Canada, Mexico to Confront U.S. Auto-Content Demands at NAFTA Talks

MEXICO CITY (Reuters) —

Canada and Mexico plan to confront the United States over its demand for tougher NAFTA automotive content rules, people briefed on the matter said on Monday, underlining slow progress on the trade pact’s most important issues.

The Canadian and Mexican negotiators are expected to rebut the U.S. autos demands on Tuesday, the final day of the latest round of negotiations to update the North American Free Trade Agreement.

“Everybody has more preparations to do,” on the all-important automotive rules of origin, Jerry Dias, president of Canada’s Unifor union, said on the sidelines of the talks after a briefing with Canadian negotiators.

U.S. President Donald Trump has threatened to quit NAFTA, which has reshaped the continent’s auto sector over the past 23 years, unless major changes can be made to return manufacturing jobs to the United States.

Vehicles and auto parts account for most of the $64 billion U.S. trade deficit with Mexico, a sore spot for Trump.

A second person briefed on the negotiations said the autos session would take place on Tuesday.

Although the talks are due to wrap up in March 2018 after the seventh and final round, progress has been slow, and there are no signs of compromise on a series of contentious demands the United States unveiled at the fourth round last month.

The Trump administration wants half of the content of all North American-built autos to be produced in the United States and that the regional vehicle content requirement be sharply increased to 85 percent from the current 62.5 percent.

“There is no product made in North America that meets this rule of origin requirement,” said Matt Blunt, president of the American Automotive Policy Council, which represents Ford Motor Co, General Motors Co and Fiat Chrysler .

Blunt added that he thought the autos discussions would center on “trying to understand the U.S. objective.”

Canada and Mexico dismiss the idea as unworkable and plan to respond with presentations on how such a move would damage the North American auto industry, people briefed on the talks said.

A Mexican auto industry representative with knowledge of the talks called the U.S. proposal “insane” on Sunday, adding: “You cannot counterproposal such madness.”

Sources with knowledge of the talks said on Sunday that they ran the risk of grinding into a stalemate because of Canada and Mexico’s unhappiness about U.S. proposals.

Hanging over the talks are increasing fears that Trump will follow through on a promise to pull out of NAFTA and that economic damage would follow.

The Canadian dollar edged lower against its U.S. counterpart on Monday, in part because of concerns about the negotiations.

Alarmed U.S. politicians and industry groups have started to put concerted pressure on the White House not to take drastic moves they say would cause job losses.

“Support for NAFTA from the American private sector, and also members of Congress, and even Republican governors, is starting to get very vocal, which we view very positively,” said Moises Kalach, head of the international negotiating arm of Mexico’s CCE business lobby.

Kalach told reporters that negotiators had made progress in three areas – telecoms, regulatory improvements and sanitary and phytosanitary measures – although it was too soon to say whether those chapters could be closed this round.

In San Antonio, Texas, a senior U.S. official told a Senate panel that the administration wanted to rebalance the large automotive trade deficit with Mexico.

Stephen Vaughn, general counsel for the U.S. Trade Representative’s office, said since autos produced in North America qualified for duty-free status under NAFTA, “are we making sure that the U.S. is getting enough benefits from that production to justify those privileges?”

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