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An employee works on a Ford Expedition on an assembly line at the Ford Kentucky Truck Plant in Louisville, Ky., on Friday, Oct. 27, 2017.

Luke Sharrett/Bloomberg

The Trump administration is consulting U.S. auto companies about manufacturing rules that have been proposed during NAFTA renegotiations, providing an opportunity for the industry to push the government toward a breakthrough on one of the toughest issues in the talks, sources with knowledge of the consultations say.

Auto-industry insiders said the consultations in Washington with the Detroit Three – Ford Motor Co., General Motors Co. and Fiat Chrysler Automobiles NV – were called to talk about the NAFTA discussions and other trade issues, including possible tariffs on steel that President Donald Trump is considering, and an expected renegotiation of the country's free-trade deal with South Korea. Among other things, the Trump administration is gathering the companies' views on Canada's NAFTA proposals, one source said.

Jason Bernstein, the lead U.S. negotiator on automotive-content rules, abruptly left the seventh round of North American free-trade agreement talks in Mexico City earlier this week to participate in the consultations, government and industry sources said. His departure put auto negotiations on pause.

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The office of U.S. Trade Representative Robert Lighthizer did not respond to a request for comment on the developments.

The Trump administration has demanded that the percentage of North American content in vehicles made in the NAFTA zone be boosted from 62.5 per cent to 85 per cent, and that 50-per-cent U.S. content be required for autos made in Canada or Mexico that are destined for export to the United States. Both Canada and Mexico have rejected the demand.

Last month, in Montreal, Canada floated a potential compromise that would create incentives for auto companies to use North American steel and aluminum, expand existing plants in the NAFTA zone and build new ones, invest in research and development, and build electric and self-driving cars.

One source at an auto company said the industry has responded well to Canada's suggestions. Last month, Fiat Chrysler chief executive Sergio Marchionne described the Canadian approach as "the beginning of a solution to this problem," and the focus on new technologies in vehicles "a good thing."

But a key issue, the auto-company source said, is that the Canadian ideas have no numbers attached, so it is difficult for companies to assess how the proposals would work.

The three governments renegotiating the trade agreement need to talk to the industry to determine if the proposals can be made to work, this source said, noting that the industry has made it clear that if new NAFTA content requirements and rules of origin are too strict, auto companies will not try to meet them and will simply pay the tariffs.

At the consultations, the U.S. government can expect to hear again about how important free trade is to the auto industry, said Mark Nantais, president of the Canadian Vehicle Manufacturers Association, which represents the Canadian units of the Detroit Three companies.

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"The investments they make in Canada and Mexico are also vitally important to competitive supply chains," he said.

Meanwhile in Mexico City, Mr. Bernstein's absence froze auto negotiations after a single day of discussion on Sunday. Both Canada and Mexico plan to present more detailed proposals – based on Canada's Montreal pitch – but it was unclear when they would have the opportunity.

Mexico's chief NAFTA negotiator, Kenneth Smith Ramos, told reporters Tuesday that he hoped auto discussions could resume by the end of the week, and that Canada's proposals would be more fully fleshed out.

"We are hoping that by the end of the week, we will have more clarity as to some of the ideas that Canada put forward in Montreal. We are discussing them with our industry with the hope of advancing," he said.

Flavio Volpe, president of Canada's Automotive Parts Manufacturers' Association, said any consultation between the U.S. government and the auto industry is "a substantively good development for Canada."

Mr. Volpe said it is possible the three countries could reach a breakthrough on autos in the next few weeks. Negotiators could agree to a broad framework, he said, and leave technical details to be hashed out quietly afterward.

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Daniel Ujczo, an international trade lawyer at Dickinson Wright, cautioned that it is not yet clear whether the Trump administration is seriously interested in incorporating the industry's views into its negotiating position – or if its intention is to expound to the companies on its own protectionist viewpoint.

"Any time there's consultation with industry on a presentation made in these talks, it's a positive story," he said. "The wild card is: Is the U.S. trade representative listening? Is it truly a dialogue, or just one side talking? That remains to be seen."

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