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Chrysler employees assemble cars at an assembly plant in Brampton, Ont. on Jan. 7, 2011.Kevin Van Paassen/The Globe and Mail

The renegotiation of the North American free-trade agreement is rapidly speeding up, with the three sides swapping proposals this week on auto content rules and angling to cut a deal as soon as next month.

The latest U.S. proposal includes an incentive for automakers and parts companies to pay workers at least $15 an hour, said sources with knowledge of the discussions, a move to punish Mexico but please congressional Democrats and offer Ottawa a victory on the labour file.

The United States is pushing Canada and Mexico to agree to a NAFTA deal as soon as possible. Mexican negotiators have told the United States that April 15 is a realistic target, while Canadians have said mid-May is more likely, according to a U.S. industry source briefed on the talks.

Washington wants to finish discussions before the campaign for Mexico’s July 1 presidential election heats up and leave enough time for the current Congress to vote on a final deal before the congressional term expires in January of next year.

”I’m hopeful,” U.S. Trade Representative Robert Lighthizer told CNBC on Wednesday. “I think we are making progress. I think that all three parties want to move forward. We have a short window. I’m optimistic that we can get something done in principle in the next little bit.”

Foreign Minister Chrystia Freeland credited the U.S. for “creative thinking” on autos and said the countries were making “good progress.”

“This issue is one of the most complicated and has really been at the heart of the agreement,” she told reporters on a call from Seoul. Ms. Freeland acknowledged the time crunch for a deal and said Canada would like to get to the “finish line as soon as it is possible to get there.”

But Canadian chief negotiator Steve Verheul played down the prospect of an imminent agreement.

“No, we’ve got quite a bit of work to do yet,” he told reporters after meeting with Canadian and Mexican union leaders in Ottawa. He added it would be “a bit of a challenge” to finish negotiations in April.

Logjams include U.S. demands for tough Buy American procurement rules and the gutting of the deal’s dispute-resolution clauses, as well as Canada’s defence of its protectionist system of supply management, which fixes prices on milk, eggs and poultry by limiting foreign competition with hefty tariffs.

The United States has already agreed to back off its toughest demand, that autos made in Canada and Mexico and bound for the U.S. market contain at least 50 per cent U.S. content. Canada and Mexico are helping the United States find ways to fulfill its proposal for all autos made in the NAFTA zone to contain 85 per cent North American content, up from the current 62.5 per cent.

Mr. Lighthizer’s wage demand will be tough for both the Mexican government and the continental auto industry to swallow. Sources with knowledge of the proposal said it would allow automakers to receive credits toward their 85-per-cent content requirement by buying vehicle parts from factories paying $15 an hour or more.

This would encourage them to source parts from the United States and Canada rather than Mexico, where workers typically earn the equivalent of $3 an hour. It is on top of an earlier Canadian proposal to give companies credits for North American research and development, jobs that would mostly go to the United States and Canada.

Low wages are one of the reasons Mexico is a global automotive powerhouse, with vehicle production this year expected to be double the output in Canada.

Don Walker, chief executive officer of Magna International Inc., Canada’s largest auto-parts company, has argued that North America needs a low-cost country to remain competitive with other regions. Magna has more employees in Mexico than anywhere else.

Luz Maria de la Mora, a former Mexican trade official who helped negotiate the original NAFTA, said Mexico wants a deal badly enough it may agree to such demands. “The Mexican side is ready to make compromises the U.S. wants,” she said in an interview.

Canada has also pushed for tougher labour standards in NAFTA, in part to win the backing of trade unions for an eventual pact.

Unifor president Jerry Dias said putting Mexican labour on the table is a good step.

“They’re at least starting to talk about some of the more complex issues,” said Mr. Dias, the head of Canada’s largest private sector union.“The important piece of all this is that there’s a discussion about changing the Mexican industrial strategy that has suppressed wages for Mexican workers for so long.”

With a report from Reuters

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