US, Mexico Could Resolve Issues Holding Up Nafta Talks as Early as Monday

Mexico's Secretary of Economy Ildefonso Guajardo speaking to reporters outside the Office of the U.S. Trade Representative in Washington, D.C., on Friday.

Mexico’s Secretary of Economy Ildefonso Guajardo speaking to reporters outside the Office of the U.S. Trade Representative in Washington, D.C., on Friday.


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andrew caballero-reynolds/Agence France-Presse/Getty Images

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The U.S. and Mexico could reach a bilateral agreement as early as Monday on the key issues holding back a renegotiation of the North American Free Trade Agreement, according to Mexico’s chief trade negotiator

Ildefonso Guajardo.

Mr. Guajardo and the rest of Mexico’s trade delegation arrived at the office of the U.S. Trade Representative around midday Sunday—after negotiating in Washington, D.C. for weeks—and said they would do whatever necessary, including working into the night, to reach an agreement with the U.S. that would then allow the return of Canada to the talks.

Disagreements between Mexico and the U.S. have posed a major hurdle to renegotiating the Nafta agreement, which was a campaign promise of President Trump. Mr. Guajardo said that negotiators may still need about a week of talks with Canada before an agreement would be completed.

Trump administration officials and their Mexican counterparts are debating a proposal to exempt some industries from dispute-settlement provisions, which would remove one of the most difficult issues, the people said. The negotiations have also made progress over how much local content a car should have, and the cost of labor to produce a car, to qualify for tariff-free treatment under Nafta. The auto-related discussions are at an “advanced” stage, said one official familiar with the matter.

Heading into negotiations on Sunday, Mr. Guajardo said that there were still multiple issues outstanding, but that they were making their “best effort” at resolving them.

“Our relationship with Mexico is getting closer by the hour,” tweeted President Trump on Saturday morning, as negotiators continued their work. “A big Trade Agreement with Mexico could be happening soon!”

One of the sticking points throughout the last year of Nafta negotiations between the U.S., Mexico and Canada has been Washington’s desire to weaken or remove a provision in Nafta known as investor-state dispute settlement, or ISDS, in which companies can bring claims to an international tribunal when they believe their overseas investments were unfairly treated by an action from another Nafta government.

The U.S. has argued that the tribunals erode national sovereignty. But many U.S. companies have pressured the administration to preserve the dispute-settlement provisions, arguing that otherwise their international investments would be exposed and unprotected. Mexico and Canada have also favored keeping the provisions, believing they bolster the confidence of investors.

The Chamber of Commerce, Business Roundtable, National Association of Manufacturers, and American Petroleum Institute are among major industry groups that have fought to preserve the dispute-settlement provisions.

An idea to resolve the impasse is for only certain industries to remain covered by dispute settlement. Negotiators have floated the idea with different industries, according to three sources from industries closely tracking the negotiations. Mexico and the U.S. don’t appear to have reached any agreement on the idea to exempt some industries but not others.

While a compromise on dispute settlement may bring some industry groups along, it could spark further opposition from the exempted industries that believe they are losing meaningful protection of their international investments. The strategy could split the united front that many business groups have advanced, with some major industries potentially welcoming a resolution, leaving behind a smaller group with objections.

The U.S. Trade Representative’s office didn’t respond to a request to comment. Mexican officials, approached as they entered a negotiating venue in Washington, declined to comment.

One idea that has been discussed is to retain industries that bid for government concessions as a crucial part of their business, including energy, utilities, mining, telecoms and services under the dispute-settlement process. Other major industries, including manufacturing and agriculture, wouldn’t be covered by the dispute-settlement provisions in this version of the proposal.

Mexico and the U.S. have signaled in recent days that they are making significant progress in resolving their remaining disagreements. But they have stressed nothing is final. Talks are set to continue over the weekend.

One source of delay could be a rift emerging between the current Mexican negotiating team, and that of President-elect

Andrés Manuel López Obrador,

who wants Mexico’s newly opened energy sector to be exempt from dispute resolution.

Geoffrey Gertz, a fellow at the Brookings Institution who has studied dispute settlement, said that the system is more important for some industries than others.

“There is a logic to focusing on industries with high sunk costs and extensive regulation, as this is where investors are potentially most exposed to reversals in government policy,” he said.

But companies that aren’t covered might still be convinced to support the deal if it allows the Nafta negotiations to be resolved, he said.

“What I suspect matters most for firms considering investing in Mexico is stable, predictable, comprehensive access to the North American market, more so than the right to bring ISDS cases,” said Mr. Gertz.

Even if the U.S. and Mexico agreed to only retain dispute settlement for certain industries, Mexico and Canada could still agree bilaterally to keep the provisions for all their industries.

Mexico’s chief trade negotiator, Ildefonso Guajardo, said Friday that the U.S. and Mexico are “very far” down the list of issues needing to be worked out between the two countries, but said “even if you are extremely engaged, there is always a last-moment thing that can come between you and your goals.”

He said conclusion of the talks, including some of the most difficult remaining issues, would require the inclusion of the Canadians.

Asked about the U.S. position that Nafta should include a “sunset clause” which causes the deal to expire in five years, Mr. Guajardo responded that “it’s clear that there are trilateral issues that have to be solved in a trilateral context.”

—Kim Mackrael contributed to this article.

Write to Josh Zumbrun at Josh.Zumbrun@wsj.com and Robbie Whelan at robbie.whelan@wsj.com

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