(Bloomberg) -- The lead negotiators for the three Nafta countries joined the latest round of talks as the U.S. Chamber of Commerce warned that an American pullout would hit hardest some key swing states that President Donald Trump took on his road to power.
The three chief negotiators -- John Melle for the U.S., Kenneth Smith Ramos for Mexico and Steve Verheul for Canada -- were scheduled to take part starting Friday in Mexico City during the fifth round of talks on a new North American Free Trade Agreement. Junior officials spent the past two days laying the groundwork for the round, which is scheduled to wrap up Nov. 21.
U.S. Trade Representative Robert Lighthizer and his Canadian and Mexican counterparts, Chrystia Freeland and Ildefonso Guajardo, will not attend this round, an approach that officials hope will dial down the political rhetoric and allow bureaucrats to move the ball forward on issues where the nations have common ground.
Still, Trump and his trade deputies haven’t backed down from the threat to withdraw the U.S. from the 23-year-old accord, which governs more than $1 trillion in annual trade and has shaped the supply chains of companies from General Motors Co (NYSE:GM). to Caterpillar Inc (NYSE:CAT). Commerce Secretary Wilbur Ross said this week the talks are “on a very short time fuse” as a general election in Mexico and Congressional elections in the U.S. approach next year.
Nafta States
Several of the blue-collar states key to Trump’s victory, including Michigan, Ohio, Pennsylvania, Wisconsin and Indiana, would be hit hardest if the U.S. walks away from the deal, the U.S. Chamber of Commerce said Friday in an analysis. Other big losers would include North Dakota, Texas, Missouri, Iowa, Arizona, Nebraska and North Carolina, said the group, the largest business organization in the U.S.
With 65 percent of its exports heading to Mexico and Canada, Michigan could suffer from the most with about 366,000 jobs at risk if Nafta collapses, the chamber’s Senior Vice President for International Policy John Murphy said in a blog post.
Other estimates of Nafta’s demise haven’t been as dire. Moody’s Analytics projects that withdrawal would hurt all three economies, with Mexico the most vulnerable. But none of the three would slip into recession, according to Moody’s forecasts.
See how U.S. grocery prices would take a hit from an end to Nafta.
Negotiators are set to pay highest attention to rules of regional content, including for cars, as well as financial services in this round, according to an agenda obtained by Bloomberg.
Contentious Proposals
One of the most contentious U.S. proposals focuses on the so-called rules of origin for cars, which govern how much of a vehicle must be produced in North America to trade without tariffs. The Trump administration called for increasing the regional content requirement to 85 percent from 62.5 percent, and added a 50 percent minimum for U.S. content.
Another contentious U.S. proposal is adding a sunset clause, which would automatically terminate the pact after five years unless the parties agree to extend it. Ahead of this round, Mexico backed a five-year review of the deal without a withdrawal clause.
Canada is open to discussing the Mexican proposal and to the idea of some kind of periodic re-examination, but considers a full sunset clause as proposed by the U.S. to be a non-starter, according to a Canadian government official speaking on condition of anonymity.