Mexico proposes solution to NAFTA auto parts stalemate; Canada-U.S. talks pushed to Tuesday

The NAFTA countries began a days-long negotiating round Monday in what could be their final chance for an agreement this year, before the talks enter electoral hibernation.

If an agreement doesn't happen soon, some feel it won't happen this year at all

Mexican Secretary of Economy Ildefonso Guajardo Villarreal has offered a counterproposal on the NAFTA auto parts conundrum. The Canada-U.S. bilateral talks will now be held tomorrow, after being pushed off. (Yuri Gripas/Reuters)

The NAFTA countries began a days-long negotiating round Monday in what could be their final chance for an agreement this year, before the talks enter electoral hibernation.

Any possibility of a deal hinges on the ability of Mexico and the United States to resolve a central issue of these negotiations, one that has significantly divided those two countries: auto parts.

Mexico delivered a counter-proposal on autos Monday in its first meeting of the round with the U.S., which ran slightly overtime and delayed the first Canada-U.S. session until Tuesday morning.

If an agreement doesn't happen soon, some feel it won't happen this year at all; Mexico and the U.S. will soon both be immersed in national election campaigns through most of 2018.

"We'll be here for as long as is necessary," Mexico's Ildefonso Guajardo said as he left the office of the U.S. trade representative, where the talks are being held.

U.S. trade czar Robert Lighthizer has said the window for a deal may only be open for the next week or two.

The U.S. is demanding that 40 per cent of every car be produced in a high-wage country — otherwise the car would be subject to a tariff. Automakers could meet that threshold with up to 15 percentage points' worth of credits for spending on research and development.

Mexico has rejected the U.S. plan as damaging to its own industry.

But some analysts say the latest U.S. plan wouldn't be good for any country, let alone their workers or consumers. Few companies would be likely to redesign their production patterns to comply with the new NAFTA, preferring to pay the 2.5 per cent tariff on small vehicles and pass the cost onto customers, they argue.

Guajardo said he shared with Lighthizer a so-called "conceptual" suggestion for a different way to calculate the auto rules, indicating that they discussed broad ideas more than specific percentages.

A big unknown question looming over the talks is what the U.S. might do after it gets a deal on autos — and whether it would opt for a quick agreement, or keep negotiating hard.

"That ... probably is the crux of what happens next," said one person familiar with the talks. "One does not know ... how the next week will play out."

More than a half-dozen groups have been meeting in recent days to try clearing the non-controversial issues off the table, so the ministers can focus on the hardest political trade-offs.

For example, one group met to discuss customs procedures, but avoided the toughest of all customs issues: online purchases and whether Canada will move its meagre $20 duty-free level closer to the American US$800 limit.

Guajardo said he felt his first meeting Monday produced progress. But he said there's still work to do — on multiple issues.

"Every day ... you are advancing toward your goal. Now, how far we are from reaching a deal, it will depend on how we construct solutions. And how creative and flexible we are," he said.

"My suggestion is that we do not have in these following days the luxury of just working on (the) one item (of autos). We need to work simultaneously on all the items."

'If the Americans want to find a deal, it can be done,' says Perrin Beatty, president of the Canadian Chamber of Commerce. 6:23

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