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Mexico Said to See U.S. Nafta Cars Idea as Completely Unworkable

The Trump administration wants to change Nafta rules to increase how much of a car is made in the U.S., but Mexico, the auto industry and congress all question the plan.

Author: Eric Martin

The Mexican government views the U.S. proposal for tightening content rules for car manufacturing under Nafta as not viable and likely to cause serious damage to the North American auto industry, said a person familiar with the nation’s stance.

Mexico hasn’t prepared or presented a counter-proposal because it sees the problem as going beyond the specific levels sought by the U.S. and thinks the entire concept is unworkable, said the person, who asked not to be identified discussing negotiations taking place behind closed doors.

The Trump administration has proposed major changes to Nafta’s auto rules, introducing a requirement that 50% of parts or vehicles be U.S.-made, and increasing the minimum amount of regional content needed to 85% from 62.5%. The U.S. auto industry has pushed back against the idea, and more than 70 House Republicans and Democrats also opposed it in a recent letter.

President Donald Trump has threatened to withdraw from Nafta, which he blames for hundreds of thousands of lost jobs in U.S. manufacturing, if he can’t renegotiate the deal. Mexico, Canada and the U.S. started talks in August and plan to continue them until at least March.

At the current round taking place in Mexico City, which lasts until Nov. 21, U.S. negotiators have given no indication that they’re willing to compromise on their proposal for a mechanism that would automatically end the North American Free Trade Agreement after five years, the person said. Mexico and Canada have said they’re willing to review Nafta every five years as long as the evaluation doesn’t lead to automatic termination.

U.S. Backtracking?

The U.S. proposed the automatic termination provision at the negotiating round in Washington in October, after Commerce Secretary Wilbur Ross previously alluded to it. In updated U.S. negotiating objectives released Friday, the U.S. referred to “a mechanism for ensuring that the parties assess the benefits of the agreement on a periodic basis” but didn’t specify any proposal for automatic termination. That raised speculation the U.S. may be abandoning the demand.

The U.S. Trade Representative’s office declined to comment when asked whether the U.S. had withdrawn its proposal for an automatic termination mechanism within Nafta.

Mexico’s peso rallied to levels stronger than 19 per dollar at the end of last week as traders bet that Mexican and Canadian willingness to support a Nafta review could alleviate one key contentious issue within the negotiations and lead to a compromise on a top U.S. demand. Worries about Nafta have pushed peso volatility to the highest since February.

The peso fell 0.1% to 18.9362 per dollar in Monday morning trading in Tokyo.

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