Top Officials Skip Nafta Talks as Mexico, Canada Digest U.S. Proposals

By William Mauldin, Dudley Althaus and Paul Vieira Features Dow Jones Newswires

As officials for the U.S., Canada and Mexico convene in Mexico City this week for talks to remake the North American Free Trade Agreement, the countries' top trade officials will stay home, leaving their working-level teams to dig into the most difficult issues.

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Their absence captures the difficult state of the Nafta talks at the moment: Still in the technical phases, with Mexico and Canada digesting contentious U.S. proposals like stricter rules for the proportion of a vehicle's components that must originate in North America, and in the U.S., to avoid tariffs.

Officials had originally hoped to complete the talks before year's end, but later moved that target to next March. Even then, there is little evidence they are making enough progress to reach that objective -- and little hope of a breakthrough any time soon. Canada is digging in its heels, and Mexico, while adopting a more conciliatory tone, says it won't agree to anything that restricts trade.

President Donald Trump has threatened to withdraw from the 23-year-old pact if the two other countries don't make concessions. On a swing through Asian countries this month, he issued a new rebuke to the idea of multilateral trade deals like Nafta.

"What we will no longer do is enter into large agreements that will tie our hands, surrender our sovereignty and make meaningful enforcement practically impossible," Mr. Trump said at the Asia-Pacific Economic Cooperation summit in Da Nang, Vietnam.

Commerce Secretary Wilbur Ross predicted Canada and Mexico will "come to their senses and make a sensible deal," in comments Tuesday at The Wall Street Journal's CEO Council event in Washington. The senior official overseeing the Nafta talks, U.S. trade representative Robert Lighthizer, said at the end of the most recent Nafta round in Washington that he was "surprised and disappointed by the resistance to change from our negotiating partners."

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The Nafta negotiations began to encounter difficulties during the last round of talks in Washington in October, after the U.S. put forth a number of proposals that its two trading partners have branded unacceptable. Along with the content rules that would affect the automobile industry, the U.S. has put forth a "sunset" proposal that would have the agreement expire in five years unless the parties all agreed to renew it. The U.S. also put in proposed measures to weaken the dispute resolution panels included in the pact.

The decision by Mr. Lighthizer, Mexican Economy Secretary Ildefonso Guajardo and Canadian Foreign Minister Chrystia Freeland to sit out this round will give lower-level negotiators the room to parse the technical details of the U.S. proposals, said Jaime Zabludovsky, one of Nafta's original senior negotiators for the Mexican government, and now a private-sector trade adviser.

"The idea of having ministerial meetings in all rounds was odd," he added. "Considering the difficulty of the topics, you need more technical work, so negotiators can present alternatives to their respective ministers so they can make decisions."

A drawn-out negotiation, though, could weaken the U.S.'s hand. Some Nafta watchers say Canada is prepared to allow talks to carry on as long as possible, in the belief Congress, U.S. industry, and state governors will escalate pressure on the Trump administration to avoid dismantling Nafta.

Mexico, for its part, is formulating its response to the U.S. proposals. Mr. Guajardo, in an interview, repeated his often stated willingness to "help rebalance U.S. trade as long as it does not imply trade restrictions." Currently, he said, Mexico is working to dissect the U.S. proposals to really understand how they would affect the industries involved.

"We have been trying to analyze these positions and we are taking the opportunity to get a deeper and better explanation," he said Tuesday. "We need them to explain in order to build a counterproposal."

Mr. Guajardo said Mexico's largely foreign-owned auto assemblers and their component suppliers will have to be consulted about the technical feasibility of raising the content requirement. The Trump administration is demanding that 85% of a vehicle's components be made in North America and half of them in the U.S. Such feasibility will vary from vehicle to vehicle, he said.

The percentage under Nafta currently is 62.5% for finished vehicles and slightly less for automotive components.

As for a "sunset clause," he said the Mexicans could agree to include a system of evaluating and updating the pact every so often "without the option of sudden death."

Like their Mexican counterparts, Canadian officials are ready to focus in upcoming days on the more low-profile parts of the Nafta talks where progress has been made and where there is common ground, according to three people familiar with the Canadian strategy.

But Ottawa isn't prepared to budge on its opposition to what it views as "extreme" positions from the U.S.

Canadians are "still trying to figure out whether these are definitive U.S. positions or just opening gambits," said Eric Miller, a former Canadian official and now head of a Washington-based trade consultancy.

"The American strategy is hard to divine at this point beyond attempting either to blow the agreement up, or threaten to blow the agreement up in the hope their counterparts roll over," said Gordon Ritchie, former Canadian trade negotiator who worked on the original U.S.-Canada free-trade accord.

There is also some evidence that the two countries are working together to counter U.S. proposals -- a strategy that could reinforce Mr. Trump's distaste for multilateral negotiations.

"We're putting together responses to each of the proposals the U.S. made, " Kenneth Smith, Mexico's chief Nafta negotiator, said at an economic conference in Mexico City last week. "We are also working with Canada to get their view of these issues and working with the Mexican automotive industry."

--Juan Montes contributed to this article.

Write to William Mauldin at william.mauldin@wsj.com, Dudley Althaus at Dudley.Althaus@wsj.com and Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

November 16, 2017 05:44 ET (10:44 GMT)