Deal with US on key NAFTA rule closer, Mexico and Canada say

The United States and Mexico are nearing a deal on the key issue of autos content rules at talks to renew the North American Free Trade Agreement, Mexican and Canadian officials said on Wednesday.

Guillermo Malpica, head of the trade and NAFTA office for the Mexican government, said the United States had "started showing more flexibility last week" on autos content and other topics at the negotiations, which have dragged on for almost a year.

Speaking to reporters, Malpica said "we are getting close" to an agreement on the so-called autos rules of origin, which dictate how much of a vehicle must be made in the three NAFTA nations to qualify for duty-free status.

Canadian trade negotiator Colin Bird told an auto industry conference in Michigan on Wednesday that NAFTA negotiators are making progress on auto content rules, and endorsed the concept of linking those rules to improving workers' wages.

"Harnessing the power of trade agreements to promote higher wages is the kind of policy all three countries can get behind," Bird said.

Speaking to local media on Tuesday, Mexican Economy Minister Ildefonso Guajardo also suggested that negotiators have made progress on auto salaries. US and Canadian trade unions have complained that more manufacturing has gravitated to Mexico due to the country's low wages.

Mexico balked at the prospect of foreign intervention in salaries, but the debate has shifted, Guajardo said.

"Now what we are talking about is that a percentage of what is made in North America would be made in a high-salary zone," he said. "What does this mean? That clearly, within the component of 100 per cent of an automobile made in (the NAFTA zone), a percentage, it could be about 35 to 40 per cent, is made in a high-salary zone."

The Mexican peso spiked 0.2 per cent to its strongest level of the day after news of progress on the autos element of talks, before slipping back. Some analysts forecast the peso will appreciate to below 18 per dollar from its current level of 18.6 if there is a deal.

Bird and Malpica said they are optimistic about the possibility of reaching a deal to renew the North American Free Trade Agreement and are hopeful of progress when ministers from Mexico and the United States meet this week. Both officials cautioned that the issues remaining in the talks are challenging.

In May, Mexico offered to raise the autos content requirement to 70 per cent from a current 62.5 per cent. The United States is asking for the threshold to be 75 per cent.

Malpica also said the United States was still pushing for a sunset clause that would require the treaty to be reopened every five years. Canada and Mexico strongly oppose the idea.

"Any one country being able to hold the agreement hostage every five years does not provide the certainty" businesses need to invest, Bird said.

Mexico and Canada support including in the main body of a renegotiated NAFTA provisions designed to set labor and environmental standards, Malpica and Bird said. Those issues are addressed in side agreements to the current NAFTA treaty.