death of the 23-year-old pact.

Mr. Trump has done nothing to quell those anxieties, talking repeatedly -- as he did during a White House meeting on Wednesday with Canadian Prime Minister Justin Trudeau -- about pulling the plug on Nafta if the other countries won't accept his vision for scaling it back and making it more U.S.-centric, or breaking it into separate bilateral deals.

What remains unclear is whether Mr. Trump, whose pre-political career was defined by hard-nosed real-estate negotiations, is seriously willing to walk away from an agreement that has nearly universal support from the American business community, the congressional leadership, and members of his own cabinet -- or whether that threat is just a bargaining strategy.

That is the question to be assessed over the coming weeks, now that concrete proposals have been put forth. The Mexicans and Canadians are weighing whether the ideas can serve in any way as the basis for creative negotiating, and whether the administration is showing any flexibility on any of the points.

Indeed, for all the grim talk of collapsing talks, experienced negotiators caution against dire predictions rooted in opening demands. "I don't think one should look at the strength of the proposals and draw conclusions -- this is the beginning of the negotiation over issues," Michael Froman, the Obama administration's chief trade official, said at a Council on Foreign Relations conference Monday. "Now is when the real conversation begins," he added. "Where is their flexibility on these issues? What can be sold domestically in each of these economies?"

People familiar with the negotiations say the just-completed round didn't yet broach the question of just how much bargaining room there is over those issues. The U.S. negotiators made their demands clear, but their counterparts declined to provide detailed responses. One person briefed on the talks summarized the Mexican and Canadian reaction as: "This is not what we're used to, and we will really have to think about that." The person elaborated that the U.S. trade negotiators said in briefings that "no one has welcomed these proposals," but their reaction varied by proposal.

While much of the public focus has been on Trump administration's proposals to redefine Nafta's core principles, that is one of just of the three different types of negotiations that U.S. officials have described in briefing people on the progress of the talks, where separate teams are simultaneously working on 28 separate chapters.

While the first category of talks centers on new and difficult U.S. proposals, the second is focused on what U.S. officials refer to as easy and technical matters that the three countries seem able to agree on fairly quickly. The language for some of those issues is being lifted directly from the 12-nation Trans-Pacific Partnership pact that all three countries had joined during the Obama administration, but which Mr. Trump pulled out of shortly after taking office. For example, the three countries have already announced they have completed one chapter setting rules for small businesses, and another aimed at ensuring effective policies on antitrust and other competition issues.

The third category covers what U.S. officials have called ambitious but conventional U.S. trade positions -- ones that track closely positions staked out by the Obama administration -- in areas like creating rules for digital trade that didn't exist when Nafta was written in the early 1990s.

While talks in the second and third areas appeared to be proceeding smoothly in the early rounds, some officials said progress even in those areas slowed over the past week. They said Mexicans and Canadians appeared hesitant to move quickly on any subjects, perhaps looking for bargaining chips they could use to get the U.S. to compromise.

During one briefing, a U.S. negotiator said while the third round in Ottawa last month deserved a grade of "B" in terms of progress made, the fourth might be given a "C-plus."

--Miguel Gonzalez contributed to this article.

Write to Jacob M. Schlesinger at jacob.schlesinger@wsj.com and William Mauldin at william.mauldin@wsj.com

(END) Dow Jones Newswires

October 17, 2017 16:17 ET (20:17 GMT)