U.S. President Donald Trump holds a Make America Great Again rally in Olentangy Orange High School in Lewis Center, Ohio

By David Shepardson and David Lawder

Talks between the United States and Mexico over the future of the North American Free Trade Agreement were set to drag into next week, as auto industry officials said on Friday that new sticking points had emerged over President Donald Trump's threat to impose steep automotive tariffs.

Auto industry officials familiar with the talks said the Trump administration wants the ability to impose national security tariffs on future Mexican production from new auto assembly and parts plants.

These officials said U.S negotiators had essentially agreed that a new NAFTA trade deal would exempt existing Mexican auto plants from any "Section 232" tariffs that Trump may impose.

But the U.S. negotiators do not want to apply the same guarantees to new Mexican auto plants, the officials said, as the potential threat of 25 percent tariffs would discourage new automotive investment in Mexico to serve the U.S. market.

At Trump's direction, the Commerce Department in May launched a probe into whether imports of cars, trucks and auto parts pose a national security risk, invoking the same 1962 trade law used to justify broad tariffs on steel and aluminum -- including those imposed on Canada and Mexico.

Administration officials and congressional aides have said the car tariff probe, like the metals tariffs, in part is aimed at winning concessions during ongoing NAFTA renegotiation talks.

Trump late on Friday tweeted that a "deal with Mexico is coming along nicely. Autoworkers and farmers must be taken care of or there will be no deal," adding that Mexican president-elect Andres Manuel Lopez Obrador "has been an absolute gentleman."

Trump added that Canada "must wait" to rejoin the NAFTA talks. "Their Tariffs and Trade Barriers are far too high. Will tax cars if can't make a deal!" Trump tweeted.

Adam Austen, a spokesman for Canadian Foreign Minister Chrystia Freeland, who is leading NAFTA trade talks for Canada, said the minister was in regular contact with her Mexican and U.S. counterparts.

"We’re glad Mexico and the U.S. continue to work out their bilateral issues. It’s the only way we’ll get to a deal,” Austen said.

ISSUES TO WORK OUT

Mexican Economy Minister Ildefonso Guajardo told reporters in Washington on Friday his talks with U.S. Trade Representative Robert Lighthizer would resume next week, but there were still many bilateral issues to work out before Canada could rejoin the talks.

Asked about progress on autos rules of origin, he said: "Nothing is close until everything is close, but there are items in every element that is being discussed."

Guajardo said that once bilateral U.S.-Mexican issues were resolved, Canada could rejoin the talks to work on tri-lateral issues. He said this could take place in "the next few days or weeks."

Industry officials also said the U.S. team had barely moved from its demands last May of a 75 percent overall regional content threshold with 40-45 percent content from high-wage zones -- effectively the United States and Canada -- with the only substantial change a slightly longer phase-in time.

The automotive officials said that Mexico had sought reassurances that new content rules would not cause losses of existing facilities or jobs in the sector and that a NAFTA deal would make Mexico immune to any automotive tariff Trump imposes on national security grounds.

But the U.S. side was sticking to a hard stance in the final stretch of the year-old NAFTA talks, trying to extract concessions as another late August deadline for a deal approaches, one industry representative said.

The issues the two countries are hammering out include what percentage of auto industry components need to be made in North America to avoid tariffs, and how many cars and trucks need to be made in factories paying higher wages.

The U.S.-Mexico talks for a reworked North American Free Trade Agreement resumed three weeks ago, without Canada, after negotiations involving all three members of the $1.2 trillion trade bloc stalled in May.

(Reporting by David Shepardson and David Lawder in Washington, and Christine Murray in Mexico City. Writing by David Lawder; Editing by Nick Zieminski and Diane Craft)

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Source: Reuters
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