Foreign Affairs Minister Chrystia Freeland says NAFTA talks are making “constant progress” toward a deal as Mexican negotiators presented a counter-proposal on the crucial issue of auto-sector content rules.
Ms. Freeland met on Tuesday morning in Washington with U.S. Trade Representative Robert Lighthizer. Jared Kushner, President Donald Trump’s son-in-law, was also spotted entering Mr. Lighthizer’s office complex near the White House.
After the hour-long session, Ms. Freeland reached for a colourful metaphor to describe the painstaking progress toward a deal.
“When I was giving birth, one of my midwives said: ‘You never know how long the labour will be, but you know that each contraction is one contraction closer to the baby being born,’” she said. “And if I could use such a personal metaphor, that seems to apply to trade negotiations.”
Officials from the three countries reconvened in the U.S. capital this week under serious deadline pressure: The United States is threatening to hit Canada and Mexico with hefty tariffs on steel and aluminum if there is no new North American free-trade agreement (NAFTA) by June 1. And Mr. Lighthizer wants talks to conclude by the end of next week so Congress can approve a revised deal this year.
At the centre of the talks is a U.S. demand to raise the amount of NAFTA zone content in North American-made vehicles from 62.5 per cent to 75 per cent and add several new rules, including a requirement that 70 per cent of all steel, glass and aluminum used in autos come from the NAFTA countries.
The most contentious U.S. proposal would require 40 to 45 per cent of the content to be made in factories where workers earn at least US$15 to US$17 an hour. Such a rule would discourage auto companies from investing in Mexico – where auto wages are closer to US$3 an hour – and create jobs in the United States and Canada. Only 15 per cent of that total could come from research and development, ensuring that factory jobs are steered back to the United States.
Mexican Economy Minister Ildefonso Guajardo arrived in Washington with an auto counteroffer.
“We are about to engage very seriously on what are the realities of the automotive sector in North America,” he told reporters on Monday.
Sources with knowledge of the Mexican proposal said it agrees to boost North American content requirements to 70 per cent and would not oblige companies to meet a 70 per cent threshold on steel, aluminum and glass, but instead offer “bonus” credits to companies that do so in some areas that they could apply in areas where they fall short. The counteroffer also adds a 10-year transition period to the new rules, rather than two years as proposed by the United States, and would apply the most stringent content requirements to four vehicle components rather than the seven demanded by Mr. Lighthizer.
Mr. Guajardo’s proposal would not require any auto content to come from factories that pay above a specific wage – effectively dodging the most contentious U.S. demand.
“Their proposal doesn’t even reasonably reflect the U.S. proposal,” said Canadian union leader Jerry Dias, who represents autoworkers and has been regularly briefed on the talks. “They didn’t say ‘US$16 is too high, but we’ll agree to this.’ They didn’t do any of that. They didn’t even put themselves in the arena to start the negotiations.”
Mr. Dias, the president of Unifor, said there would be no deal unless Mexico is willing to compromise on autos: “Mexico is going to have to make a major change or NAFTA will blow up.”
Mr. Guajardo said negotiators are aiming for a comprehensive agreement, rather than cutting a deal on autos and punting other difficult issues down the road. Ms. Freeland and Mr. Guajardo are scheduled to remain in Washington this week for further talks.
Other sticking points include U.S. demands for tougher Buy American procurement rules, the scrapping of dispute resolution provisions, a sunset clause that would kill the deal in five years unless all three countries agreed to extend it, and the dismantling of Canada’s protectionist supply management system for milk, eggs and poultry.
Luz Maria de la Mora, a Mexico City business consultant and former trade official, said the focus is to reach a deal on autos in hopes that it will then be easier to tackle the other issues.
She said Mexican officials are trying to find a way to please the United States on auto content without damaging their own industry.
“Everybody wants a deal, Mexico included – but not any deal,” she said. “It will depend a lot on how much the U.S. will move.”