Canadian PM sees high chance of NAFTA deal with US, Mexico

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April 5, 2018 3:51 PM

Canadian Prime Minister Justin Trudeau signalled Thursday he saw a strong chance of reaching a deal with the US and Mexico to revamp the North American Free Trade Agreement.

"We have a high chance of reaching a win-win-win deal for Canada, the United States and Mexico," Trudeau told reporters.

"With the pressures of the elections in Mexico, and the US elections, if we could announce something at the Summit of the Americas, that would be great," he added, in reference to the April 13-14 gathering of regional leaders in Peru.

Foreign Minister Chrystia Freeland headed to Washington to meet with her counterpart, US Trade Representative Robert Lighthizer, who on Wednesday met with Mexican Economy Minister Ildefonso Guajardo, to try to reach an agreement in principle on NAFTA.

The trio are to get together for a working dinner Thursday evening, according to public broadcaster CBC, and hold talks on Friday.

Freeland said negotiators in seven rounds of talks since last August had made "some good progress" in overhauling the 24-year-old trade pact.

Several stumbling blocks remain to be resolved, particularly Washington's proposals on rules of origin for auto manufacturing, a "sunset clause" for the agreement and a dispute resolution mechanism.

But the administration of US President Donald Trump is increasing pressure to quickly reach a new trade deal at a time when uncertainties about cross-border commerce are weighing on Wall Street, and ahead of July's presidential elections in Mexico and November's midterm US congressional elections.

The White House must also contend with market jitters over Trump's new import tariffs on metals and Chinese-made goods, and Beijing's response, which has roiled stock markets.

Under the current agreement, 62.5 percent of the content of a vehicle must be produced within the NAFTA countries to move duty-free across borders.

Washington wants to bump this requirement up to 85 percent, with 50 percent of US origin -- a proposal that Ottawa and Mexico City have rejected.

US officials have not confirmed a Canadian media report that US negotiators have dropped this demand.

Freeland said in March that she and Lighthizer had "made some progress on the rules of origin for autos," which she described as both "the heart" of and "the most fiendishly complex" aspect of the agreement.

The Globe and Mail, citing unnamed sources, said the US and Canada also remain far apart on US demands for "Buy American" procurement rules, and on opening up access to Canada's dairy and poultry sectors.

Mexico, meanwhile, is reportedly holding out against a US demand that would require automakers to source auto parts from factories that pay workers at least $15 per hour -- in line with US and Canadian wages, versus Mexico's current average wage of $3 per hour.

The auto parts sector is concerned that higher wages will increase costs throughout the supply chain, leading to higher prices for vehicles or a shift in work to lower-wage jurisdictions outside of North America. Companies would then have to pay a 2.5 percent tariff to import vehicles into the United States, under WTO rules.

In a speech Wednesday in Toronto, US Ambassador to Canada Kelly Craft listed other trade irritants, including a lack of US access to Canada's telecommunications sector and generic drug market, and its relatively low threshold for duty-free consumer goods.

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