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NAFTA renegotiation set to miss key deadline as countries remain divided on major issues

Mexican Economy Minister Ildefonso, Foreign Minister Chrystia Freeland and U.S. Trade Representative Robert Lighthizer are pictured during the final day of the third round of NAFTA negotiations at Global Affairs Canada in Ottawa on Sept. 27, 2017.

The Canadian Press

The renegotiation of NAFTA is set to miss a key congressional deadline for a deal, as the three countries remain at loggerheads over nearly every major issue and barely any serious talks have taken place in recent days.

Canada and Mexico are pressuring the Trump administration for concessions, signalling the United States can have the quick deal it wants – but only if it is willing to drop or compromise on its most contentious demands.

One scenario under serious consideration is a so-called “skinny” deal: Mexico and Canada would agree to U.S. demands for tougher content rules in the automotive sector in exchange for Washington leaving every other controversial section of the North American free-trade agreement untouched, said people familiar with the backroom strategizing.

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Explainer: NAFTA’s saga so far: A guide to trade, the talks and Trump

Canadian officials on Wednesday said Ottawa is not responsible for holding up talks, contending that an agreement is achievable.

“There are all the elements there for a deal,” Kirsten Hillman, deputy Ambassador to the United States, told a NAFTA event hosted by The Hill newspaper at the Newseum in Washington. “There is momentum now.”

Ms. Hillman acknowledged that an autos-only deal is “a possibility.”

House Speaker Paul Ryan has said negotiations must conclude by Thursday to give Congress enough time to pass a revised NAFTA before the end of the year.

“We can’t work a bill unless we have an agreement that’s in writing that we can work on and that hasn’t occurred yet,” he said at the Capitol on Wednesday.

There were no meetings Wednesday between Foreign Minister Chrystia Freeland, U.S. Trade Representative Robert Lighthizer and Mexican Economy Minister Ildefonso Guajardo, the ministers leading NAFTA negotiations, said one source with knowledge of their schedules.

Another source said there had been no negotiations of substance since Ms. Freeland, Mr. Lighthizer and Mr. Guajardo met last Friday in Washington. The source said talks were effectively on hold as the Trump administration tried to sort out what Mr. Ryan’s deadline will mean.

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Canadian union leader Jerry Dias, who is receiving regular updates on the talks from Canadian officials, said he spent three hours in Ottawa on Tuesday with Canada’s chief negotiator, Steve Verheul. The fact that Mr. Verheul had so much time on his hands indicates how little discussion is occurring between the three sides, Mr. Dias said.

“Even if Verheul hopped on a plane today to get down to Washington, then the most that can be accomplished by tomorrow is symbolism at best,” said Mr. Dias, president of Unifor.

At the heart of the talks are U.S. demands for tougher “rules of origin” on auto manufacturing. Under the American proposal, 75 per cent of all parts used in North American-made vehicles would have to come from the NAFTA zone. Auto makers would also be obliged to source 70 per cent of their steel, aluminium and glass from North America, and ensure 40 per cent to 45 per cent of components were made in factories where workers were paid at least US$15 to US$17 an hour – a move meant to move jobs from Mexico to the United States.

Mexico has offered to accept a lower content threshold of 70 per cent, plus laxer rules that would allow auto companies to choose between using more North American steel and sourcing parts from factories with higher wages. In exchange, Mexico has demanded that the United States drop contentious proposals on other parts of the deal, sources briefed on the Mexican position said.

The Trump administration’s other demands include tough new “Buy American” rules for government contracts, the abolition of dispute-settlement mechanisms, a sunset clause that would kill the deal in five years unless all three countries agreed to keep it and the end of Canada’s protectionist tariff system for dairy products.

Prime Minister Justin Trudeau delivered a similar message to the Mexicans when he spoke with President Donald Trump by phone earlier this week, Mr. Guajardo said. The Prime Minister told the President that the United States could have a deal “at any time,” so long as there was “flexibility from the parties” at the bargaining table, Mr. Guajardo said in a Mexican television appearance on Tuesday.

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Daniel Ujczo, an Ohio-based lawyer who specializes in Canada-U.S. trade, said he believed Mr. Trump would ultimately agree to an autos-focused deal and set aside other tough proposals.

“POTUS [President of the United States] the deal maker is coming in his closer role and trying to wrap up a ‘skinny’ version of the NAFTA,” Mr. Ujczo said.

The three countries are renegotiating the pact at the behest of Mr. Trump, who won election in part by pledging to bring manufacturing jobs back to the United States. Concluding a deal on autos could give him a boost ahead of tough November congressional elections.

Brett House, deputy chief economist at Bank of Nova Scotia, said given that it typically takes years to negotiate a trade agreement, the current pace of NAFTA talks is actually fairly swift. Negotiations began last August.

And Mr. House said missing Mr. Ryan’s deadline may not be much of a problem from Canada’s perspective: Despite fears that uncertainty over NAFTA is causing problems for business, Mr. House said the public data so far do not conclusively show much negative effect on Canada’s economy.

“We’d probably like to have it over and done with,” he said. “But not at any cost.”

With a report from The Canadian Press

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