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NAFTA: Countries seeking to nail down broad outline of preliminary agreement

Last Updated Apr 6, 2018 at 4:17 pm EDT

Canadian Foreign Affairs Minister Chrystia Freeland, left, Mexico's Secretary of Economy Ildefonso Guajardo Villarreal, center, and U.S. Trade Representative Robert Lighthizer pose for a photo at a press conference regarding the seventh round of NAFTA renegotiations in Mexico City, Monday, March 5, 2018. The three NAFTA countries are in Washington Friday trying to come to terms on the broad outlines of an interim agreement. THE CANADIAN PRESS/AP-Marco Ugarte

Foreign Affairs Minister Chrystia Freeland hinted Friday that the three NAFTA countries could be close to some sort of deal.

Freeland dropped the hint mid-way through a day-long meeting in Washington with her U.S. and Mexican counterparts aimed at determining whether it’s possible to reach an interim agreement within days, before political deadlines render a deal impossible this year.

“We have entered, over the past couple of weeks, very much including today, a new, more intensive stage of engagement,” Freeland said.

“It is quite normal in trade agreements that the pace of progress increases as you get closer to the end,” she added.

Freeland said talks over the past two days have been “constructive and intensive” and the more intensive pace will continue “in the coming days.”

Sources said Friday’s meetings are key if there is to be a renegotiated NAFTA this spring, before Mexico elects a new president, the U.S. elects a new Congress and procedural rules make a ratification vote in Congress impossible this year.

What remains unclear is what form an imminent deal might take.

Freeland refused to clarify or to discuss what issues remain unresolved.

But one trade insider said two realistic possibilities for a quick agreement have been under discussion: one is to seriously scale back the scope of the talks and the other is to present something highly preliminary this spring and keep negotiating the details after July’s Mexican election.

That’s because the idea of a full overhaul of a new NAFTA that is thorough, and ambitious, and quickly completed, is a fantasy, said trade consultant Eric Miller of the Rideau Potomac Strategy Group.

“An agreement-in-principle is anything you want it to be,” he said.

“(But) a deal on a fully renegotiated NAFTA by the end of May, as the Trump administration would like, simply will not happen. There just isn’t enough time.”

It’s unclear the countries have even discussed, in any detailed way, major sticking points like dairy – which is a perennial top irritant in Canada-U.S. trade talks and would need to be resolved to have a thorough deal.

Autos have been the central issue so far, given the Trump administration’s overarching goal of pulling manufacturing jobs back from Asia and Mexico.
The U.S. has agreed to modify its most controversial auto proposal to date.

Its new proposal would grant credits to parts-makers that pay wages beyond $15 an hour and help those companies more easily meet the proposed U.S. floor of 85 per cent North American parts for a car to avoid a tariff.

It’s an extension of a Canadian proposal from January. Canada first suggested overhauling the old formula for calculating regional content and installing a system of credits for certain behaviour.

What emerged was a proposal that would scrap the old system that simply counts parts and replaces it with a more flexible list, based on the total value of parts, that would be regularly updated to include new technologies.

Canada’s presentation actually illustrated its argument with a picture to emphasize that the auto industry evolves rapidly and needs adaptable new rules to account for changes in materials, fuel sources, and software.

The Canadian proposal was presented with an image of the cartoon family The Jetsons, zipping along in their flying car in the year 2062, under the headline: “Rules of origin for the 21st century.”

Obtained by The Canadian Press, the proposal included eight elements. Among those elements are credits toward the 85 per cent for spending on research and development, for using steel and aluminum from this continent and for building new plants on the continent.

The American suggestion builds on that by proposing to credit companies somewhere between 25 to 35 per cent of the way toward that tariff-free total if they pay $15-an-hour wages.

Sources say Mexico is wary of the proposal and its potential to steer away jobs, but has not shot it down entirely, and is likely insisting on certain conditions that would soften its impact.

One industry source said the idea is a no-go if it’s used as a stick _ to punish companies that have lower salaries. But he said it could be designed as an incentive, to reward high salaries: “The question is, can you make an effective carrot?”

He said details that matter include the length of the phase-in period for the policy to take effect.