(Bloomberg) -- It’s looking increasingly likely Nafta talks will extend beyond a March target, meaning negotiators will have to deal with the added political uncertainty of a Mexican election campaign.
Thorny issues such as content rules for cars remain unsolved as negotiators prepare to meet Sunday through March 5 in Mexico City for the seventh round of talks. When negotiations began six months ago, politicians expressed optimism they could reach a deal by the end of 2017. They later pushed the goal to March -- a deadline that now looks almost impossible. With the U.S. complaining that progress on its demands is too slow, President Donald Trump’s threat to exit the pact is still weighing heavily over the discussions.
“The round in Mexico is very important, because it will give an idea if we can advance technically, and if the political can support that and put us on a path to resolving the differences,” said Juan Pablo Castanon, the head of the Mexican chamber of commerce. “The negotiations should take as much time as is necessary.”
Negotiators have finished work on three issues and could wrap up five to seven more this round out of a total of about 30, according Castanon. Despite progress in modernizing the 24-year-old North American Free Trade Agreement, there has been little or no movement on controversial and politically-charged U.S. proposals that Canada and Mexico say would hurt their economies.
Political will has been building to extend the talks. Mexican Economy Minister Ildefonso Guajardo has signaled that his government is willing to negotiate through July’s presidential election, even though teams are working on an accelerated timeline to avoid that scenario.
Nafta negotiators have wanted to avoid clashing with the Mexican election, given that trade can be a lightening rod for voter anger over their economic situation. Adding to the uncertainty, leftist frontrunner Andres Manuel Lopez Obrador has indicated lukewarm enthusiasm for the the accord, and there’ll be a five-month transition period before outgoing Mexican President Enrique Pena Nieto hands over power to the new government.
Trump said last month that he could be “flexible” on the timetable for Nafta talks given Mexico’s vote, a position Canadian Foreign Minister Chrystia Freeland has voiced support for.
The nations began renegotiating the North American Free Trade Agreement in August at the initiative of Trump. He says Nafta is responsible for hundreds of thousands of Americans losing manufacturing jobs as plants moved to Mexico to take advantage of cheaper labor.
To revive U.S. factories, Trump wants to raise the minimum content that a typical car must have to benefit from Nafta’s tariff exemptions to 85 percent from 62.5 percent. He also wants to add a U.S.-specific requirement of 50 percent.
Automakers warn the plan would upend supply chains. Canada has put forward its own ideas on how to calculate value, including giving more credit for driverless and electric cars, plus research and development work. U.S. Trade Representative Robert Lighthizer at the last round called Canada’s proposal “vague” and argued it would reduce the share of a vehicle made within the region.
While Mexico’s automobile association opposes a higher content rule, Guajardo has signaled government support for stronger requirements in order to reach a broader Nafta deal.
The U.S. midterm elections in November also loom large. Supporting trade agreements can be perilous for politicians seeking re-election. If the Republicans lose control of the Senate or House, it could be harder for the Trump administration to win congressional support for a new deal. Trump must also seek renewal by June 30 of his authority to seek so-called fast-track approval in Congress of trade deals, though the president isn’t expected to be denied an extension.
The atmosphere around Nafta has also been impacted by a Commerce Department recommendation released this month to impose steep curbs on imports of aluminum and steel. While the president’s final decision is still pending, it was the strongest indication yet that the White House intends to follow through with protectionist threats.
Tensions already have been growing between the U.S. and Canada. Lighthizer has complained about Canada launching a wide-ranging World Trade Organization dispute with the U.S. over how it applies countervailing and anti-dumping duties.
One possibility for getting a deal by the end of March would be reaching an agreement in principle and letting technical negotiations continue from there, David MacNaughton, Canada’s ambassador to the U.S., said earlier this month.
“There are still four or five sticking points,” he said. “If we roll up our sleeves and work hard on them, we can at least get to the point where we’ve got an understanding, whether it be an agreement in principle or whatever it is, which would then allow technical people to work on.”
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