A NAFTA banner is pictured where the second round of NAFTA talks involving the United States, Mexico and Canada is taking place in Mexico City, Mexico September 1, 2017. - Reuters
MEXICO CITY: Trade negotiators from Canada, the United States and Mexico presented more proposals for a renewed North American Free Trade Agreement on Friday and tried to put behind them threats from U.S. President Donald Trump to pull out of the treaty.
Teams from the three countries kicked off a second round of talks in Mexico City on 25 areas of closed-door discussion, with subjects such as digital commerce and small businesses seen as areas where consensus was possible, officials said.
The teams did not debate details, according to officials, but one union leader present said that U.S. Commerce Secretary Wilbur Ross had indicated he favoured North American content of more than 70 percent in autos built in the NAFTA region.
Taking up where they left off in Washington talks two weeks ago, the delegations were showing each other proposed language for reworking the accord, without yet seeking to thrash out mutually acceptable compromises, officials present told Reuters.
Trump's multiple attacks on NAFTA in the build-up to the Mexico City round were seen by Mexican and Canadian officials as a ploy to wring concessions, but they have heightened uncertainty over the accord. Away from the diplomatic noise, the Mexico talks are expected to help define the priorities of each nation rather than yield major advances.
Nevertheless, Trump's warnings have Mexico preparing for something hard to imagine even a few months ago - life without the agreement that boosted trilateral trade to around $1 trillion (0.77 trillion pounds) annually from $290 billion in 1993.
The Sept. 1-5 talks will touch on some thorny topics such as rules governing local content in products made in North America, Mexico's economy ministry said in a statement. Substantial discussion of such areas is unlikely in either this round or the next one, a source familiar with the process said.
"We do not expect any major breakthroughs or major developments in this round. We really don't," one official familiar with the negotiating process said.
Mexican officials believe Trump wants to include rules that a certain amount of content must be made in the United States.
The head of Unifor, Canada's largest private sector union, Jerry Dias, told reporters he had suggested in a recent meeting with U.S. Commerce Secretary Ross that the NAFTA content level for autos be raised to 70 percent from the current 62.5 percent. But Ross, he said, had proposed a "more aggressive" level.
Hundreds of small farmers and union members including speakers from Canada gathered outside the Mexican Congress on Friday to demand that NAFTA be reworked to truly help workers.
Trump and Canadian Prime Minister Justin Trudeau spoke by phone on Thursday and stressed they wanted to reach a NAFTA deal by the end of 2017, the White House said. An accord by year end that significantly changes NAFTA is seen as unlikely.
The goal is for an agreement before Mexico's 2018 presidential campaign starts in earnest. Officials fear the campaign will politicize talks, with nationalist frontrunner Andres Manuel Lopez Obrador already recommending a tougher line from Mexico.
Nevertheless, one Mexican official noted that Trump's repeated threats put pressure on his negotiators, forcing them to adopt tougher positions "than they would like," while another official said they were ready to leave the table if needed.
TRUMP THREATS
Trump said this week he might trigger a 180-day countdown to withdraw from NAFTA while the talks were ongoing to help meet his goals, which include sharply reducing a $64 billion annual U.S. trade deficit with Mexico.
NAFTA, first implemented in 1994, eliminates most tariffs on trade between the United States, Canada and Mexico.
Critics say it has drawn jobs from the United States and Canada to Mexico, where workers are paid far lower wages. Supporters say it has created U.S. jobs, and that the loss of manufacturing from the United States has more to do with China than Mexico.
If NAFTA collapses, costs could rise for hundreds of billions of dollars of trade as tariffs are brought back.
Free-trade lobby groups say consumers would be saddled with higher prices and less availability of products ranging from avocados and berries to heavy trucks.
Mexican Economy Minister Ildefonso Guajardo and Foreign Minister Luis Videgaray told officials in Washington on Wednesday that Mexico would walk away from the negotiations if Trump pulls the trigger on withdrawing from the deal.
Juan Pablo Castanon, president of Mexico's Business Coordination Council representing the private sector in the talks, said the country was refining a "Plan B" that could be up and running within three months of an eventual NAFTA collapse.
Talking on Mexican television, he said the plan included striking new trade arrangements in Asia and Latin America, sourcing alternate suppliers such as Brazil for grains now imported from the United States, and finding ways to recreate investor guarantees that are included in NAFTA. - Reuters
Key issues in the NAFTA renegotiations:
Negotiators from Canada, Mexico and the United States are meeting for a second round of talks to renegotiate the North American Free Trade Agreement, amid threats by U.S. President Donald Trump to pull out of the deal.
NAFTA, first implemented in 1994, eliminates most tariffs on trade between the United States, Canada and Mexico.
Critics say it has drawn jobs from the U.S. and Canada to Mexico, where workers are badly paid. Supporters say it has created U.S. jobs, and the loss of manufacturing from the United States has more to do with China than Mexico.
Key issues facing negotiators include:
RULES OF ORIGIN
NAFTA says in order for a good to be traded duty-free within the three countries, it must contain a certain percentage of North American content, which differs for various products. The rule of origin is most contentious in the auto industry; cars must contain at least 62.5 percent American, Canadian or Mexican content.
The United States wants to increase the content threshold for NAFTA goods in a bid to return manufacturing jobs to the United States, and the auto industry has conceded that the rules should be updated to account for auto components that did not exist when the original deal was signed.
Canada has said it is prepared to discuss some strengthening of rule of origin in the auto sector, but any change must apply equally to all three countries.
Mexico is willing to look at strengthening rules, but warns that going too far will make the region less competitive.
DISPUTE RESOLUTION
The United States has sought to ditch the so-called Chapter 19 tool, under which binational panels hear complaints about illegal subsidies and dumping and then issue binding decisions.
The United States has frequently lost such cases since NAFTA came into effect in 1994, and the mechanism has hindered it from pursing anti-dumping and anti-subsidy cases against Canadian and Mexican companies. Washington also argues that Chapter 19 infringes on the sovereignty of its domestic laws.
Canada has said Chapter 19 can be updated, but said a dispute settlement mechanism is its "red line" and must be part of any updated NAFTA.
Mexico also says dispute settlement mechanisms are a vital part of the deal to give investors security.
PROTECTING AGRICULTURE
U.S. negotiators are seeking to allow U.S. seasonal produce growers to file anti-dumping cases against Mexico. Seasonal fruit and vegetable growers in the southeastern United States have come under increasing pressure from year-round Mexican imports under NAFTA and are seeking the ability to pursue anti-subsidy and anti-dumping cases or seek temporary import quotas.
But U.S. retailers and food industry groups argue that American producers could be left open to retaliatory measures if more complaints were to be filed, for instance, against avocados, tomatoes and other produce imported from Mexico.
SUPPLY MANAGEMENT
Quotas are a feature of NAFTA in several agricultural commodities including dairy and sugar, but Washington is seeking to eliminate non-tariff barriers to U.S. agricultural exports.
Most notably, U.S. President Donald Trump has called Canada's restrictions on dairy imports a "disgrace."
Although dairy was excluded from the original 1994 deal, the United States is seeking to eliminate non-tariff barriers to its agricultural exports.
CURRENCY MANIPULATION
The United States is seeking a provision to deter currency manipulation. While Washington wants a mechanism to ensure the NAFTA countries avoid tinkering with exchange rates to gain a competitive advantage, neither Canada nor Mexico is on the U.S. Treasury's currency manipulation watch list.
Critics say the U.S. demand is an attempt to get currency manipulation into a global trade agreement to establish a precedent with other trading partners, including China.
GOVERNMENT PROCUREMENT
The United States is pushing for governments in Canada and Mexico to open up their tender processes to U.S.-made products but at the same time is defending existing "Buy American" procurement laws.
The Buy American provisions have blocked the use of Canadian steel to build U.S. bridges, and Canada is pushing for a freer market for government procurement.
Mexico says it expects government procurement, already included in NAFTA, to be part of the renegotiation.
INVESTOR-STATE DISPUTE SETTLEMENT
The United States has proposed minor tweaking of the NAFTA Chapter 11 provisions, designed to ensure that firms that invest abroad receive "fair and equitable" treatment by foreign governments.
As with Chapter 19, opponents of the provisions argue they infringe on sovereignty which benefits multinational corporations. Canada wants to update the mechanism to allow governments to regulate in the interest of the environment or labor, as in the Comprehensive Economic and Trade Agreement that Canada recently negotiated with the European Union. - Reuters
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