Mexico and U.S. inch closer on NAFTA talks, paving way for Canada’s return

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Mexico’s Economy Minister Ildefonso Guajardo says he hopes Mexican and American negotiators can wrap up their two-way NAFTA talks shortly and pave the way for Canada to rejoin negotiations.

Speaking to reporters in Washington on Wednesday morning, Mr. Guajardo played down reports that a breakthrough had already been achieved and emphasized that any handshake to seal a North American free-trade agreement renegotiation deal would take place between all three countries, including Canada.

“A breakthrough is really when you finish everything. But we hope that we will have a solution in the next couple of hours or couple of days,” he said.

A U.S. trade source says the Trump administration is hoping to formally announce on Thursday that it has reached a breakthrough in NAFTA talks with Mexico, opening the door for Canada to rejoin negotiations to modernize the free-trade pact.

Mexico and the United States have been talking without Canada for weeks as Mexico City tried to address U.S. demands for changes to auto trade rules that could benefit the American industry.

“What we are doing here is trying to get, and solve, the issues that are most important between the U.S. and Mexico,” Mr. Guajardo said. “That will lead to a trilateral meeting with Canada.”

Mr. Guajardo negotiated with United States Trade Representative Robert Lighthizer for about five hours on Wednesday and the Mexican minister’s office said the two men plan to resume talks on Thursday at 10 a.m ET.

Asked whether he would be ready to unveil a handshake deal with the U.S. administration on Thursday, the Mexican minister balked. “We cannot assure that. It depends on how talks go."

He made a point, however, of emphasizing that any real handshake would take place when an overall NAFTA deal is clinched and that this would include Canada. “I think the … handshake happens when everybody’s done.”

Foreign Affairs Minister Chrystia Freeland, in Nanaimo, B.C., for a Liberal cabinet meeting, said she’s pleased by reports that the United States and Mexico are making progress, adding she’s looking forward to rejoining NAFTA talks.

“I’ve been in close touch with both the U.S. and Mexico this week as we have been throughout the summer,” she said.

“We’re hearing optimism from them about the work they’re getting done on the bilateral U.S.-Mexico issues.”

Canada has been left out of top-level NAFTA talks for months. Sources with knowledge of the talks have said the U.S. finds Canada harder to deal with than Mexico and didn’t want Canada in the room for now.

Canada, Mexico and the United States have all publicly insisted there is no rift and that the Mexico-U.S. talks exclude Canadian negotiators simply because the matters under discussion chiefly concern those two countries. Mexico has publicly insisted it is only interested in a three-way NAFTA deal with Canada.

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.

A senior Canadian official said they do not expect any announcement from U.S.-Mexico talks that would amount to fully renegotiated trade deal between those two countries. They expect a breakthrough on NAFTA discussions on autos and some other bilateral issues.

Ms. Freeland declined comment on what the U.S.-Mexico compromise looks like, saying she would leave it to them to eventually elaborate once talks are concluded.

She insisted Canada will have a say before any full NAFTA deal is clinched.

“We will very much have a voice in the finalization of all of this.”

An announcement of progress in talks by the United States, even if it features handshakes with the Mexicans, does not mean a deal is close, noted Eric Miller, a trade consultant who heads the Rideau Potomac Strategy Group.

“My understanding is that there are still very controversial issues – like the sunset clause – on which they have not made meaningful progress,” Mr. Miller said.

Two major obstacles to a full NAFTA deal remain unresolved: U.S. President Donald Trump’s insistence on a five-year termination clause for NAFTA, also called the “sunset clause,” as well as Washington’s desire to gut Chapter 19, which provides for a binding process to resolve trade disputes between NAFTA countries.

A Canadian official on Wednesday said Canada does not intend to budge on these two issues.

Also, Mexico’s government said as recently as late July that it still regards Washington’s demand for sunset clause as a deal breaker.

Canada also insists on preserving Chapter 19.

The U.S. demand that Canada give up on Chapter 19 is “asking Canada to move away from its principles on how a trade agreement should be done, including a dispute settlement mechanism that means disputes are resolved on the basis of fact and text rather than on the basis of power,” Mr. Miller said.

With reports from Greg Keenan in Toronto