NAFTA negotiations grind on, little sign of quick breakthrough

By Anthony Esposito and David Ljunggren

MONTREAL (Reuters) - U.S. negotiators are holding firm in their demands for a wide-ranging overhaul of NAFTA, sources close to the talks said on Thursday, raising questions about whether any real movement is happening at the latest round of negotiations on the treaty.

Officials from Canada, Mexico and the United States are in Montreal for the sixth and penultimate set of talks on the North American Free Trade Agreement. Major differences remain to be settled ahead of the end-March deadline.

"We have brought flexibility, we have brought ideas, but the problem is that the United States has not moved an inch. They say, 'It is my proposal or nothing'," said one of the sources, who spoke to reporters on condition they not be named.

 

The administration of U.S. President Donald Trump, which has repeatedly threatened to walk away from the 1994 pact, wants more North American content in autos and is pressing for a sunset clause that would allow one party to pull out of the treaty after five years.

Trump, who has made contradictory comments about the 1994 treaty in recent weeks, told CNBC, "NAFTA's a horrible deal, we're renegotiating it. I may terminate NAFTA, I may not - we'll see what happens."

On Wednesday, Canadian negotiators unveiled what were termed "creative ideas" to address U.S. demands for a sunset clause and higher auto content.

Canadian chief negotiator Steve Verheul - describing the mood at the talks as "still reasonably constructive" - said the U.S. side would be taking the auto proposals back to Washington.

"I think it went reasonably well. There is a lot more thinking to do," he told reporters on Thursday.

Trade groups representing automakers and auto parts manufacturers say the U.S. demands for higher content would make the region's car industry uncompetitive.

Canada suggests North American content would be higher if the value of software and other high-tech equipment made on the continent were taken into account.

Fiat Chrysler Automobiles NV Chief Executive Officer Sergio Marchionne told an earnings call on Thursday that "there appears to be the beginning of a solution to this problem. ... The concept embedded in the Canadian proposal is defensible."

Senior Canadian and Mexican officials, who met at the World Economic Forum in Davos, also struck a more upbeat note on Thursday.

Canadian Foreign Minister Chrystia Freeland said nobody was expecting a deal to be struck in the current round of talks. Mexican Economy Minister Ildefonso Guajardo said the attempt to find creative solutions on NAFTA was in a much better place than a year ago.

Guajardo said negotiators needed to listen to what Trump had promised to achieve in NAFTA reform, and try to interpret that in a way that did as little damage as possible.

Uncertainly over NAFTA's future is weighing on some North American markets and policymakers. Bank of Canada Governor Stephen Poloz told CNBC on Thursday that NAFTA is the "number one" thing that keeps him up at night.

(Additional reportinng by Tom Miles in Davos and Andrea Hopkins in Ottawa and Nick Carey in Detroit; Editing by David Gregorio and Jonathan Oatis)