By Sara Schaefer Muñoz and Bob Davis
WASHINGTON -- Opening-round talks to remake the North American
Free Trade Agreement revealed early fissures dividing the U.S. from
Mexico and Canada, including a Trump administration proposal to
require a "substantial" portion of autos and auto parts produced
under the pact be made in the U.S.
The renegotiation of the trade deal, which was one of President
Donald Trump's main campaign promises and a key pillar of his
"America First" agenda aiming to revive U.S. manufacturing and
reduce the country's trade deficit, is likely to face many hurdles.
Auto makers in all three nations generally oppose the stricter
rules floated by the U.S. negotiator, and pro-business lawmakers in
Congress don't want to see the pact significantly altered.
In the first-round talks, which concluded Sunday, the three
countries said in a trilateral statement they had made "detailed
conceptual presentations" of their positions and were working
toward "an ambitious outcome" through a fast-paced schedule of
negotiations.
Early tensions over areas such as the so-called rules of origin
-- a major issue for the automotive industry -- signaled the tough
bargaining that lies ahead as the three nations try to wrap up a
deal by early next year.
The chief U.S. negotiator, Robert Lighthizer, came into the
talks Wednesday saying the U.S. would insist on tightening the
rules of origin, and adding a provision covering U.S. production,
an idea quickly dismissed as unworkable by Mexican and Canadian
officials.
At this early stage of the talks, it is difficult to measure the
depth of the disagreement. Opening rounds generally set the tone
and schedule for negotiations. The U.S. has yet to release
specifics on some of its most controversial positions, including
measures to reduce the U.S. trade deficit, prevent currency
manipulation, favor U.S. companies in government contracts, known
colloquially as Buy America, and rework rules governing arbitration
panels.
Discussions continue within the administration about how to
accomplish those goals without harming U.S. companies, U.S. and
industry officials said.
"The lack of U.S. clarity represents a risk [for Canada and
Mexico], and they are trying to prepare for any eventuality," said
Eric Miller, a global fellow at the Woodrow Wilson Center's Canada
Institute.
Mr. Lighthizer focused early on what are known as rules of
origin requirements, which govern what portion of a product must
come from within the bloc to qualify as tariff-free. In his opening
remarks last week, Mr. Lighthizer noted that in the auto sector
alone, the U.S. has a $68 billion deficit with Mexico and thousands
of American factories workers have lost their jobs.
To create more U.S. manufacturing jobs, he suggested that the
pact should set a standard not only for higher content from the
three Nafta countries, but also for U.S.-specific content, a demand
that drew early resistance from the trading partners Mexico and
Canada. They fear that the changes would raise costs and put their
auto industry at a disadvantage.
"National content is not used in any commercial agreement in the
world, because it puts too much rigidities to the companies,"
Mexico's Economy Minister Ildefonso Guajardo told Mexican radio
after returning home Saturday from the talks.
Canada's Foreign Minister Chrystia Freeland has also voiced
opposition to the idea of national content, though she and Mexican
officials have noted the U.S.'s tough stance was expected heading
into negotiations.
As with other proposals, the U.S. hasn't yet provided a brief or
text with details on how it would change the rules of origin. The
U.S. is expected to provide details on all of its Nafta positions
by the third round of talks next month in Canada. The second round
will take place in Mexico City from Sept. 1 to 5. Currently 62.5%
of autos and major auto parts shipped within the three Nafta
countries must be produced in Mexico, Canada or the U.S. to qualify
for duty-free shipment.
The U.S. proposal could amount to an opening bid, and it could
also generate opposition in Congress, which would have to approve a
final pact, especially if significant parts of U.S. industry bring
their lobbying firepower to the issue.
"These sorts of country specific requirements would just add to
the cumbersome nature of rules of origin compliance," said Matt
Blunt, head of the American Automotive Policy Council, which
represents the Detroit auto makers.
Mr. Blunt said that Mr. Lighthizer is a "a very smart person,
and he may be laying out some negotiating parameters."
One way to tackle the rules of origin, said trade experts, would
be to include in the calculations the advanced electronics used in
vehicles. For instance, regional or U.S. content could be revised
to include research and development of vehicle software conducted
by companies in the U.S. or North America, even though the
electronics are manufactured in Asia.
But it is far from clear that the U.S. would be satisfied with
cosmetic changes to the content calculations. Mr. Lighthizer on
Wednesday said Mr. Trump "is not interested in a mere tweaking of a
few provisions and a couple of updated chapters."
The U.S. feels that its most significant leverage in the talks
is Mr. Trump's threat to withdraw from Nafta if the U.S. doesn't
get the changes it wants. North American trade is far more
significant to the Canadian and Mexican economies than it is for
the U.S.
Mexican negotiators say they are prepared to scrap Nafta rather
than accede to demands they consider harmful to their economy.
On auto trade, while labor groups have long called for stricter
rules on which products qualify for duty-free treatment, auto
makers in all three nations oppose tighter rules of origin. The
companies warn that stricter rules could affect their supply chains
in unpredictable ways, perhaps even driving production
overseas.
Meanwhile, a group that represents U.S. manufacturing businesses
and supports Mr. Trump's trade policy praised Mr. Lighthizer's
plan.
"The administration should reject fears of supply-chain
disruption asserted by the import lobby," said Michael Stumo, chief
executive of the Coalition for a Prosperous America. "Successful
trading nations like China and Germany 'disrupt supply chains'
intentionally, working to increase their domestic supply chains at
the expense of foreign suppliers."
--William Mauldin and Santiago Perez contributed to this
article.
Write to Sara Schaefer Muñoz at Sara.Munoz@wsj.com and Bob Davis
at bob.davis@wsj.com
(END) Dow Jones Newswires
August 20, 2017 20:25 ET (00:25 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.