United States, Mexico enter ‘rapid track’ in NAFTA talks

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Mexico and the United States will meet this week for the second time in one-on-one talks on North American free trade without Canada as the Trump administration makes a push for a deal.

Foreign Affairs Minister Chrystia Freeland, who is flying to Singapore this week for Association of Southeast Asian Nations (ASEAN) meetings, has told Robert Lighthizer, the United States Trade Representative, that she is ready to head to Washington if necessary, a source familiar with the talks said. But the Americans have said they need to focus on Mexico right now.

Mexican Economy Secretary Ildefonso Guajardo will head to Washington on Thursday for talks with Mr. Lighthizer, both Politico.com and Inside U.S. Trade reported on Monday. There was no official word of these meetings, however, as a spokesman for Mr. Guajardo said he had no confirmation of the date or times of ministerial-level gatherings.

Mr. Guajardo and Mr. Lighthizer also met last week on July 26.

Disagreement between Mexico and the United States over U.S. demands for a wage floor in NAFTA-zone auto manufacturing and stricter North American content requirements for vehicles sold duty-free in the region were a key logjam in talks earlier this year.

David MacNaughton, Canada’s Ambassador to the United States, is keeping a close watch on the U.S.-Mexico talks. Last Friday, the Canadian envoy met with Jesus Seade, trade adviser to Mexican president-elect Andres Manuel Lopez Obrador, the source said.

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Under lengthy transition rules, Mr. Lopez Obrador does not take power until Dec. 1 and, according to an official with Mr. Guajardo’s Economy Ministry, sitting Mexican President Enrique Pena Nieto has the authority to sign a deal on the North American free-trade agreement until Nov. 30.

Officials from Canada, Mexico and European and Asian auto-producing countries are meeting on Tuesday in Geneva to discuss how to react to U.S. President Donald Trump’s threat to impose, on national-security grounds, tariffs of up to 25 per cent on vehicles and auto parts exported to the United States.

A Canadian government official said Japan and the European Union organized this meeting of departmental officials from Canada, the EU, Japan, Mexico and South Korea. “The meeting is meant to bring together major auto producing nations so we can discuss our concerns over the U.S. Department of Commerce’s Section 232 investigation of automobiles and parts.”

U.S. Commerce Secretary Wilbur Ross said on Monday that NAFTA talks with Mexico are on a “rapid track," Politico.com reported, describing this as an indication that a deal should fall in place fairly soon after the United States and Mexico can reach agreement.

“Mexico is intellectually the more complicated of the two, so if we can solve that, we should be able to fill in with Canada,” Mr. Ross said at the U.S. Chamber of Commerce’s Indo-Pacific Business Forum.

A U.S. industry source said Mexico and the United States have made progress on autos in recent days. As The Globe and Mail reported last week, Mexico had warned in negotiations that if the wage floor for auto manufacturing was enacted immediately, four major Mexican auto plants would go out of business. Mexico is demanding some sort of structure to grandfather, or exempt, existing plants from the wage floor, at least in the short-to-medium term.

The reason for the new push for a deal is that the window of timing to get a deal done with Mexico is closing.

The U.S. Trade Promotion Authority legislation requires the U.S. administration to give Congress 90 days notice of an agreement before it can be signed. With the new Lopez Obrador Mexican administration taking office on Dec. 1, the United States has until the end of August to reach a deal with the outgoing Peña Nieto administration that has represented Mexico in the talks for the past year, said Ohio trade lawyer Dan Ujczo, who has clients in the auto and steel sectors.

But any agreement struck with Canada and Mexico will be voted on by the new U.S. Congress that will be elected in November.

Because of the pressure to reach a deal with Mexico, it is probably not essential that Ms. Freeland attend this week’s meeting, Mr. Ujczo said.

If the Americans and the Mexicans can reach a deal on autos, that entire section becomes workable, said Flavio Volpe, president of the Automotive Parts Manufacturers Association of Canada.

"If the U.S. and Mexico reach [agreement] on the auto provisions, they just flip it to Canada and say: ‘Take it or leave it,’ " Mr. Volpe said.

Auto trade has been among the most contentious issues at the NAFTA negotiating table in part because of the flood of automotive investment into Mexico in recent years and the U.S. perception that a huge percentage of that investment means jobs have migrated from the United States to its low-wage southern neighbour.

When negotiations on a new agreement broke off in May, the Americans were proposing that vehicles assembled in any of the three NAFTA countries contain 75-per-cent North American content to qualify for duty-free shipment within the free-trade zone, and that 40 per cent of all content come from areas where wages were at least US$16 an hour. Workers at Mexican auto parts plants earn about one-quarter of that amount.