Trump Administration Blasts Mexico, Canada For Limited Nafta 'Headway' -- 2nd Update

By Dudley Althaus and Jacob M. Schlesinger Features Dow Jones Newswires

After five rounds of formal talks, negotiators remain far apart on the most crucial issues in the renegotiation of the North American Free Trade Agreement, with Mexican and Canadian officials still trying to understand the details of key U.S. proposals, according to people familiar with the talks.

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The round of talks that ends later on Tuesday was supposed to focus on technical details rather than any breakthroughs on issues such as requirements for regional automotive content and dispute resolution. But those technical details remain vague at best, said people close to Mexico's negotiating positions.

A formal statement is scheduled to be released by the three governments later in the day.

Though officials had hoped to announce agreements on easier updates to the 23-year-old pact, none was achieved in this round, at which some 700 specialists from the three countries began wrangling on Friday.

Agreement is close on minor issues, such as smoothing customs procedures and sanitary requirements. But major sticking points remain on U.S. demands to enhance so-called rules of origin, in which the source of products, principally autos and textiles, are set according to the percentage of their value.

The Trump administration has proposed raising the regional content requirements for autos to 85% from the current 62.5%, with half the content coming from the U.S. Both Mexican and Canada have flatly refused to consider the 50% national content issue. But they also have so far failed to get details on how the 85% number was determined or how it would be enforced, these people said.

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"We are still apart in terms of some of the proposals that the U.S. has tabled in the past," said one person familiar with the talks. "And that applies obviously to rules of origin."

A new agreement was originally scheduled to be reached by the end of this year, but the talks have been pushed back until March, as negotiators work on bridging the divide on rules of origin and other crucial issues.

The Mexican team is feeling pressure from presidential and congressional elections in July, while some analysts warn inconclusive negotiations could weigh on U.S. midterm elections next November.

The next round of talks will be held in Montreal in late January. But negotiating teams will meet again in private next month in Washington, D.C. to continue working on technical issues, with Mexican and Canadians pressing U.S. counterparts on the details of their proposals.

"Horse trading doesn't happen right off the bat," said another person close to the talks. "You have to know what you are trading."

While open to modifications, the Mexican team rejects dismantling dispute resolution chapters of the agreement, in which companies can have complaints heard and decided by arbitration panels, rather that courts of any of the three countries. Mexico also remains adamantly against scaling back exports of its fruits and vegetables during the U.S. growing season.

"Do not expect a counterproposal on something that is unacceptable," said one person. Mexican negotiators presented a counterproposal to U.S. demands that a new Nafta include a "sunset clause" that would have the agreement expire in five years unless the parties all agreed to renew it.

Mexico has proposed a periodic evaluation of the agreement's benefits, without the possibility of "sudden death" for the pact.

U.S. President Donald Trump has said he would pull the U.S. out of Nafta if he doesn't like the results of the talks. Mexico remains determined to stay at the table as long as necessary, but won't capitulate on key issues even if faced with a U.S. pullout, these people said.

"We are not going to leave the table because the U.S. is not satisfied with how things are going," one person said.

Write to Dudley Althaus at Dudley.Althaus@wsj.com and Jacob M. Schlesinger at jacob.schlesinger@wsj.com

MEXICO CITY -- President Donald Trump's chief trade negotiator issued a downbeat assessment Tuesday of efforts to rewrite the North American Free Trade Agreement, decrying "a lack of headway" and accusing Canada and Mexico of refusing to "seriously engage" on controversial U.S. proposals aimed at cutting the U.S. trade deficit.

U.S. Trade Representative Robert Lighthizer didn't go as far as repeating Mr. Trump's threat to pull out of the 23-year-old pact if the other parties don't agree to American demands to "rebalance" Nafta to make it more favorable to the U.S. But he made clear he expected them to do so by next month.

"Absent rebalancing, we will not reach a satisfactory result," Mr. Lighthizer said in a statement following the conclusion of the fifth round of Nafta renegotiation talks that ended here Tuesday. "I hope our partners will come to the table in a serious way so we can see meaningful progress before the end of the year," he added.

Canadian and Mexican officials agreed that wide gaps remained between the parties after five days of talks, but placed blame squarely on the U.S. for putting forth a list of proposals that they said would weaken the pact, and would move its longtime focus away from creating a continental economy among the three partners to one that would do more to favor the U.S. over its neighbors.

"Significant differences remain on some key areas," Canadian Foreign Minister Chrystia Freeland, who is leading her country's negotiating team, told reporters in Ottawa. While Canada is open to "mutually beneficial" compromises, she said, "at the end of the day we are always going to clearly defend our national interests."

The Mexicans also dug in during this week's meetings. "Do not expect a counterproposal on something that is unacceptable," said a person close to the Mexican team.

The three countries have agreed to keep negotiating until the end of March, and have scheduled informal meetings with midlevel negotiators in December and another formal round in Montreal in late January.

This week's talks in Mexico were the fifth round since the three countries launched the process of rewriting Nafta in August, after Mr. Trump came close early in his administration to pulling the U.S. out.

The renegotiation is the first major effort in Mr. Trump's "America First" campaign to reorient decades of U.S. trade policy and overhaul its trade agreements to focus less on cooperation with trading partners and more on ramping up unilateral enforcement actions to curb imports.

The mood among Nafta supporters has darkened considerably in the past month after Trump aides laid out in detail the ways in which they want to change Nafta, proposing that cars have 50% U.S. content to enjoy duty-free imports into the U.S., and seeking to slash Mexican and Canadian access to U.S. government projects.

Other controversial proposals would weaken or eliminate Nafta mechanisms for settling disputes among parties, and inject a "sunset" clause that would automatically terminate the agreement after five years unless the three countries expressly agree to keep it.

U.S. business groups have ramped up an extensive lobbying and public relations campaign aimed at persuading the Trump administration to soften its stance. Failing that, they want free-trade Republicans in Congress to try to rein in the Republican president. Business groups and economists have been churning out myriad studies warning of the dire impact a Nafta collapse would have.

Mr. Lighthizer's assessment overshadowed a more positive tone offered by lower-level negotiators from all three countries, who touted a number of advances they made this week in less controversial areas. "Progress was made in a number of chapters," negotiators said in a trilateral statement issued at the end of the round.

While Mexico and Canada have rejected the Trump administration's "rebalancing" agenda, all three countries have embraced proposals to "modernize" the pact.

Much of the week's discussion focused on applying plans the three had already accepted in previous negotiations for the 12-nation Trans Pacific Partnership, which Mr. Trump pulled the U.S. out of at the start of his administration. Despite the president's objections to TPP, his aides have used large portions of that as a template for modernizing Nafta.

Officials said progress was made in digital trade, telecommunications, harmonizing regulatory practices, fighting corruption, food safety standards, and streamlining customs procedures.

There appeared to be some tentative discussions feeling out of compromise on some of the more controversial U.S. proposals. Mexican negotiators put forth a counterproposal to the U.S. "sunset" provision, rejecting the idea of an automatic termination clause, but offering more rigorous regular reviews of the pact.

Talks were more difficult on other U.S. demands. Mexicans and Canadians both derided an American proposal to limit their access to the government procurement market to the dollar amount of their own, considerably smaller, markets. Mexico offered a mocking counterproposal that would limit U.S. access to the same tiny amount that Mexican firms win in U.S. government bids, a plan that would essentially nullify large contracts American insurance firms have to cover Mexican government workers. Canadian officials said the U.S. proposal would give them less access than Bahrain to the U.S.

The most difficult issue hanging over the talks is the American proposal aimed at shifting auto production back from Mexico to the U.S. American officials have signaled as their priority in these negotiations -- aimed at cutting the U.S. automotive trade deficit with Mexico that has ballooned under Nafta.

But that has prompted a fierce backlash from representatives of the American auto industry, which says the proposal would lower their efficiency and force more production to Asia.

Mexican and Canadian negotiators have cited studies by U.S. industry backing those claims in rejecting the U.S. proposals.

"This is just a non-starter for us," said a Canadian official. "It won't just create economic damage for us, but it will do economic damage to the U.S."

A senior U.S. official told reporters that the Trump administration wasn't wedded to its specific proposals, and was very flexible on the details -- as long as the other countries agreed to work toward U.S. goals.

"We're extremely flexible and extremely open to alternatives to develop new text," he said. "These are our priorities, and you do expect other countries to engage with you on that and not just be critical."

--Paul Vieira in Ottawa and William Mauldin in Washington contributed to this article

Write to Jacob M. Schlesinger at jacob.schlesinger@wsj.com and Dudley Althaus at Dudley.Althaus@wsj.com

(END) Dow Jones Newswires

November 21, 2017 20:49 ET (01:49 GMT)