US, Mexico set more USMCA talks for September amid differences over autos content

By Emily Green and David Lawder

MEXICO CITY, July 23 (Reuters) – U.S. and Mexican officials said on Thursday they will meet for a fourth round of negotiations to revamp the North American trade pact in September, after talks this week exposed disagreements over changes to automotive content rules and other issues.

U.S. Trade Representative Jamieson Greer met with Mexican President Claudia Sheinbaum and Economy Minister Marcelo Ebrard this week during a third round of talks over the U.S.-Mexico-Canada Agreement (USMCA).

In a joint statement issued after the talks concluded, the two governments said Greer and Sheinbaum discussed autos, economic security, labor, agriculture, electronic payment services as well as steel and aluminum products.

“Ambassador Greer and President Sheinbaum agreed on the importance of bilateral cooperation and underscored the urgency of growing North American manufacturing, strengthening regional supply chains and addressing free-riding from non-parties” like China, the statement said.

Greer and Ebrard agreed that a fourth bilateral negotiating round would take place in Washington in early September, the statement said.

“The conversations were constructive and produced advances on topics like steel, aluminum” and substitution of imports from Asia, Ebrard said in a separate statement on Thursday.

The bilateral talks have excluded Canada. They come as the countries renegotiate the 6-year-old agreement, which underpins nearly $1.6 trillion in regional trade that was once duty-free. Negotiations threaten to bleed into next year, prolonging business and investment uncertainty that Mexico and Canada ​have been seeking to ease.

But the two sides remain far apart on key issues, according to two sources familiar with the negotiations who spoke on the condition of anonymity because of the sensitivity of the closed-door talks.

STICKING POINTS

One of the biggest sticking points is Washington’s demand that vehicles contain 50% of U.S.-made content to qualify for preferential market access.

The proposal has been a non-starter for the Mexican government, one of the sources said. Mexico is unwilling to accept “even 1%” of American content, one of the sources said, adding that such a provision “opens the door for a potential increase in the future” and sets a problematic precedent.

Under the current trade pact, vehicles must contain 75% North American content to qualify for duty-free treatment, with 40% produced by workers earning at least $16 per hour – a threshold met in the U.S. and Canada. The agreement, however, does not require that a fixed share of content come from any one country.

Mexico, meanwhile, wants Washington to reduce “Section 232” national security tariffs of 25% on autos and 50% on steel and aluminum from Mexico and Canada before making concessions on other issues. But U.S. President Donald Trump has shown no sign of easing the tariffs.

At present, Mexican auto factories are at a cost disadvantage to competitors in Japan, South Korea and the European Union, which face a 15% tariff to export cars to the U.S. with no regional content requirements.

Another source familiar with the talks said the U.S. has told Mexican officials to propose alternative ways to meet Trump’s goals of bringing more automotive production back to the U.S., displacing Asian components in the North American supply chain and reducing the U.S. trade deficit with Mexico.

On July 1, the Trump administration opted against extending the USMCA, starting a clock to wind down the agreement over 10 years unless changes can be agreed upon.

In Senate testimony on Wednesday, Greer said he hopes to strike interim trade agreements ‌with Mexico and Canada this year while tackling thornier USMCA issues such as auto content, labor and environmental standards in 2027.

“At this point, every (negotiation) round adds value,” said Kevin Brady, a former U.S. representative from Texas who once chaired the powerful U.S. House Committee on Ways and Means and supports the North American trade pact. “The negotiations are not in a bad place.”

(Reporting by Emily Green and David Lawder; Editing by Christopher Cushing and Thomas Derpinghaus)