August 24, 2018 10:30 AM, EDT

US, Mexico Near NAFTA Framework, but Obstacles Remain

NAFTA Trade RepresentativesMexico Economy Minister Ildefonso Guajardo (left), Freeland and U.S. Trade Representative Robert Lighthizer. (David Kawai/Bloomberg News)

The United States and Mexico moved closer toward a consensus on how to forge a new North American Free Trade Agreement even though key obstacles remain, according to several people familiar with the matter on both sides.

Progress has been made during five weeks of discussions between the United States and Mexico on issues including rules for cars, but there’s no broader agreement on reshaping NAFTA, two U.S. administration officials said the night of Aug. 21.

A spokesperson for the U.S. Trade Representative’s office on the morning of Aug. 22 said there was no deal yet and that major issues remain. High-level negotiators from Mexico and the United States are scheduled to meet in Washington on Aug. 22, restarting bilateral talks that broke for the weekend late last week.

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The Trump administration’s discussions with Mexico are seen as an important precursor to a three-way final deal with Canada on a revised NAFTA. Politico reported on Aug. 21 that President Donald Trump was poised to announce a handshake deal with Mexico as soon as Aug. 23, citing unidentified sources.

Any handshake agreement announced on bilateral issues between the United States and Mexico would be the biggest breakthrough in negotiations that began a year ago. Yet certain U.S. demands that affect all three NAFTA nations remain unresolved and still could be deal-breakers for Mexico and Canada.

Key U.S. demands that neither Mexico nor Canada have agreed to yet include the automatic expiration of the deal after five years, known as the sunset clause; rules for government contracting; and methods for resolving investment disputes, two of the people said.

Canada has no notice of any deal being reached and considers several issues still outstanding, two Canadian government officials said Aug. 21, requesting not to be identified to discuss confidential matters.

Sunset Clause

Canada hasn’t been involved in face-to-face negotiations with Mexico and the United States for weeks and would have to rejoin talks or negotiate modifications. Canadian Foreign Minister Chrystia Freeland, who is responsible for NAFTA talks, said the country was “very encouraged” by progress bilaterally while signaling that Canada will need to sign off.

“We’re hearing optimism from them about the work they’re getting done on the bilateral U.S.-Mexico issues — very central there is rules of origin on cars,” Freeland told reporters at a cabinet meeting in Nanaimo, British Columbia, on Aug. 22. Canada hopes for a swift conclusion when it rejoins talks once those bilateral issues are resolved, she said. “Obviously, rules of origin is an issue where detail matters, and Canada will very much have a voice in the finalization of all of this.”

All three countries almost certainly would require approval from their legislatures for a revamped deal. U.S. House Speaker Paul Ryan, who is not running for re-election, has said the deadline has passed to get an agreement through this Congress, signaling strongly any U.S. vote would be pushed to 2019 because of timelines set out in U.S. trade law.

Still, any agreement — even a handshake deal with just two of the pact’s three countries — is something of a milestone for talks that have been under constant threat of falling apart since they started in August 2017.

Trump repeatedly has pledged to withdraw from the 24-year-old pact if he can’t renegotiate a deal that will shrink America’s trade deficit and reverse the flow of U.S. factory jobs to Mexico.

Trump’s negotiating team has offered proposals that at times have caused Mexico and Canada to balk. It has pushed to tighten regional content requirements for car production and to have a certain percentage of cars manufactured by higher paid workers, which could undermine Mexico.

American business groups have urged the White House to exercise caution, warning that NAFTA’s demise would disrupt supply chains and put hundreds of thousands of jobs at risk. Farmers also have said killing the deal could undermine exports, just as a trade war with China eats into their profits.