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Mexico, Canada reject U.S. NAFTA proposals

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NAFTA explained

Canadian and Mexican officials rejected some U.S. proposals Tuesday at talks to renegotiate NAFTA, according to one government source from each country.

Despite a two-day extension, the fourth round of talks on rewriting the trade agreement ended without much progress on two big issues — auto manufacturing and how long a new deal should last.

Canada opposed a U.S. provision designed to create more jobs for American manufacturers of cars and parts, the Canadian source said. It also rejected the Trump administration's suggestion that the trade agreement should be up for renewal every five years.

"We made it clear that these are issues that from the Canadian side are non-starters," the Canadian source, speaking on the condition of anonymity, told CNNMoney.

Mexico also opposed the five-year provision, known as a sunset clause, the Mexican source said. Mexico's top negotiator, Economy Secretary Ildefonso Guajardo, had already made his opposition clear to the other proposal on auto production.

The Office of the U.S. Trade Representative did not respond to a request for comment.

Mexico and Canada remain committed to finding compromises, the sources said. Talks are expected to last until at least the end of the year.

Leaders from all three countries are slated to speak at 3 p.m. ET in Washington.

Related: Trump's NAFTA agenda has 'poison pill proposals,' says U.S. Chamber of Commerce

The first disagreement is known as "rules of origin." It governs how much of a car has to be manufactured in North American to avoid import taxes in the three countries that make up NAFTA.

Under current rules, at least 62% of the parts have to come from North America to avoid border taxes. It doesn't matter if the car parts are made in Mexico, Canada or the United States, as long as they were produced in North America.

The U.S. proposed raising that threshold to 85%, according to the Canadian government source. The U.S. also proposed that half of the parts that come from North America must originate from the United States.

So instead of one rule for all of North America, the Trump administration is suggesting two -- one for the U.S., one for all of North America.

"We are opposed to country-specific required rules of origin," the Canadian source said.

The Mexican source would not comment on rules of origin. However, Mexican Economy Secretary Ildefonso Guajardo told CNNMoney in April that such a proposal wouldn't work for him.

"There is no one trade agreement in the world that has country-specific content. It doesn't exist," Guajardo said. "Content has to be measured regionally."

Under the sunset clause, the agreement would expire every five years unless all three nations agree to sign on for five more. Critics say it would create too much uncertainty for foreign investment. Canada and Mexico won't stand for it.

"We couldn't accept it," the Mexican government source said Tuesday.



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