NAFTA stalemate looming over U.S. auto parts demands

A U.S. proposal to increase the use of regionally-made parts in autos has become a source of contention at NAFTA talks.
A U.S. proposal to increase the use of regionally-made parts in autos has become a source of contention at NAFTA talks. Chris Young/CP

Negotiators from the United States, Mexico and Canada squared off on Tuesday for the last time in a fifth round of talks to rework the North American Free Trade Agreement, with stalemate brewing on a U.S. proposal to increase the use of regionally-made parts in autos.

READ MORE: Canada gives U.S. an auto industry explainer during NAFTA talks

Officials and lobbyists said Mexico and Canada would firmly push back against the U.S. demand to raise the minimum threshold to 85 per cent NAFTA origin components from 62.5 per cent, as well as insist that half the content was from the United States.

Tuesday will be the seventh day negotiators have met during this Mexico round, with only two planned rounds of talks left.

“It might be a short conversation,” a private sector lobbyist briefed on the talks said on Tuesday, noting that the auto industry had not been persuaded by U.S. arguments so far.

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The proposal is a central plank of U.S. President Donald Trump’s America First strategy to bring back manufacturing jobs to the United States, though it faces stiff resistance from the auto industry, which questions its viability.

Mexican and Canadian officials said they wanted the United States to explain how the auto plan could prosper in view of the skepticism, and have repeatedly indicated they had no intention of responding to the scheme.

“Where is the merit in making a counterproposal to a demand that would take us backwards?” said a Canadian source with knowledge of the talks.

The 1994 accord underpins much of the more than $1 trillion in annual trilateral trade, and Trump’s repeated threats to dump NAFTA if he cannot rework it in the United States’ favour have spooked investors in Mexico in particular.

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Officials meeting in Mexico City hope to make announcements that can inject some momentum into a negotiating process that more pessimistic observers fear is running out of energy.

The current round has been less confrontational than the negative tone of the October talks in Washington, where the United States set out a series of tough demands, including the auto plan, said Caroline Freund, a trade expert with the Peterson Institute for International Economics in Washington.

“With U.S. tax reform front and center, the U.S. government really didn’t want to make this a big round, and (wanted) to let the technocrats get on and do the negotiating on the less controversial bits,” Freund said.

Expectations for any major advances in the fifth round were scaled back when the three sides announced that the ministers in charge of the NAFTA trade portfolio would not attend. Progress has been halting with the clock ticking.

READ MORE: NAFTA negotiations will head to Montreal

The three countries have agreed to continue negotiating through the end of March, when the campaign for the 2018 Mexican presidential election gets underway.

In a commentary issued on Tuesday, the credit ratings agency Fitch Ratings said the three countries’ domestic political considerations would make it hard to reach a deal.

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Mexican officials initially expressed hope that some chapters could finally be closed during the fifth round, pointing to topics such as telecoms and e-commerce. However, no concrete evidence of that has been forthcoming so far.

— Additional reporting by David Ljunggren in Mexico City; Editing by Simon Cameron-Moore and Andrew Hay