NAFTA partners agree to press on in May after talks stall in Washington

Open this photo in gallery:

Canada, the United States and Mexico have failed to reach a deal on overhauling NAFTA after four days of high-level talks, but agreed to keep negotiating and schedule another round of ministerial meetings for May 7.

The United States could soon crank up the pressure on its negotiating partners: Without a deal for a revised North American free-trade agreement, Canada and Mexico face hefty U.S. tariffs on steel and aluminium starting next Tuesday, May 1.

The countries made some incremental progress this week on auto-content rules, the core issue in the negotiations. But they were unable to reach a breakthrough and, on at least one tough auto demand, the United States adopted an even more stringent position than before.

The sides remain at an impasse on other points – including U.S. demands for stronger “Buy American” procurement rules, the abolition of NAFTA’s dispute-settlement system, a “sunset clause” that would end the agreement in five years and the dismantling of Canada’s protectionist supply-management system for milk, eggs and poultry.

Foreign Affairs Minister Chrystia Freeland said on Friday morning that negotiators will continue working around the clock in Washington, and she would return in a few days for further talks with U.S. Trade Representative Robert Lighthizer and Mexican Economy Minister Ildefonso Guajardo.

“If you know a Canadian trade negotiator, please give them a hug, because they are working 24/7. People are cancelling holidays. People are working weekends,” she said after a trilateral meeting at Mr. Lighthizer’s office.

Mr. Guajardo said he, Ms. Freeland and Mr. Lighthizer would reconvene on May 7 in Washington.

That pushes the negotiations past the May 1 expiration of Canada and Mexico’s exemption from the Trump administration’s tariffs of 25 per cent on steel and 10 per cent on aluminium. The United States has threatened to impose the levies on Canada and Mexico until they reach an agreement on NAFTA.

Asked if the United States would extend Canada’s exemption while negotiations continue, Ms. Freeland said she could not answer: “That’s a question for the United States, not for Canada.” Ottawa has insisted the tariffs are separate from NAFTA negotiations because they were levied on the grounds of national security.

Neither Mr. Lighthizer’s office nor that of Commerce Secretary Wilbur Ross responded to questions on the tariffs on Friday.

Open this photo in gallery:

The lack of information means continued uncertainty as the deadline draws closer, said Joseph Galimberti, president of the Canadian Steel Producers Association.

“If you’re actively negotiating and you have another ministerial [meeting] scheduled on May 7 and you want to accomplish a deal, I can’t imagine a scenario where it’s a rational manoeuvre to apply a tariff on aluminum and steel right now,” Mr. Galimberti said in an interview

The three countries have been in non-stop negotiations since last month, with the most intensive talks focused on “rules of origin.” The United States wants to boost the amount of North American content required in NAFTA zone vehicles and add more rules dictating where vehicle components are made – all in a bid to fulfill President Donald Trump’s promise to bring U.S. manufacturing jobs back.

Particularly contentious is a U.S. demand that a percentage of each vehicle be sourced from factories paying at least US$15 to US$17 an hour as a way to remove incentives for auto companies to invest in low-wage Mexico. Washington originally demanded 30 per cent, but increased that to 40 per cent this week, said one source.

Flavio Volpe, head of Canada’s auto-parts industry group, said he thought earlier this week that negotiators might soon reach a deal on autos. But he said the U.S. desire for a comprehensive agreement meant negotiators needed more time.

“My read of it is that they weren’t prepared to do just an auto deal, and if that’s the case and they need to wrap in everything else, then I guess that’s why they extended it,” said Mr. Volpe, president of the Automotive Parts Manufacturers Association of Canada.

Union leader Jerry Dias, who represents Canadian auto workers and has been regularly briefed by negotiators, said autos, dispute settlement and government procurement were all sticking points.

“Any dreams of getting this done quickly will require two of the sides to completely capitulate,” said Mr. Dias, the president of Unifor. “That’s not going to happen. They’re so far apart on so many things.”

Canada’s Ambassador to the United States, David MacNaughton, summed up the tenor of the talks at a reception on Thursday night at the Canadian embassy: He said he told Mr. Lighthizer earlier in the day he wanted to schedule a root canal to ease the pain of the NAFTA negotiations.

Of the Trump administration’s threat of steel and aluminium tariffs, he said: “If Canada’s a national-security threat to the United States of America, I mean, give me a break.”

With a report from Dawn Calleja in Washington