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U.S., Mexico poised to reach NAFTA deal as soon as Monday

August 26, 2018

The United States and Mexico are poised to resolve their bilateral North America Free Trade Agreement differences as soon as Monday, creating an opening for Canada to rejoin talks covering $1.2 trillion in annual trade.

Significant breakthroughs between Mexico and the U.S. came during the past several days on the contentious issues of automobiles and energy, according to three people familiar with the process who asked not to be named discussing private talks.

Along with Canada, they’ve been negotiating for a year to overhaul the 24-year-old accord at the insistence of Donald Trump. The U.S. president says the deal has led to hundreds of thousands of lost American jobs, and he promised to either change it to be more favorable to the U.S., or withdraw.

Trump said Saturday on Twitter that the U.S. could have a “big Trade Agreement” with its southern neighbor soon. The terms of any deal struck by U.S. Trade Representative Robert Lighthizer would need the president’s final approval. Companies operating across North America have worried that some of Trump’s demands could hurt the region’s economy.

Talks continued Sunday at the USTR’s offices in Washington. Arriving at the meeting, Mexican Economy Minister Ildefonso Guajardo was upbeat.

“The story of these types of things is always defined in the final minute, and I would say that we’re practically into the final hours of this negotiation,” Guajardo told reporters. “We’ll do everything possible to try to land a deal.”

Guajardo predicted that the U.S. and Mexico would need at least a week of work to resolve issues with Canada whenever the nation rejoins talks.

Mexico’s peso strengthened as much as 0.7 percent to 18.7789 per dollar in early Asian Monday trading.

There were signs this weekend of progress on some of the most complicated issues. Jesus Seade, the Nafta representative for Mexican president-elect Andres Manuel Lopez Obrador, on Saturday predicted that the nations will agree on a lighter version of a so-called “sunset clause,” an automatic expiration after five years—a key U.S. demand.

Regular evaluations

Guajardo has said repeatedly he expects the issue to be one of the last resolved once Canada returns to the talks. He’s proposed regular Nafta evaluations without the threat of any sudden death to the agreement.

The sunset clause is likely to see some type of compromise, said a U.S. official who asked not to be named. The person added that work on bilateral issues with Mexico is almost entirely complete.

It remains unclear how U.S. and Mexican negotiators would frame any announcement about the completion of work on their bilateral issues. Guajardo has signaled that the nation won’t declare victory on Nafta until Canada also signs on.

White House Press Secretary Sarah Huckabee Sanders said Sunday morning that the administration has “no announcements or anything finalized at this time.” Lighthizer and Jared Kushner, Trump’s son-in-law and adviser, declined to comment on Sunday afternoon as they left USTR, apparently headed for lunch.

Five weeks

The administrations of Trump and outgoing Mexican President Enrique Pena Nieto have been working for five weeks to resolve specific bilateral issues so Canada can rejoin the talks. The U.S. and Mexico are pushing for an agreement this month that would give the countries time to sign the pact before Lopez Obrador takes office in December.

A Canadian official declined to comment and referred back to remarks from Prime Minister Justin Trudeau, who said last week he was encouraged by optimism coming from the U.S. and Mexico but won’t sign just any deal.

On Saturday, Seade told reporters that the nations have resolved concerns that the deal had too many restrictions on how the next government can treat foreign oil companies investing in Mexico.

Factory jobs

The U.S. and Mexico in recent weeks had largely focused on the thorny issue of car manufacturing, as the Trump administration pushes for a deal aimed at boosting factory jobs in the U.S. Washington has proposed tightening regional content requirements for car production and having a certain percentage of a car manufactured by higher-paid workers.

While a U.S. proposal to increase tariffs on cars imported from Mexico that don’t meet new content rules has long been a sticking point, that issue appeared to have been resolved by Thursday.

The U.S. agreed to keep the 2.5 percent tariff currently applied under World Trade Organization rules if the cars are made at factories that already exist, according to two people familiar with the plans, who asked not to be named discussing private negotiations.

That would leave open the possibility that cars that don’t meet the rules and are built at new plants could face tariffs of 20 percent to 25 percent, pending the results of a Section 232 national security investigation that Trump ordered in May, the people said.

While Trump has floated the idea of negotiating bilateral trade accords—finalizing one with Mexico before moving to pursue a separate pact with Canada—both Mexico and Canada have said they want to keep a three-nation deal.

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