Mexico opens way for NAFTA talks to run into 2018

OTTAWA (Reuters) - Mexico on Wednesday opened the possibility that talks to revamp the NAFTA trade agreement were so complex that they could run into 2018, beyond an end-December deadline designed to avoid Mexico’s presidential election campaign which kicks off in March.

The United States, Canada and Mexico said at the end of a five-day session in Ottawa there had been progress made in the talks but acknowledged that much work remained to conclude the negotiations by the end of the year.

Mexico’s Economy Minister Ildefonso Guajardo said there would be “substantial challenges” in the next round in Washington on Oct. 11-15.

“We have the ambition, we have the strength to try to move forward with a view to closing a negotiation but no one can assure with total certainty that we will be able to do it,” Guajardo told reporters.

“That is our expectation and, therefore, it must also be considered that in this process dates will have to be considered, if necessary, for the start of the next year,” he added.

The three countries have rushed to finish talks to modernize the 23-year-old North American Free Trade Agreement even though trade experts dismissed the deadline as impossible.

The Trump administration has been criticized by Canadian and Mexican officials for not yet presenting some of the most contentious issues in NAFTA, including content rules of origin.

“Staff are working at a pace that is unheard of (in trade negotiations) ... and any suggestion that we’re not operating beyond a normal pace is just flat wrong,” U.S. trade envoy Robert Lighthizer told reporters.

Strains between Ottawa and Washington also emerged on Wednesday, a day after a U.S. trade panel said it would impose preliminary subsides on Canadian jet manufacturer Bombardier Inc after rival Boeing Co accused Canada of unfairly subsidizing its CSeries jets.

Lighthizer said Canada had “mentioned” the U.S. ruling during talks on Wednesday.

Asked whether the dispute could affect NAFTA talks, Lighthizer told reporters: “I’m not saying it doesn’t have an effect on relationships, it does, but not on this negotiation.”

Negotiators said they had wrapped up one chapter on small and medium-sized enterprises in Ottawa and expected to finish another on competition before the next round.

Lighthizer said the United States would “hopefully” present draft text by the next round on the thorny issue of rules of origin, which outlines how much of a product needs to originate in a NAFTA country, and on a dispute settlement mechanism.

Canada’s Foreign Minister, Chrystia Freeland, has said it was typical of trade talks to wrap up the “bread and butter” issues first before getting into more challenging topics.

“We never said this was going to be easy,” Freeland told reporters.

Trade among the three nations has quadrupled since NAFTA came into effect in 1994, surpassing $1 trillion in 2015.

But U.S. President Donald Trump regularly calls the treaty a disaster and has threatened to walk away from it unless major changes are made, claiming NAFTA has resulted in U.S. job losses and a trade deficit with Mexico.

The Bombardier decision is likely to further harden Canada’s stance on keeping a key dispute-settlement mechanism in NAFTA, which the Trump administration wants to eliminate.

Lighthizer said the U.S. decision on Bombardier still had several stages to go through before it was finalized.

“There are several more stages, we don’t even know whether it is going to be successful, and in addition there are off-ramps in the litigation,” he said. “It’s too early to tell.”

Freeland has suggested that Canada could walk away from the NAFTA talks over the so-called Chapter 19 dispute mechanism, under which binational panels make binding decisions on complaints about illegal subsidies and dumping. The United States has frequently lost such cases.

A lengthy fight over Chapter 19 could also drag out the negotiations.

The U.S. delegation presented draft text on NAFTA labor standards on Tuesday and put forward proposals on investment and intellectual property at the weekend.

Laxer labor standards and lower pay in Mexico have swelled corporate profits at the expense of Canadian and U.S. workers, the U.S. administration claims, making the issue one of the major battlegrounds of the NAFTA talks.

While the U.S. draft text on labor standards did not detail wage levels, Lighthizer said all sides were interested in getting into wage specifics to help Mexican workers