The three NAFTA countries are far from reaching a full deal to overhaul the pact – despite the Trump administration further softening a key demand on content rules in the crucial auto sector.
The United States knocked its auto-content proposal down to 75 per cent from its previous demand that vehicles made in the region contain 85-per-cent North American content in order to qualify for duty-free status, sources with knowledge of the talks said – a concession that could make tougher auto rules easier for Canada, Mexico and the industry to swallow.
The climb-down in the United States’ demand brings the content requirement close to the existing level of such content: Although the existing rule is that a North American vehicle must have 62.5-per-cent content from one of the three NAFTA countries to be shipped duty-free, many current cars and trucks have between 70-per-cent and 75-per-cent North American content.
Three sources said the United States has also batted around the idea of obliging auto companies to use at least 70-per-cent North American steel in some or all auto parts.
But gulfs remain at the bargaining table on every major issue after several days of quiet but intensive talks in Washington this week. And some key areas, including the United States’ demand for tougher Buy American procurement rules and an end to supply management in Canada’s dairy industry, weren’t even discussed at all, according to a schedule of the negotiations obtained by The Globe and Mail.
U.S. President Donald Trump also publicly backed off the U.S. deadline for a NAFTA deal by mid-April – then surprised his own administration by abruptly announcing he wanted to look into rejoining the Trans-Pacific Partnership, an 12-nation trade pact he pulled out of on his first full day in office in 2017. The remaining 11 nations, including Canada, signed a revised deal earlier this year.
Explainer: A guide to trade, the NAFTA talks and Trump
The pessimism at the NAFTA table is an abrupt shift from just a few days ago, when the U.S. was pushing hard for a deal that Mr. Trump could announce at the Summit of the Americas in Peru this week. Even Canadian and Mexican officials signalled that things were moving along at a fast clip.
However, Mr. Trump has cancelled his trip to the summit. U.S. Trade Representative Robert Lighthizer has also opted not to attend the summit, dashing hopes for a meeting between himself, Foreign Affairs Minister Chrystia Freeland and Mexican Economy Minister Ildefonso Guajardo to push NAFTA talks forward.
The lack of progress on a deal comes as Canada and Mexico face the prospect of new steel and aluminium tariffs May 1: The Trump administration announced its exemptions of the two countries from the duties – 25 per cent on steel and 10 per cent on aluminium – will expire at the start of next month without a new NAFTA deal.
The President insisted Thursday that any report he wanted a fast deal was “fake news” – even though his own point man on the file, Mr. Lighthizer, announced in early March that he wanted an agreement within six weeks. The President said he was happy to leave NAFTA in flux because this would discourage companies from moving to Mexico.
“There’s no timeline,” Mr. Trump said at a trade meeting with governors and members of Congress at the White House. “We can negotiate forever … It could be three or four weeks. It could be two months. It could be five months. I don’t care.”
During a closed-door portion of the meeting, Mr. Trump announced that he had ordered Mr. Lighthizer to look at how the U.S. could get back into TPP. The directive, revealed by Nebraska Senator Ben Sasse, appeared to catch even Mr. Trump’s own administration by surprise: His nominee for secretary of state, Mike Pompeo, told a legislative committee later in the day that the order was “news to me.”
While these head-spinning developments were taking place at the White House, teams of NAFTA negotiators continued working feverishly around Washington for a deal.
The key negotiating table on automotive rules of origin met Thursday for the second of three consecutive days of talks.
The U.S. is still trying to convince Mexico to agree to new rules that would tie automotive content to wages. Under Mr. Lighthizer’s proposal, auto companies would have to source some parts from factories where workers make at least US$15 an hour, a provision that would incentivize the use of auto parts from the U.S. instead of Mexico.
Two sources with knowledge of the talks said negotiations are now focused on sorting out which parts would have to be made in factories with a wage standard and which would not. One source said the U.S. now wants the wage threshold to be US$16 an hour. Another source said the threshold would vary depending on the part, and would be pegged to the average North American wage for that part.
As auto talks ground on, the three sides are even further apart on other contentious matters.
Two people with knowledge of the talks said there has been no agreement on procurement, where the U.S. wants a Buy American rule that would restrict how much government contracting Canadian and Mexican firms could bid on; a sunset clause, in which the U.S. wants to automatically terminate NAFTA in five years unless all three countries agree to extend it; Chapter 19 dispute resolution, which the U.S. wants to abolish; or Canada’s protectionist supply-management system for milk, eggs and dairy, which Washington wants to open up to foreign competition.
The schedule viewed by The Globe did not list procurement, agriculture or dispute resolution among the negotiating tables meeting this week.