U.S. Cites Nafta Progress But Rejects Canadian Proposals -- 2nd Update

01/29/18 04:34 PM EST
By Paul Vieira and William Mauldin 

MONTREAL -- Negotiations to revamp the North American Free Trade Agreement survived what was seen as the crucial sixth round, with the U.S., Canada and Mexico tackling difficult issues even as tensions flared between the U.S. and Canada over auto-industry rules.

Singling out Canada for criticism, U.S. Trade Representative Robert Lighthizer said Ottawa's proposal on changing rules in the crucial auto sector would reduce jobs in the bloc. He also chastised Canada for recently bringing a case to the World Trade Organization challenging the Trump administration's use of tariffs.

Still, Mr. Lighthizer and his Mexican and Canadian counterparts nodded to progress in the talks at the official end of a six-day round of Nafta negotiations in Canada's second-largest city.

"Some real headway was made here today," Mr. Lighthizer told reporters after meeting with his counterparts. "I am hopeful that progress will accelerate soon."

The stakes were high going into the sixth installment of talks, amid worry among some officials, business groups and trade watchers that a lack of progress on key U.S. demands could prompt President Donald Trump to follow through on his threat to begin America's withdrawal from the 24-year-old agreement.

The three countries are under some time pressure. Some U.S. lawmakers are worried that disagreements over Nafta or other trade issues could affect their 2018 election campaigns. Extending the talks past late March, the latest official deadline, could also lead to political problems in Mexico, which holds presidential and congressional elections July 1.

The Trump administration months ago unveiled divisive proposals intended to bring manufacturing jobs back, and both Canada and Mexico have recently countered the U.S. proposals with ideas of their own, reassuring observers who worried the talks would grind to a stalemate.

Canada laid out an informal proposal seeking to address the U.S. demand for more North American content in cars. But that proposal didn't address the most controversial Trump administration demand that light vehicles contain 50% U.S. content to cross U.S. borders duty-free.

Mr. Lighthizer, the U.S. trade czar, dismissed Canada's proposal.

"We find that the automobile rules-of-origin idea that was presented, when analyzed, may actually lead to less regional content than we have now," he told reporters.

During the Nafta negotiations, tension has risen between the U.S. and Canada, with trade cases filed on each side. The strain was visible as Mr. Lighthizer criticized Ottawa's policies while Canadian Foreign Minister Chrystia Freeland looked on.

Ms. Freeland said the tensions with the U.S. don't pose a risk to the talks. "I don't think I need to ever defend Canada's actions when it comes to defending our workers and industry," she said in a later briefing with journalists.

Beyond cars, significant disagreements remain among the Nafta negotiators, especially on a dispute-resolution process. That came into focus in the Montreal round as Mexico and Canada rejected a Trump administration proposal to remake a corporate arbitration system, known as the investor-state dispute settlement.

"It's going to be a long and drawn-out process, but at least there's a process," said Eric Miller, president of Washington-based trade consultancy Rideau Potomac, who was in Montreal for part of the round. "We have stepped back from the precipice. We are not out of the woods but we have avoided disaster."

Canadian union leaders and Democratic lawmakers who came to Montreal said negotiators have yet to seriously address improved labor standards, in an effort to stem the flow of manufacturing jobs from the U.S. and Canada to Mexico.

Mr. Trump has appeared to soften some of his harsh rhetoric toward Nafta in recent weeks, signaling a deadline could be extended and that talks are going well. But he has also reiterated his threat to withdraw from the trade pact if the three countries don't agree on a major overhaul that accommodates U.S. concerns.

Some U.S. lawmakers believe the countries shouldn't be tied to a specific deadline. "We believe it is important to get a quality agreement rather than have one tailored to a strict timeline," Rep. Dave Reichert (R., Wash.), chairman of the House of Representatives Subcommittee on Trade, told reporters in Montreal over the weekend.

The three countries didn't extend their official deadline for wrapping up talks in March, and Mr. Lighthizer said he hopes to see progress behind the scenes before the next round of talks begin in Mexico City in a month.

Ildefonso Guajardo, Mexico's economy minister, said a deal may be possible before Mexican elections in July. Meanwhile, he said, "there must be engagement from all parties to be able to move this and have possible solutions on the table for the three or four most contentious issues."

Mexico's July vote is seen as a referendum both on President Enrique Peña Nieto's corruption-plagued ruling Institutional Revolutionary Party and on a trade-anchored economic model that critics argue has left too many Mexicans behind. Andrés Manuel López Obrador, the leftist nationalist who maintains a solid lead in opinion polls, has said he would take a tougher stance on trade and economic issues as well as on dealings with the Trump administration.

Also by July, the Trump administration will have to renew its negotiating authority with Congress under legislation known as fast-track or trade-promotion authority. The renewal is largely automatic unless lawmakers decide to put forward and pass a specific resolution disapproving of an extension.

Mr. Lighthizer said Monday Mr. Trump would ask for fast-track authority on a Nafta deal. Such authority helps a president push a trade deal through Congress without amendments.

--Dudley Althaus in Mexico City contributed to this article.

Write to Paul Vieira at paul.vieira@wsj.com and William Mauldin at william.mauldin@wsj.com


(END) Dow Jones Newswires

January 29, 2018 16:34 ET (21:34 GMT)

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