NAFTA nations say talks to push into '18

Canada, Mexico balk at U.S. requests

U.S. Trade Representative Robert Lighthizer, flanked by Canadian Minister of Foreign Affairs Chrystia Freeland and Mexico’s Secretary of Economy Ildefonso Guajardo Villarrea (right), speaks Tuesday at the conclusion of the fourth round of negotiations for a new North American Free Trade Agreement in Washington.
U.S. Trade Representative Robert Lighthizer, flanked by Canadian Minister of Foreign Affairs Chrystia Freeland and Mexico’s Secretary of Economy Ildefonso Guajardo Villarrea (right), speaks Tuesday at the conclusion of the fourth round of negotiations for a new North American Free Trade Agreement in Washington.

Negotiations over the future of NAFTA will be extended into the first quarter of 2018, officials leading the talks said Tuesday, in a bid to resolve differences after Canada and Mexico rejected what they see as hard-line U.S. proposals.

U.S. Trade Representative Robert Lighthizer, Mexican Economy Minister Ildefonso Guajardo and Canadian Foreign Minister Chrystia Freeland spoke in Washington on Tuesday as divisions linger around contentious proposals to revamp the North American Free Trade Agreement.

"New proposals have created challenges and ministers discussed the significant conceptual gaps among the parties," Lighthizer said, reading a joint statement at the close of the fourth round of talks. "Ministers have called upon all negotiators to explore creative ways to bridge these gaps."

During joint remarks to reporters, Lighthizer said he's "surprised and disappointed" by the outcome so far. But Guajardo said Mexico has limits to what it can accept, and Freeland said some of the proposals run counter to World Trade Organization rules.

In their statement, the three nations' representatives reaffirmed their mandate to reach a deal in a reasonable period of time. Mexico will host the fifth round of talks Nov. 17-21, which is later than originally anticipated as negotiators give themselves more time between sessions to assess proposals.

The Mexican peso jumped more than 1 percent on news of the 2018 time frame for talks, as investors bet the extension decreased the odds that NAFTA would fall apart anytime soon. The U.S. had previously set a goal of finishing negotiations as soon as this year.

But Mexico and Canada have repeatedly and publicly rejected the U.S. demands on dairy, automotive content, dispute panels, government procurement and a sunset clause.

Freeland said Tuesday that a deal that benefits the three countries "cannot be achieved with the winner-take-all mindset, or an approach that seeks to undermine NAFTA rather than modernize it." Still, she said, an agreement for an improved NAFTA is "absolutely achievable."

President Donald Trump has called NAFTA a disaster and repeatedly threatened to withdraw the U.S. from the agreement, a step the White House can set into motion by giving six months' notice to its trading partners. At stake is the $1.2 trillion in annual trade between the three countries, as well as the business models of companies such as Ford Motor Co. and General Motors Co. that have adapted their supply chains to take advantage of the trade zone.

Lighthizer told reporters that he's not focused on the possibility of the U.S. exiting the deal. "I'm focusing on trying to get a good agreement," he said, though he added that the three countries would do "just fine" without NAFTA.

"Right now, it's a great deal for the Mexicans and the Canadians, in my opinion. It's a great deal for businesses that have decided they want to take advantage of the situation," Lighthizer said. "It's possible to take a little bit of the sugar away and have them say, 'Yeah, we're still doing pretty well.'"

Trump, speaking at the White House on Tuesday, again decried "massive trade deficits" with trading partners.

"Companies are leaving and they're firing the people, and the product is made elsewhere and then it's sold back into the United States," he said. "I'm not going to be allowing that, so I can understand how certain countries and the leaders of certain countries may feel. But we're just not going to allow the United States to be taken advantage of by other countries anymore."

The retail industry group that represents companies including Gap Inc. and VF Corp. said Tuesday that a collapse of the trade agreement would be an "economic catastrophe."

The Retail Industry Leaders Association, which encompasses more than 200 retailers, manufacturers and suppliers, added that NAFTA's downfall would lead to "massive" disruptions in agriculture and manufacturing as well as higher costs for U.S. consumers.

"Simply put, we cannot afford for the United States to abandon free trade," Hun Quach, the group's head of trade policy, said in an emailed statement. "As retailers, we strongly urge all parties to preserve the parts of NAFTA that work for American businesses and to avoid proposals that would damage the U.S. economy and hurt American families."

NAFTA currently lets manufacturers -- such as garment makers -- create cross-border supply chains in which parts of a final product are sourced from different countries before being assembled in one location.

Concern about the threat to NAFTA's future is showing up in some U.S. stock prices.

While the president's talk of protectionism has done nothing to slow the stock market as a whole, air pockets have developed in a smattering of transport and consumer companies that rely on the free-trade agreement for large parts of their business.

For Greenwood Capital Associates' Walter Todd III, the tone of Tuesday's statements about the status of the negotiations had implications for his portfolio.

One of Todd's holdings, Kansas City Southern, a railroad with major business in Mexico, slipped to an 11-week low Tuesday and is down more than 5 percent in three days. Todd bought the stock in May after concern over the trade agreement renegotiation sent the company into a free fall. Although it rebounded in recent months, October marks the stock's worst start to a month since 2016.

"We know that there is some risk here, and we'll be watching the developments closely," he said. "The stock has had quite a rally, but here we go again."

Information for this article was contributed by Josh Wingrove, Andrew Mayeda, Eric Martin, Alexandra Stratton, Lindsey Rupp and Elena Popina of Bloomberg News.

A Section on 10/18/2017

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