Nafta Negotiators Turn to Thorny Issue Just as Ministers Arrive

(Bloomberg) Negotiators are set to focus on one of the most controversial topics in talks to update the North American Free Trade Agreement — the rules governing the source of inputs for manufactured goods — as administration officials from the U.S. and Mexico arrive in Canada.

U.S. Trade Representative Robert Lighthizer and Mexican Economy Minister Ildefonso Guajardo are scheduled to land in Ottawa on Tuesday and dine with Canadian Foreign Minister Chrystia Freeland tonight. They’re expected to brief reporters on Wednesday afternoon at the close of the third round of negotiations, which started Saturday.

During those final two days of talks for the round, negotiators have set aside 12 hours to discuss the so-called rules of origin, which dictate the amount of North American content that must be included in products, according to an agenda obtained by Bloomberg. That’s more than any other topic up for discussion in the round, and reflects the seriousness of an issue that Mexico’s Guajardo has described as an elephant in the room.

The U.S. has called for a minimum level of American content in Nafta-made cars to bolster its manufacturers. It has yet to present the concept in a concrete proposal, according to Canada’s chief negotiator Steve Verheul and his Mexican counterpart, Kenneth Smith Ramos. The two countries have publicly pushed back against the U.S. idea, which could increase production costs and hurt their own manufacturers.

Points of Contention

Under current Nafta rules, 62.5 percent of the value added of vehicles must originate in North America. But there are no requirements in the 23-year-old pact for content from each country.

The U.S. proposal for American-made content could provide one of the first major points of contention in Nafta talks so far, after negotiators in the previous two rounds praised their progress and shared commitment to finish discussions this year. The three sides are also scheduled to discuss worker mobility and labor rights in the final two days of this round.

U.S. Commerce Secretary Wilbur Ross, an outspoken critic of past trade deals, said last week that talks won’t meet American objectives if the rules-of-origin provision isn’t included. “While Nafta has achieved its goal of increasing three-way trade in absolute terms, American workers and businesses are not benefiting in a way that is fair and reciprocal,” he wrote in an op-ed piece in the Washington Post.

His article echoed comments made frequently by President Donald Trump, who has threatened to pull out of Nafta if he can’t rewrite the deal to protect American jobs and shrink the trade deficit with Mexico.

‘No Progress’

Given that the U.S. has yet to present its proposals on rules of origin and labor, some including Canadian union leader Jerry Dias say they doubt that the Nafta nations can reach a deal by their goal for the end of this year — assuming they can ever come to an agreement. While Dias isn’t participating directly in negotiations, he is among union leaders working closely with Canadian Prime Minister Justin Trudeau as he presses for Nafta labor reforms.

“There’s no progress, things are going very slow,” said Dias, head of the country’s largest private-sector union, Unifor, whose members include autoworkers.

A spokeswoman for Lighthizer rejected Dias’s comments.

“The Nafta negotiations are progressing at an unprecedented pace,” spokeswoman Emily Davis said in an email. “The United States remains committed to substantially changing Nafta for an agreement that is fair for all Americans.”

Smith Ramos, Mexico’s chief negotiator, dismissed concern that the U.S. isn’t moving fast enough with its proposals.

“Proposals for different chapters are arriving at different moments,” he told reporters Sunday night when asked about American proposals for rules of origin and labor. “There isn’t a specific proposal from the U.S. on that, but at some moment it will arrive.”