November 14, 2017 / 1:11 PM / in 8 days

Mexico to respond to tough U.S. proposals at fifth NAFTA round

MEXICO CITY (Reuters) - Mexico will respond to U.S. demands for changes in content rules for autos and an automatic expiration clause in the NAFTA trade deal when negotiations on reworking the accord begin again this week, a top government official said on Tuesday.

FILE PHOTO: People cross a pedestrian bridge at the international border port in Nuevo Laredo, Mexico, January 28, 2017. REUTERS/Daniel Becerril/File Photo

A fifth round of talks to overhaul the North American Free Trade Agreement starts on Wednesday in Mexico City, notable for U.S. demands that the U.S. Chamber of Commerce has labeled “poison pills.”

Foremost among them are a 50 percent minimum U.S. limit in NAFTA automobile content, the scrapping of a key dispute mechanism and inclusion of a sunset clause that will terminate the pact after five years if it is not renegotiated.

The measures soured the mood among U.S., Mexican and Canadian negotiators when put forward last month, and Mexico’s economy minister, Ildefonso Guajardo, said his country would respond to the auto content and sunset clause plans.

“Those responses will be angled very logically toward what we’re hearing from the business world in Mexico and the United States,” Guajardo said at an event in Mexico City.

The three sides would explore what scope there was for narrowing their positions on that basis, he added.

Industry officials across the region have balked at the auto proposals, arguing they would add bureaucratic hurdles, be hard to enforce and could damage the competitiveness of the sector.

In addition to seeking to establish U.S. minimum thresholds, the team led by U.S. Trade Representative Robert Lighthizer has proposed raising the regional content requirement for NAFTA autos to 85 percent from 62.5 percent at present.

The coming round, which runs through Nov. 21, would seek to examine the viability of such ambitious targets, Guajardo said.

“It’s one thing for them to say ‘we want 85 percent regional value’ and another for them to explain how to achieve that technically, understanding how the industry works,” he said.

U.S. President Donald Trump has threatened to withdraw from NAFTA if he cannot rework it to the benefit of the United States, spooking investors and hurting the Mexican peso.

Mexican and Canadian officials have privately voiced skepticism about the prospect of negotiators making substantial progress on the most divisive issues during the current round.

That does not necessarily mean talks will be bad-tempered.

The White House is pushing for congressional approval of Trump’s planned tax cuts, and officials say that could help set a more measured tone for the round, lest trade disputes create friction with NAFTA-supporting Republican lawmakers.

If Trump makes headway on tax cuts, it is more likely to help NAFTA talks than harm them, said Bosco de la Vega, head of Mexico’s National Agricultural Council (CNA), a farming lobby.

“What we know from our U.S. counterparts is that they’re saying, ‘listen: we see that the future of (NAFTA talks) will depend on the success or failure of the tax reform.’ It will have a direct impact on NAFTA. How much? Who knows?” he said.

Meanwhile, Guajardo expressed confidence that negotiators could make progress on less divisive topics in Mexico City.

“There are some chapters we believe we can finalize this round,” he said, noting that talks on telecommunications and regulatory practices were advancing.

Guajardo also addressed the subject of U.S. demands to raise certain Mexican and Canadian duty-free import limits for e-commerce, known as “de minimis,” to the U.S. level of $800, from current thresholds of $50 and C$20, respectively.

That would be one of last things defined in NAFTA talks and will be far from what U.S. companies are targeting, he said.

Additional reporting by David Lawder in Washington, David Ljunggren in Ottawa, Anthony Esposito and Adriana Barrera in Mexico City; Editing by Richard Chang and Steve Orlofsky

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