Canada unveils ideas to save NAFTA pact

MONTREAL: Canadian negotiators at the NAFTA talks unveiled ideas to address contentious American demands for revamping the 1994 pact while Prime Minister Justin Trudeau urged top US executives to back free trade.
The sixth and penultimate round of negotiations to update the North American Free Trade Agreement (NAFTA) opened in Montreal on Tuesday with time running out for Canada and Mexico to settle big differences with the United States.
With financial markets skittish about the possible collapse of a $1.2 trillion global trading bloc, Canada and Mexico say they are prepared to be flexible on US proposals they had initially rejected as unworkable.
One thorny issue is Washington’s demand for a sunset clause that would kill NAFTA if it is not renegotiated after five years, an idea critics say would slash business investment.
Canada’s chief negotiator Steve Verheul said he had “a constructive conversation” with his US counterpart on Wednesday after presenting Canada’s suggested amendments to the sunset clause. He did not give details.
A source close to the talks said Canada’s approach mirrored Mexico’s proposal last year for a semi-regular review of the treaty that would not lead to its termination.
Verheul said he would unveil ideas on how to meet a US demand for higher North American auto content later in the day.
Under NAFTA, at least 62.5 per cent of the net cost of a passenger car or light truck must originate in the United States, Canada or Mexico to avoid tariffs. US President Donald Trump’s administration wants the threshold raised to 85 per cent.
Trump has described NAFTA as disastrous for the US economy and threatened to pull out of the pact, though on Tuesday he said the talks in Montreal were going well.
Canada is floating the idea that North American content in autos would be higher if the value of software and other high-tech equipment made on the continent were taken into account, said three well-placed sources, who declined to be identified given the sensitivity of the situation.
Existing NAFTA regulations for tracing auto parts in a vehicle do not take into account new software-based content produced in Canada and the United States and the fact vehicles are much more technically advanced than they were in 1994.
“Why don’t we rewrite the NAFTA rules to say ‘Instead of focusing on a number, focus on what the car is going to look like five, 10, 15 years from now’?” Flavio Volpe, president of Canada’s Automotive Parts Manufacturers Association, told reporters.
Canada and Mexico have made clear from the start they would reject the demand for 50 per cent US content in autos on the grounds that it would not work.
NAFTA’s future is one of the main challenges for Trudeau, who met executives from companies such as Dow Chemical Co, Blackrock, Cargill Ltd and United Parcel Service Inc at the World Economic Forum in Davos.
— Reuters