Buenrostro said President Andres Manuel Lopez Obrador had told the U.S. Mexico could delay the contentious GM corn transition until 2025, a year later than previously expected.

Mexico is crafting a proposal to modify and “make clearer” the presidential decree which is currently set to ban herbicide glyphosate and GM corn in 2024, she added.

“Right now, we are working here within the government to make this new decree and present it,” Buenrostro told reporters at a news conference in Mexico City.

The country’s GM corn decree has shaken the international agriculture sector and prompted threats of legal action from the U.S., Mexico’s source of about 17 million tonnes of imported corn. In November, U.S. Secretary of Agriculture Tom Vilsack said Washington could consider steps under the Canada-U.S.-Mexico (CUSMA) trade pact.

Soon after, Lopez Obrador said he was seeking a deal with Washington, which could include extending the transition.

The ban was focused on corn for human consumption, he said, and that GM yellow corn imports for animal feed would still be allowed, pending a permit by health regulator COFEPRIS.

Buenrostro’s comments were one of the clearest signs yet that Mexico is ready to backpedal on the planned corn import ban.

U.S. farmers want stronger action than just an extension, said Angus R. Kelly, director of public policy at the National Corn Growers Association.

“Any attempt to ban any form of biotech corn, including corn grown for human consumption, is illegal under (CUSMA),” Kelly said by email. “Extending the deadline would also extend the uncertainty for America’s corn growers who are making decisions now that will affect crops well into the future.”

About 18-20 per cent of corn Mexico imports from the U.S. is white corn, used in food products such as tortillas.

Juan Carlos Anaya, director of Mexico’s Agricultural Markets Consultant Group, called Buenrostro’s comments “good news” for Mexico’s corn purchasing sectors and international producers and exports.

A meeting with U.S. officials to discuss Mexico’s new proposals could be scheduled on Dec. 16, Buenrostro said.

— Reporting for Reuters by Dave Graham, Adriana Barrera and Cassandra Garrison.

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After meeting with Mexican officials on Monday, U.S. Secretary of Agriculture Tom Vilsack said Mexico’s decree could violate the Canada-U.S.-Mexico (CUSMA) trade pact.

Lopez Obrador looked to assuage those concerns during a regular news conference on Tuesday, saying the ban was focused on genetically modified yellow corn for human consumption.

“Our position is not closed off,” he said.

Mexico is one of the biggest buyers of U.S. corn, with U.S. farmers sending about 17 million tonnes of corn to Mexico annually.

U.S. farmers have been particularly concerned about the threat of a ban on GMO yellow corn for livestock feed.

But Lopez Obrador indicated GMO corn for feed would continue to be allowed after the decree comes into force, although it remained unclear exactly how that will work or for how long that exception might last. That corn would be subject to an annual permit from Mexico’s health regulator COFEPRIS, he said.

“We offered to extend the term to two years, in the case of yellow corn used for (livestock feed),” Lopez Obrador said without expanding on when that extension would start and end.

Neither did Lopez Obrador specify whether Mexico still planned to reduce overall yellow corn imports by about half in 2024, which a top Mexican official told Reuters last month.

Mexico’s GMO corn ban has been plagued by confusion over how it will be implemented.

Supporters of the ban argue genetically modified corn could contaminate Mexico’s native varieties.

Mexico’s agriculture ministry declined to comment. A spokesperson for the president did not respond to a request for comment.

The U.S. has called for clarity and warned of severe economic fallout from a ban.

“Since biotech corn accounts for 90 per cent of American-grown corn, blocking any imports using this safe and environmentally friendly technology would not only be a major blow to the Mexican people and the economy, but it would be hard on American farmers and rural communities,” said Jon Doggett, CEO of the National Corn Growers Association, representing U.S. farmers.

Lopez Obrador added he wanted health authorities in both countries to assess the impact of GMO corn on human health.

Mexico and its northern neighbors are already in dispute resolution talks over Lopez Obrador’s energy policies, which the U.S. argues violate the trade pact.

Raul Urteaga, a former Mexican official and founder of consulting group Global Agrotrade Advisors, said the meeting with U.S. officials on Monday suggested a trade dispute with Washington over corn might be imminent.

“Why risk another potential trade dispute that looks like Mexico is going to lose?” Urteaga said.

— Reporting for Reuters by Dave Graham, Raul Cortes, Kylie Madry and Cassandra Garrison.

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As the deal kicks in, the Trump administration is threatening Canada with new aluminum tariffs, and a prominent Mexican labour activist has been jailed, underscoring concerns about crucial labor reforms in the replacement for the 26-year-old North American Free Trade Agreement.

The Canada-U.S.-Mexico Agreement includes tighter North American content rules for autos, new protections for intellectual property, prohibitions against currency manipulation and new rules on digital commerce that did not exist when NAFTA launched in 1994.

Trump had lambasted NAFTA as the “worst trade deal ever made” and repeatedly threatened to end it.

CUSMA launches as the coronavirus has all three countries mired in a deep recession, cutting their April goods trade flows — normally about $1.2 trillion annually — to the lowest monthly level in a decade (all figures US$).

“The champagne isn’t quite as fizzy as we might have expected — even under the best of circumstances — and there’s trouble coming from all sides,” said Mary Lovely, a Syracuse University economics professor and senior fellow at the Peterson Institute for International Economics in Washington. “This could be a trade agreement that quickly ends up in dispute and higher trade barriers.”

Issues dogging CUSMA include hundreds of legal challenges to Mexico’s new labour law championed by President Andres Manuel Lopez Obrador to ensure that workers can freely organize and unions are granted full collective bargaining rights.

A ruling against it would harm Mexico’s ability to deliver on provisions aimed at ending labour contracts agreed without worker consent that are stacked in favour of companies and have kept wages chronically low in Mexico.

Democrats in the U.S. Congress had insisted on the stronger labour provisions last year before granting approval, prompting a substantial renegotiation of terms first agreed in October 2018. The arrest of Mexican labour lawyer Susana Prieto in early June has fueled U.S. unions’ arguments that Mexican workers’ rights are not being sufficiently protected.

“I remain very concerned that Mexico is falling short of its commitments to implement the legislative reforms that are the foundation in Mexico for effectively protecting labor rights,” U.S. Representative Richard Neal, chairman of the House ways and means committee, said on Tuesday, adding that CUSMA’s success “truly hinges” on its new labour enforcement mechanism.

On Wednesday, U.S. Trade Representative Robert Lighthizer in a video touted CUSMA as the “most far-reaching, beneficial and modern trade agreement in our history,” adding that it would create tens of thousands of new U.S. manufacturing jobs.

But Lighthizer has also said he will file dispute cases “early and often” to enforce CUSMA provisions, citing Mexico’s failure to approve U.S. biotech products.

That could lead to increased tariffs on offending goods, such as products from individual factories where labour violations are found. Former USTR general counsel Stephen Vaughn, a legal architect of the Trump administration’s “Section 301” tariffs on Chinese goods, was appointed on Wednesday to a U.S. roster of panelists to settle state-to-state dispute cases under CUSMA.

Carlos Vejar, a former Mexican trade negotiator, said it was in the country’s interest to uphold pledges made to strengthen unions and end child labour.

“If Mexico isn’t mindful of this, there will be cases against Mexico, and Mexico will lose them,” Vejar said.

Aluminum tariffs redux, automotive burdens

U.S. national security tariffs on imported steel and aluminum — including from Canada and Mexico — were a major irritant during CUSMA negotiations until a deal for exemptions was reached last year. But now, USTR is considering domestic producers’ request to restore the 10 per cent duty on Canadian aluminum to combat a “surge” of imports.

Another source of disputes may be the energy sector, where the main U.S. oil and gas lobby has complained that recent actions by Mexico favouring state oil company Pemex already violate CUSMA’s protections for private investors.

Canada has also complained about new Mexican rules formally threatening investment in renewable energy.

CUSMA will put new compliance burdens on the region’s automotive manufacturers as the coronavirus craters consumer spending and auto production. Within three to five years, vehicles’ minimum North American content rises to 75 per cent from 62.5. Automakers must also produce 40 per cent of their vehicles’ content in “high wage” areas — effectively the United States and Canada.

A U.S. International Trade Commission study found this would draw more auto parts production to the United States, but may curb U.S. vehicle assembly and raise prices, limiting consumer choice in cars. The same panel found that after 15 years, the deal would add $68.5 billion annually to U.S. economic output and create 176,000 jobs compared with a NAFTA baseline.

— Reporting for Reuters by David Lawder in Washington, Dave Graham, Anthony Esposito and Daina Beth Solomon in Mexico City and David Ljunggren in Ottawa; writing by David Lawder.

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Lighthizer said at a U.S. Chamber of Commerce event that a deal to update NAFTA was needed quickly because of the lengthy notification process for congressional approval of trade deals.

If a deal takes too long, he said approval by the current Republican-controlled Congress may be on “thin ice” without sufficient time for a vote before November elections put a new Congress in control in January 2019.

Lighthizer is traveling to Beijing for trade talks with Chinese officials on Thursday and Friday, but will resume intensive negotiations with Canadian Foreign Minister Chrystia Freeland and Mexican Economy Minister Ildefonso Guajardo on May 7.

“We’re going to meet again on Monday, and we’ll see,” Lighthizer said. “If we can get a good agreement, I’d like to get it done a week or two after that. If not, then you start having a problem.”

U.S. Democrats, who have traditionally been skeptical of free trade deals, are expected to gain ground in November elections, possibly taking control of the House of Representatives.

Lighthizer said he was aiming to get an agreement that is acceptable to U.S. President Donald Trump, Canada, Mexico and a strong bipartisan majority in Congress.

“My objective is to get an agreement that is going to have overwhelming support and I think we will do that,” he said, adding that such a vote could shift public sentiment in favor of trade deals.

Autos rules, metals tariffs

The U.S. trade chief’s latest offer to revamp NAFTA’s automotive regional content rules to encourage more U.S. production has industry players concerned that it would still prove too costly.

Guajardo said Mexico will respond to the U.S. autos proposal when ministers meet next week.

Mexico’s main auto sector lobby on Monday described the latest U.S. demands, which include raising overall North American content to 75 per cent from the current 62.5 per cent over a period of four years for passenger vehicles, as “not acceptable.”

When asked whether he agreed with the automotive lobby, Guajardo said Mexico was still consulting with the industry over the matter.

“We will bring a plan in response to the U.S. position,” he told reporters at a news conference in Mexico City.

The minister said it was too early to say whether the three countries could reach a deal in the coming days. But if the negotiators were sufficiently “creative” and “flexible,” a successful outcome was probable, Guajardo added.

Both Guajardo and Lighthizer spoke a day after Trump extended until June 1 the possible imposition of steel and aluminum tariffs on Canada and Mexico.

Lighthizer said the metals tariff negotiations “will go hand-in-hand” with talks over NAFTA.

Guajardo and Canada’s Freeland have rejected linking the two trade negotiations, both insisting on a permanent exemption from the 25 per cent steel tariff and 10 percent aluminum tariff without quotas or other conditions.

“Last night’s decision is certainly a step forward,” said Freeland to reporters. “Canada will continue to work for a full and permanent exemption.

White House trade adviser Peter Navarro told U.S. steel industry executives on Tuesday that the administration was insisting on “quotas and other restrictions to make sure that we defend our industries in the interest of national security.”

— Reporting for Reuters by David Lawder and Dave Graham.

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U.S. President Donald Trump said he would impose the tariffs beginning next week, raising the risk of exacerbating tensions at negotiations already facing serious challenges.

Officials were unable to say immediately whether the tariffs would include imports from Canada and Mexico, the other two partners in the 24-year-old North American Free Trade Agreement.

The lack of clarity created uncertainty as some countries might be exempt or taxed at a lower rate, analysts said. Automakers and other users of the metals are also worried about retaliatory tariffs that might affect their finished products.

For months, the U.S., Canada and Mexico have been mired in disagreement over a U.S. demand to require a greater portion of North American auto parts and components under NAFTA, which Trump has threatened to ditch if it is not recast to his liking.

Moises Kalach, head of the international negotiating arm of Mexico’s CCE business lobby, said Trump’s call for a 25 per cent tariff on imported steel appeared intended to increase U.S. content in industrial goods but would have unintended consequences.

“Who is the priority here? Workers? Consumers? Somebody will end up paying for this,” Kalach told Reuters on the sidelines of the latest NAFTA talks in Mexico City. “What’s going to happen to the competitiveness of North America?”

Canada is the largest exporter of steel by far to the United States, and Trump’s proposed tariff would raise the cost of building vehicles, experts say.

“This would be very bad news for the auto industry,” said one person close to the negotiations.

Though it differs by company, for their vehicles made in North America, Fiat Chrysler, Ford and General Motors source the vast majority of their steel from North America, according to the auto industry.

GM on Thursday said in a statement that 90 per cent of the steel in its U.S.-built vehicles came from U.S. suppliers.

Auto talks

The U.S., Mexico and Canada had already been planning to schedule extra discussions on trade rules for auto production, two people familiar with the matter said.

The proposed talks, at the level of technical experts, would take place in March before the next formal NAFTA session, which is due to be held in Washington in late March or early April.

Talks on the issue during the seventh round were suspended this week when the U.S. negotiator overseeing auto rules of origin, Jason Bernstein, unexpectedly returned to Washington for consultations with industry.

Officials have made little progress on the most contentious files since the talks started in August, and the talks look set to drag on well beyond March, when negotiators had hoped to finish.

Under NAFTA, 62.5 per cent of the net cost of a passenger car or light truck must originate in the NAFTA region to avoid tariffs. Trump wants the threshold raised to 85 per cent and is also seeking to ensure that half the total content is U.S.-made.

The auto industry has opposed those demands, arguing it would disrupt supply chains and raise costs.

Negotiators have struggled to advance on the auto proposal since it was submitted in October. Automakers are evaluating ideas put forward by Canada last month to include newer technology in the calculation of a vehicle’s value.

The current round of negotiations is set to end Monday, when Mexican Economy Minster Ildefonso Guajardo, U.S. Trade Representative Robert Lighthizer and Canadian Foreign Minister Chrystia Freeland are scheduled to meet in the Mexican capital.

Separately, Mexico’s chief NAFTA negotiator, Kenneth Smith, said on Twitter that the three sides had completed talks on good regulatory practices.

Sources close to the talks said negotiators have also paved the way for closing the telecommunications portion of the trade deal this weekend, as the United States has dropped a proposal that Mexico opposed.

— Reporting for Reuters by David Ljunggren and Dave Graham; additional reporting by Anthony Esposito and Lesley Wroughton in Mexico City.

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The U.S. demands to force renegotiation of NAFTA every five years and reserve the lion’s share of automotive manufacturing for the U.S. have cast a pall over a fourth round of talks due to end Tuesday in suburban Washington.

Though they were widely expected, the aggressive U.S. proposals were met with dismay by many officials from Mexico, Canada and U.S. industry, who have formed a loose alliance in opposing major changes to NAFTA.

By Monday, Mexico’s peso hit a near five-month low with fears growing about the future of the deal underpinning US$1.2 trillion in annual trade between the three countries. Mexico sends nearly 80 per cent of its exports to the United States.

U.S. opposition to NAFTA’s dispute resolution mechanisms, plans to restrict outside access to government contracts and attacks on Canadian dairy and softwood lumber producers have further stoked the grim mood among trade officials.

Bosco de la Vega, head of Mexico’s National Agricultural Council, the country’s main farming lobby, said coming weeks would show whether Mexico and Canada’s allies in Congress and the U.S. private sector could push back against the proposals.

“We’re going to see what the people here are made of,” he told Reuters on the sidelines of the talks. “What I can guarantee you is that Mexico won’t agree to a bad deal.”

Officials from the two biggest U.S. export markets have spent the months since Trump’s November election victory working on U.S. bosses and political leaders to defend NAFTA, a 23-year-old accord that the president has repeatedly called a “disaster,” which he blames for the loss of U.S. manufacturing jobs.

The U.S. Chamber of Commerce has rejected what it calls the “poison pill” plans and has been backed by other major industry groups.

But whether lobbies that Trump has sought to characterize as part of the “Washington swamp” can encourage a change of heart is far from certain, especially with the president openly feuding with a number of senior Republicans in Congress.

Trump has attacked NAFTA throughout the talks and participants are doubtful how much influence Canadian Foreign Minister Chrystia Freeland and Mexico’s economy minister, Ildefonso Guajardo, will have on U.S. Trade Representative Robert Lighthizer when the three meet for talks on Tuesday.

Arguing that the deal has boosted Mexican manufacturing at the expense of the United States, Trump points to a goods trade deficit with its southern neighbor of $64 billion last year.

To that end, his administration is seeking to raise the amount of NAFTA content in autos to 85 per cent from 62.5 per cent and secure 50 per cent of the total for the U.S..

U.S. negotiators at the talks opened up another front by proposing that Canada dismantle its system of protections for the dairy and poultry sectors, a move that Ottawa will reject, a source briefed on the matter said on Monday.

Louder NAFTA sales pitch

Defenders of NAFTA say the cross-border integration has made the region more competitive with the rest of the world and prevented job losses to rival economies in Asia and Europe.

Ann Wilson, senior vice-president of government affairs for the Motor and Equipment Manufacturers Association, which represents U.S. auto parts makers, said the group was speaking to “as many levels of policymakers as possible.”

“We are hopeful that by providing data and analysis… that we can find a landing zone that will allow our members to continue to thrive,” said Wilson. “But the proposal that I understand is on the table right now will not do that.”

Moises Kalach, head of the international negotiating arm of Mexico’s CCE business lobby, was confident the divisive measures did not have the support of Congress or key U.S. employers.

“The American private sector completely supports us, they’re very aligned, working with Congress, working with the governors and the Senate, and they are meeting with a lot of resonance,” Kalach said. “There’s a lot of fighting still to do.”

Jerry Dias, head of Canada’s biggest private-sector union, Unifor, said the U.S. could not expect to extract concessions from the other two nations at minimal cost.

“Ultimately, Trump is going to get a major pushback because Canada is the number one trading partner for 30 U.S. states,” he said. “The agricultural sector of the United States will go absolutely crazy. The dairy sector will go absolutely crazy.”

But many are not convinced it will be enough.

“I don’t think Lighthizer will do much beyond listening and nodding. I can’t see a situation where (he) is ready to start negotiating,” said a Canadian source familiar with the talks, noting that Trump remained the biggest unknown. “We’ve heard time and time again that Lighthizer only has an audience of one.”

— Reporting for Reuters by Dave Graham and David Lawder; additional reporting by David Ljunggren and Ginger Gibson.

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Three sources briefed on the protectionist U.S. proposal, which is in line with U.S. President Donald Trump’s goal of shrinking a trade deficit with Mexico and stemming the loss of U.S. manufacturing jobs, said it also seeks sharply higher North American automotive content overall.

The proposal was made during contentious talks in Washington, in the fourth of seven planned rounds of negotiations to overhaul the treaty. Mexican sources denounced it as “absurd” and unacceptable, underlining the gaps between NAFTA’s three members as they try to wrap up a deal by a year-end deadline.

Trump, who complains that the original 1994 pact has been a disaster for the U.S., is threatening to walk away from the agreement unless major changes are made.

Washington’s auto industry gambit came hot on the heels of its demand that NAFTA also contain a so-called sunset clause. That could mean any new deal expires in five years, an idea that Canada and Mexico also strongly oppose.

Although sources briefed on the talks describe the mood as sour, Mexican and Canadian politicians say there is no question of leaving the table for now.

A collapse of NAFTA would wreak havoc throughout the North American economy, disrupting highly integrated manufacturing supply chains and agricultural exports with steep tariffs that would snap back into place. Trade among the three countries has more than quadrupled since 1994 to over US$1.2 trillion annually.

One of the sources close to the talks said Washington wants to increase the North American content requirement for trucks, autos and large engines to 85 per cent from 62.5 per cent over a period of years. That is in addition to its insistence that 50 per cent of content be U.S.-made within the first year of a signed deal.

Proposal seen unworkable

A Canadian official noted that senior government figures in Ottawa had already rejected both ideas as unworkable.

Trump has made clear he prefers bilateral trade deals, and skeptics wonder whether the U.S. demands are part of an “America First” strategy designed to ensure the current talks fail.

The U.S. Chamber of Commerce has listed the U.S. auto industry demand among a number of “poison pill” proposals that it said would torpedo the talks to renew NAFTA.

The chamber says the proposal would cost jobs, since automakers and parts suppliers would likely forgo NAFTA benefits and simply pay the 2.5 per cent U.S. tariff for imported cars and many parts.

Unifor, a union which represents most of Canada’s auto workers, said the U.S. proposals were deliberately untenable.

“Frankly, I think this is a bully move by the American government,” president Jerry Dias said in a statement.

Trump aides say current rules are too lax and allowed auto companies to bring in too many cheap parts from China and other low-wage Asian countries.

Mexico is heavily dependent on the U.S. and NAFTA for its economic viability, and uncertainty over the outcome of the talks helped push the Mexican peso to near five-month lows this week.

Mexican Finance Minister Jose Antonio Meade, seeking to downplay any setbacks in the latest round of negotiations, said on Friday that tension in the talks was only natural.

Canadian officials also said it was too soon to write off the deal-making process. They noted that U.S. Trade Representative Robert Lighthizer, Canadian Foreign Minister Chrystia Freeland and Mexican Economy Minister Ildefonso Guajardo were due to meet in Washington on Tuesday to take stock of the negotiations.

Separately, U.S. negotiators on Friday formally asked Canada to address a bilateral dispute over dairy pricing, a request the Canadians are set to resist, sources familiar with the talks said.

— Reporting for Reuters by Dave Graham and David Ljunggren; additional reporting by David Lawder and Ana Isabel Martinez.

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The proposal for a so-called sunset clause — just one of a series of U.S. initiatives that are opposed by NAFTA partners Canada and Mexico — only served to increase uncertainty about the future of the deal.

Two sources with direct knowledge of the talks described the atmosphere as “horrible” and highly charged.

The U.S. side proposed the sunset clause late on Wednesday during the fourth of seven scheduled rounds to update the rules governing one of the world’s biggest trade blocs, said two officials, who asked not to be identified because the talks are confidential.

The Trump administration says the clause, causing NAFTA to expire every five years unless all three countries agree it should continue, is to ensure the pact stays up to date.

But Mexico and Canada insist there is no point updating the pact with such a threat hanging over it, arguing the clause would stunt investment by sowing too much uncertainty about the future of the agreement.

“It’s a source of total uncertainty,” said one of the NAFTA government officials.

Speaking in Mexico City, Finance Minister Jose Antonio Meade said the government was working on plans to alter tariffs and identify substitute markets in case the NAFTA talks failed.

His remarks and the tension around NAFTA helped push the peso down 1 percent against the U.S. dollar to a five-month low.

U.S. President Donald Trump says NAFTA, originally signed in 1994, has been a disaster for the United States and has frequently threatened to scrap it unless major changes are made.

Business and farm groups say abandoning the 23-year-old pact would wreak economic havoc, disrupting cross-border manufacturing supply chains and slapping high tariffs on agricultural products. Trade between the U.S., Canada and Mexico has quadrupled under NAFTA, now topping US$1.2 trillion a year.

In addition to the sunset clause, the United States wants to boost how much North American content autos must contain to qualify for tax-free status and eliminate dispute settlement mechanisms that Canada insists must stay.

Some trade observers said it is difficult to see how negotiators could reach an agreement given U.S. demands that many see as non-starters.

The head of Unifor, Canada’s largest private sector labour union, said it was clear the U.S. did not want a deal.

“NAFTA is not going anywhere. This thing is going into the toilet,” Jerry Dias told reporters on Thursday.

Despite clear signs of impatience from Canada in particular, U.S. negotiators have yet to submit their proposal on rules of origin for the auto sector. That looked unlikely to come before Friday, another official familiar with the talks said.

Trump on Wednesday repeated his warnings that he might terminate the pact and said he was open to doing a bilateral deal with either Canada or Mexico..

He was speaking alongside Canadian Prime Minister Justin Trudeau, who later said Canada was “braced” for Trump’s unpredictability.

Negotiators were also set to cover the difficult issue of government procurement on Thursday.

Canada and Mexico want their companies to be able to bid on more U.S. federal and state government contracts, but this is at odds with Trump’s “Buy American” agenda. U.S. negotiators have countered with a proposal that would effectively grant the other countries less access, people familiar with the talks say.

On automotive rules of origin, NAFTA negotiators face tough new U.S. demands to increase regional vehicle content to 85 per cent from 62.5 per cent, with 50 per cent required from the United States, according to people briefed on the plan.

The rules of origin demands are among several conditions that the U.S. Chamber of Commerce has labeled “poison pill proposals” that threaten to torpedo the talks.

— Reporting for Reuters by David Lawder and Dave Graham; additional reporting by David Ljunggren, Anthony Esposito, Ana Isabel Martinez and Frank Jack Daniel.

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Canada’s biggest private-sector union said NAFTA should be scrapped if Mexico cannot agree to better labour standards, clashing with Mexican business leaders who argued that workers rights were a matter for each country to resolve internally.

Mexican political and corporate leaders firmly resist demands to bring wages into line with U.S. and Canadian levels, arguing the big cost advantage the country enjoys over richer peers should decrease as economic development advances.

Labour union leaders in the two wealthier nations say laxer labour standards and lower pay in Mexico have swelled corporate profits at the expense of Canadian and U.S. workers, making resolution of the issue a major battleground of the NAFTA talks.

Jerry Dias, national president of Canadian union Unifor, said NAFTA had been a “lousy trade agreement for working-class people” and that the union was pushing his government to walk away from the talks if it could not secure them a better deal.

“If labour standards aren’t a part of a trade deal, then there shouldn’t be a trade deal,” Dias told reporters in Mexico City on the sidelines of a second round of negotiations to update the 1994 trade agreement among the three countries.

Worker pay is a sensitive issue in Mexico, a country riven by sharp inequality and which has struggled for years to alleviate poverty, which affects well over 40 per cent of the population.

Bosco de la Vega, head of Mexican farm lobby group the National Agricultural Council, said more trade, not intervention in labour markets, was the best way for the region to grow economically.

“Mexico can’t interfere in the labour market issue in the United States and Canada. We ask the same: that they don’t interfere in these matters,” he told reporters at the talks.

Mexican business leaders argue that integrating Mexico into North American supply chains has made the entire region more competitive. Recent studies have shown, however, that wages in Mexico have experienced significant downward pressure.

Deal breaker?

Given Mexico’s higher inflation rates, wages in that country are lower now in real terms than when NAFTA took effect, according to a report published last month by credit rating agency Moody’s.

From 2001 to 2015, Mexican hourly wages in U.S. dollars grew only nine per cent, less than in the U.S. and far below the 120 per cent increase in Brazil, said the Moody’s report.

Some Mexican private-sector negotiators have described the labour market as a potential deal breaker in the talks, although there is a growing consensus on the need to improve pay.

Most formally employed workers earn significantly more, but the statutory minimum wage is a mere 80 pesos a day (C$5.57).

Federico Serrano, head of Mexican exporters’ lobby Index, said a recent survey showed average pay in the manufacturing sector was three to four times higher than the minimum wage.

But workers in Mexico’s auto industry, the main source of the country’s US$64 billion goods trade surplus with the U.S. — a key irritant to U.S. President Donald Trump — earn far less than their U.S. counterparts.

According to the Center for Automotive Research in Ann Arbor, Michigan, Mexican auto workers earn average hourly wages of less than US$6 excluding benefits, compared with about US$28 in the U.S.

Steve Verheul, Canada’s chief NAFTA negotiator, told reporters his country would defend its interests at the talks, and when asked about the need for tougher labour standards, said: “It’s an important issue.”

— Reporting for Reuters by Dave Graham and Sharay Angulo; additional reporting by David Lawder and Michael O’Boyle in Mexico City.

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Teams from the three countries were due to kick off a second round of talks on 25 areas of discussion, with subjects such as digital commerce and small businesses seen as areas where consensus was possible, Mexican officials said.

The Sept. 1-5 round will also touch on more thorny topics such as rules governing local content in products made in North America, Mexico’s economy ministry said in a statement. Mexican officials believe Trump wants to include rules that some content must be made in the United States.

Trump’s attacks on NAFTA are seen by Mexican and Canadian officials as a negotiating ploy to wring concessions, but they have heightened uncertainty over the accord. Away from the diplomatic noise, the Mexico round of talks is expected to help define the priorities of each nation rather than yield major advances.

Trump and Canadian Prime Minister Justin Trudeau spoke by telephone on Thursday and stressed they wanted to reach an agreement on NAFTA by the end of the year, the White House said. If they achieve that, it could set a record among the fastest multinational trade negotiations.

The goal is to get a deal before Mexico’s 2018 presidential campaign starts in earnest. Officials fear the campaign will politicize talks, with nationalist frontrunner Andres Manuel Lopez Obrador already recommending a tougher line from Mexico.

Nevertheless, one Mexican official noted that Trump’s threats had put pressure on his negotiators, forcing them to adopt tougher positions “than they would like,” while another official said they were ready to leave the table if needed.

Negotiators predict that there would not be substantial discussion of areas of friction in either this round or the next one, a source familiar with the process said.

“We do not expect any major breakthroughs or major developments in this round. We really don’t,” the source said.

Trump threats

Trump said this week he might trigger a 180-day countdown to withdraw from NAFTA while the talks were ongoing to help meet his goals, which include sharply reducing a US$64 billion annual U.S. trade deficit with Mexico.

NAFTA, first implemented in 1994, eliminates most tariffs on trade between the U.S., Canada and Mexico.

Critics say it has drawn jobs from the U.S. and Canada to Mexico, where workers are paid far lower wages. Supporters say it has created U.S. jobs, and the loss of manufacturing from the U.S. has more to do with China than Mexico.

If NAFTA collapses, costs could rise for hundreds of billions of dollars of trade as tariffs are brought back. Free-trade lobby groups say consumers would be saddled with higher prices and less availability of products ranging from avocados and berries to heavy trucks.

Uncertain future

Mexico’s Economy Minister Ildefonso Guajardo and Foreign Minister Luis Videgaray told officials in Washington on Wednesday that Mexico would walk away from the negotiations if Trump pulls the trigger on withdrawing from the deal.

Amid Trump’s warnings, Mexico is preparing for something hard to imagine even a few months ago — life without the agreement that boosted trilateral trade to around US$1 trillion annually.

Juan Pablo Castanon, president of Mexico’s Business Coordination Council representing the private sector in the talks, said Mexico’s “Plan B” could be up and running within three months of an eventual NAFTA collapse.

Talking on Mexican television, he said the plan was focused on striking new trade arrangements in Asia and Latin America, sourcing alternate suppliers such as Brazil for grains now imported from the U.S., and finding ways to recreate investor guarantees that are included in NAFTA.

Mexico’s President Enrique Pena Nieto travels to China this weekend for talks about trade and investment, while Mexican negotiators were due to take part in trade talks with South American nations, Australia and New Zealand on Tuesday.

Mexico’s status as the biggest foreign buyer of yellow corn from the U.S. gives it some leverage in the NAFTA talks, with corn-growing states that voted for Trump in 2016 emerging as a powerful voice that is opposed to scrapping the deal.

— Reporting for Reuters by Dave Graham and Anthony Esposito, additional reporting by Adriana Barrera, writing by Frank Jack Daniel.

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