NAFTA talks resume amid fears of ‘zombie’ deal

(Canada Border Services Agency video screengrab)

Washington | Reuters — Senior Canadian, U.S. and Mexican officials trying to rescue slow-moving talks to update the NAFTA trade pact met on Monday in a new bid to resolve key issues before regional elections complicate the process.

With time fast running out to strike some kind of deal on the North American Free Trade Agreement, the three member nations are still far apart on major points.

Discussions in Washington will center on one particularly contentious area — the U.S. demand for tougher rules of origin governing what percentage of a car needs to be built in the NAFTA region to avoid tariffs.

“We are about to engage very seriously on what are the realities of the automotive sector of North America,” Mexican Economy Minister Ildefonso Guajardo told reporters before talks with U.S. Trade Representative Robert Lighthizer.

“It will be not just autos. There are a lot of other items that we have to review,” he said.

Other contentious chapters include the future of the pact’s dispute-resolution mechanism and a U.S. proposal for a sunset clause that could automatically kill the deal after five years.

Guajardo earlier told El Heraldo newspaper that if a deal could not be reached, “we would be operating what some analysts have called ‘Zombie NAFTA’ … (one) that isn’t dead and isn’t modernized.”

Business executives complain that uncertainty over the future of the 1994 agreement is hurting investment.

Sources close to the talks suggest there is a creeping feeling of uncertainty and pessimism going into the new round of negotiations because of gridlock on critical matters.

Lighthizer said last week that if the talks took too long, approval by the Republican-controlled U.S. Congress may be on “thin ice.” The aim is to complete a vote during the “lame-duck” period before a new Congress is seated after November’s congressional elections.

Mexico holds its presidential election on July 1 and the front-runner, leftist Andres Manuel Lopez Obrador, says he wants a hand in redrafting NAFTA if he wins.

At the heart of the NAFTA revamp is U.S. President Donald Trump’s desire to retool rules for the automotive sector in order to try to bring jobs and investment back north from lower-cost Mexico.

Mexico’s main auto sector lobby has described the latest U.S. demands, which include raising the North American content to 75 per cent from the current 62.5 per cent over a period of four years for light vehicles, as “not acceptable.”

Bureaucratic nightmare

The U.S. proposal also would require that 40 per cent of the value of light-duty passenger vehicles and 45 per cent for pickup trucks be built in areas with wages of $16 per hour or higher (all figures US$).

That could be a challenge for Mexico, where the Ann Arbor, Michigan-based Center for Automotive Research has estimated auto assembly workers on average earn under $6 an hour, and workers at auto parts plants on average earn less than $3 an hour.

Critics also say it would create a bureaucratic nightmare of paperwork.

Talks to renegotiate NAFTA started last August to fulfill a campaign pledge by Trump to bring manufacturing jobs back to the U.S.

Nine months later, the most troublesome issues remain open. The U.S. has stuck with a proposed sunset clause for the new deal, which would mean the agreement would need to be renewed every five years, a move that critics say would create huge uncertainty for businesses.

Another contentious U.S. proposal is to repatriate dispute resolution to the domestic legal system from international tribunals. Both Canada and Mexico oppose that measure, and so does U.S. business.

Asked if an agreement were possible this week, a Mexican source close to the talks said: “The possibility is there, but it will depend on whether the United States is flexible.”

Trump has frequently said he would pull out of NAFTA if a better deal was not possible, although he has sounded more positive about the deal in recent weeks.

It is unclear where the U.S. might give ground to win a quick deal. The Trump administration has embraced confrontational policies in its dealings on trade.

Reporting for Reuters by Veronica Gomez and Anthony Esposito; additional reporting by Ana Isabel Martinez, Frank Jack Daniel and Sharay Angulo in Mexico City, David Lawder in Washington and David Ljunggren in Ottawa; writing by Anthony Esposito.


Stories from our other publications