Nafta renegotiations resume with hope of auto sector breakthrough

Mexican economy minister Ildefonso Guajardo and foreign relations minister Luis Videgaray returned to Washington DC on Wednesday to advance discussions on Nafta renegotiation, as indications surface that a deal on auto production is near.

Jesús Seade will accompany the officials on the trip, representing the transitional government of president-elect Andrés Manuel López Obrador (AMLO).

The countries are now trying to reach an agreement by August 25 to allow President Enrique Peña Nieto enough time to sign the treaty before AMLO takes the oath Dec. 1.

Bringing new energy to the talks, AMLO's influence on Mexico's negotiating efforts has become clearer over the last three weeks of discussions, and it has begun to signal willingness to include labor provisions into the rules-of-origin chapter of the agreement.

Mexico has fought hard to resist the US demand to raise to 75% from 62.5% the minimum percentage of Nafta-produced content that a product must have to qualify for free trade within Nafta.

Under a theoretical compromise, Mexico would require automakers to pay a certain percentage of its workers an hourly pay more on par with its northern neighbors in exchange for a lower percentage in the rules-of-origin chapter.

A report from local media outlet El Financiero cited two sources close to the negotiations as saying Mexico and the US were approaching an agreement on content and wages for auto manufacturing and the issue would be a key feature of the Wednesday meeting.

The sources added that while negotiators are feeling optimistic about the auto deal, two major obstacles remain: the so-called sunset clause (backed by US President Donald Trump) and the US push to remove the Chapter 11 dispute settlement mechanism.

Both have been dubbed "poison pill" proposals that could doom the Nafta talks. The sunset clause would trigger a window every five years that would allow any country to unilaterally nullify the treaty, and US trade groups have joined Canada and Mexico in opposition to the proposal.

The showdown over the dispute settlement mechanism looks to be largely fought between the US and Canada, with the US pressing for its removal and Canada insisting any final revision of Nafta must include the mechanism.

Pictured: Videgaray (L) and Guajardo (R) in Washington DC.