Nafta Deal Comes Down to Handful of Thorny Issues, Kalach Says

The Trump administration has stuck to five to six of its most controversial demands for changes to Nafta and needs to show flexibility in order to reach a final deal, according to the top representative for Mexico’s private sector.

The U.S. has yet to present a proposal for automotive content rules that would be viable for the industry, said Moises Kalach, the trade head for the national business chamber known by its Spanish abbreviation, CCE. Work on a revamped North American Free Trade Agreement has the three nations ready to close nine to 10 chapters focused on modernization, including telecommunications, energy, and the environment, which would leave chapters with the most contentious issues as those to resolve, he said.

“There are five or six demands that are unacceptable for Mexico and unacceptable for the Mexican private sector,” Kalach said in an interview with Bloomberg TV in Washington on Friday. “Those demands like the sunset clause, that has the sudden death to it, seasonality to limit exports on fresh products, trade remedies — those are things that the Mexican private sector is not willing to accept and those demands are still on the table. That’s what’s really holding up this negotiation.”

Negotiators this week are trying to make progress on the most contentious issues, including dispute resolution, access to U.S. procurement deals, a proposal to require more auto manufacturing in North America, seasonal barriers to agriculture trade and a clause that would terminate Nafta after five years unless the nations agree to continue it. Meanwhile, Canada’s minister responsible for industry, Navdeep Bains, met with carmakers Friday and said he’s “cautiously optimistic” about progress made on the crucial auto issue.

The U.S. push to announce a framework deal this week looks to have fallen short after President Donald Trump canceled his trip to Peru to participate in a regional summit. Mexican Economy Minister Ildefonso Guajardo on Monday said he sees an 80 percent chance of an initial agreement by the first week of May.

On the talks for cars, one of the most contentious issues, “we haven’t seen a proposal that’s achievable up to now,” Kalach said. “That has to change in order for this to happen.”

The U.S. has at least twice softened demands for changes to the auto sector. U.S. negotiators are now proposing that as much as 75 percent of car parts be sourced from the three countries to quality for tariff exemptions under Nafta, down from an initial proposal of as much as 85 percent, according to three people familiar with the talks, who asked not to be named as the negotiations are private. The current Nafta level is 62.5 percent.

Bains met with Canadian automakers and auto-part makers to discuss several issues including ongoing Nafta talks. “We’re making progress,” the minister said. He cited one-time U.S. interests, such as a border-adjustment tax and a U.S.-specific auto content requirement, that are no longer on the table as positive signs.

He and the auto sector representatives discussed the future of the industry, including the role artificial intelligence will play and how the country can attract auto jobs of the future, he said, warning that any sharp changes in Nafta’s rules could hurt the sector. “Any change add costs, any new rules could potentially add costs and that could undermine the ability to compete, that could raise the cost for vehicles,” Bains said.