(Bloomberg) -- Mexico’s Economy Minister signaled there is common ground over a key U.S. objective ahead of the next round of Nafta talks, saying that strengthening the regional content rules for cars would be a victory for all three member nations.
The Montreal talks are “crucial because it’s the first time we have to send clear signals of where we find possible accommodations," Ildefonso Guajardo told a gathering of Mexican diplomats Tuesday. For the car industry, "the solution is without a doubt for a strengthened rule of origin in regional automotive content.”
The U.S. demand for more North American, and specifically U.S. content in vehicles is among the most contentious issues on the Nafta negotiating table, along with issues such as government procurement. Negotiators largely avoided these issues in the latest talks in Mexico City in November and Washington in December, setting up the next set of meetings in Canada in two weeks as potentially decisive.
Mexico and Canada began negotiating with the U.S. in August at the initiative of President Donald Trump, who has repeatedly said the Nafta accord led U.S. companies to fire workers and move factories to Mexico. Trump promises to negotiate a better deal for America or withrdraw.
The peso pared its loss following Guajardo’s comments, weakening 0.1 percent to 19.2488 per dollar in afternoon trading in New York after earlier falling as much as 0.6 percent.
U.S. Proposals
Traders are seeing Guajardo’s comments "as a good thing, because it shines a light on what we might have as a next deal," said Horacio Waldthausen, a trader at Casa de Bolsa Santander (MC:SAN).
Nafta requires a vehicle to have a minimum of North American content in order to benefit from tariff exemptions when made in Mexico and sold in the U.S. The U.S. has proposed raising the so-called auto rules of origin to 85 percent North American content from the current 62.5 percent and requiring a new 50 percent U.S. content minimum.
Guajardo didn’t explicitly talk about a higher regional content rule. The Mexican Automobile Industry Association, known as AMIA, has repeatedly said that the minimum should be kept at the current level.
Without raising the minimum, rules of origin could be strengthened by adopting stricter or updated rules in measuring, or tracing, the origin of the content and inputs for a car.
"The list of traceability for some automotive components needs to be rethought for new technologies to send adequate signals about the strengthening of the value chains in North America," Guajardo said.
Guajardo said negotiators are close to completing work on 10 of the 30 Nafta chapters, including energy and telecommunications. The process for agreeing to dispute resolution mechanisms will be more difficult, Guajardo said.