U.S. NAFTA negotiators considering Canada's proposed compromises

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American negotiators are considering Canada's proposed compromises on three of the most contentious topics in the renegotiation of NAFTA, offering a rare glimmer of hope after months of bargaining deadlock.

What's more, one of the world's largest auto companies is backing Canada's ideas for reshaping vehicle content requirements – cranking up pressure from the U.S. business community on the Trump administration to cut a deal.

Canada has presented proposals on autos, dispute settlement and a process for amending the North American free-trade agreement at the sixth round of talks, in a bid to get Washington to back off protectionist demands in all three areas.

Sources with knowledge of the confidential discussions said the United States has not rejected any of Canada's pitches. U.S. officials have been asking questions to understand the details of Canada's ideas, the sources said, and have been willing to discuss them.

Fiat Chrysler Automobiles NV chief executive Sergio Marchionne gave Canada an assist on Thursday. On a year-end financial results conference call, he said Canadian auto proposals could break the deadlock on that key area.

"Within the structure proposed by the Canadians, there appears to be the beginning of a solution to this problem," Mr. Marchionne said.

Canadian negotiators have offered compromise concepts to assuage U.S. demands that vehicles made in any of the three NAFTA countries contain 85 per cent North American content in order to qualify for duty-free shipment in the free trade zone and that U.S. content in vehicles made in Canada and Mexico amount to 50 per cent.

The Canadian concepts involve changing the way North American content is counted so that research and development, investment in new assembly plants – and some existing factories – and advanced technologies for vehicle electrification and autonomous driving count toward the total.

The idea is that the new rules would help ensure more North American and U.S. content and persuade Washington to take its demand for a hard-and-fast 50-per-cent U.S. content rule off the table.

Investment in new plants, which can be $1-billion or more depending on the size of the facility, or investing in existing plants to build higher-technology vehicles could generate credits for auto makers that could be applied to the content requirements, two sources familiar with the negotiations said.

"The concept embedded in the Canadian proposal is defensible," Mr. Marchionne said on the call. "This whole notion of moving away from some of the antiquated terms that we used in NAFTA back in the nineties is a good thing."

Mr. Marchionne noted, however, that "it's very difficult for us to tell you whether this thing is going to be successful or not."

Canadian chief negotiator Steve Verheul presented the auto proposal to his American and Mexican counterparts, John Melle and Kenneth Smith Ramos, on Wednesday, and lower-level officials were spending Thursday and Friday discussing the finer points of the plan, sources briefed on the talks said.

Mr. Verheul himself expressed some optimism on Thursday, but cautioned there was a long way to go.

"I think it went reasonably well. There's a lot more thinking to do, a lot more discussions," he told reporters as he walked between meetings at the Hotel Bonaventure. "The mood is still reasonably constructive."

Mr. Verheul said American negotiators also said "positive things" about Canada's proposal to have NAFTA subject to periodic review and possible amendment. The idea, which is backed by Mexico, would allow for the three countries to agree to changes to the deal every few years. This would be an alternative to Washington's demand for a sunset clause that would kill NAFTA after five years unless all three countries agreed to extend it.

Talks are also moving along on Chapter 11, the portion of the deal that allows corporations to sue governments using special trade panels if the corporations feel their business interests have been unfairly harmed, sources said. The United States wants the ability to opt out of Chapter 11.

Canada and Mexico are now considering setting up an improved version of the current Chapter 11 system that would apply only to the two of them, one source said. This would mean Canadian and Mexican companies could still sue each others' governments, but American companies would lose this right. A different source said the Mexican government is also mulling the idea of setting up a Chapter 11-style system under its own domestic law to continue providing reassurance to American investors.

Dennis Darby, president of Canadian Manufacturers & Exporters, said he was encouraged Canada is trying to tackle the toughest issues and hoped that the Trump administration's hard line was merely a "negotiating tactic."

Auto makers welcomed Canada's content proposal.