November 21, 2018
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US, Mexico reach partial agreement to resolve trade conflict, a step toward a NAFTA deal

Luis Alonso Lugo | AP
Luis Alonso Lugo | AP
United States Trade Representative Robert Lighthizer, left, and Mexican Secretary of Economy Idelfonso Guajardo, right, walk to the White House on Monday. President Donald Trump says the prospects are "looking good" for an agreement with Mexico that could set the stage for an overhaul of the North American Free Trade Agreement.

WASHINGTON — Trump administration officials reached a partial accord with Mexico on the terms of a new North American trade deal, including a provision that would require more auto manufacturing be done in high-wage factories, according to two people briefed on the agreement.

The deal is the most significant step toward a new agreement since talks with Mexico and Canada began one year ago. But negotiators remain far from finishing their work.

The announcement left unresolved a number of contentious U.S. demands and Canada, which has not participated in the deliberations for five weeks, must sign on before a new North American trade deal is complete.

Negotiators are rushing to finish a new treaty by the end of this week in hopes of securing Mexican lawmakers’ approval before incoming Mexican President Andres Manuel Lopez Obrador is sworn in Dec. 1.

The populist Mexican leader remains leery of plans to enshrine Mexico’s oil industry privatization in a new treaty. His aides, who have been participating in the talks alongside officials from the current Mexican administration, want to preserve the incoming government’s flexibility.

In recent days, U.S. and Mexican diplomats reached agreement on key elements of a new treaty, including an increase in the percentage of each car that must be made in North America to qualify for duty-free treatment to 75 percent from the current 62.5 percent.

The two sides agreed to a provision that would require a significant portion of each vehicle be made in high-wage factories, a measure aimed at discouraging factory jobs from leaving the United States for Mexico.

Negotiators also resolved a dispute over how to treat cars and trucks produced in Mexican plants that do not comply with the new treaty’s content rules. American companies importing those vehicles will pay a 2.5 percent tariff.

“What most of us are focused on now is: what happens next?” said Dan Ujczo, a trade attorney with Dickinson Wright.

Having resolved their major sticking points with Mexico, the Trump administration is now expected to press Canada to accept quickly the consensus terms. But Canadian Prime Minister Justin Trudeau, whom Trump criticized in harsh terms following the G-7 summit in Quebec in June, does not want to be viewed at home as conceding to the unpopular American president.

“Can we actually get a deal done with Canada when they’re negotiating with a gun to their head and a ticking clock?” Ujczo said. “Canada’s got some choices to make.”

Trump has been critical of Canada’s dairy management system, which restricts imports of poultry, eggs and dairy products to provide Canadian farmers high prices.

Other long-standing points of contention remain unresolved, including a U.S. demand that the treaty sunset every five years unless explicitly reauthorized by the three governments. Business leaders complain such language would make it too difficult to plan future investments.

“The competitiveness of North America will be diminished if companies fear the rules are at risk of constant change,” the Information Technology Industry Council said Friday. “These potential provisions risk jeopardizing the incentives for businesses to innovate, invest, hire, and produce across North America.”

The NAFTA renegotiation has been a rocky one. The president over the past year repeatedly lambasted the original 1994 treaty, calling it a “bad joke” and blaming it for the loss of millions of American factory jobs.

One year ago, U.S. Trade Representative Robert E. Lighthizer kicked off the negotiations by calling for a major overhaul of trade rules to take account of nearly a quarter century of economic changes and to rectify the imbalance in trade between the U.S. and its southern neighbor.

Trump, he said, was “not interested in a mere tweaking of a few provisions.”

Though trade deals are complex affairs that typically require years of glacial bargaining, administration officials initially hoped to finish the job by the end of 2017. They failed to meet that ambitious timetable and also blew through revised deadlines for the end of March and late May.

This time, the deadline may be real, given a congressional requirement for 90 days notice of an impending trade deal. If the administration doesn’t formally notify Congress that it has reached agreement with both Canada and Mexico by the end of August, the outgoing Mexican President Enrique Pena Nieto will not be able to sign it.

Negotiators want to get a deal wrapped up before Lopez Oprador, who might demand additional changes, takes office.

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