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

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

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.

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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.

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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)