NAFTA talks focus on procurement amid doubts over deal chances

By David Lawder and Dave Graham

ARLINGTON, Va. (Reuters) - North American Free Trade Agreement negotiators are set to cover the difficult issue of government procurement on Thursday as they try to revamp the pact that U.S. President Donald Trump has threatened to terminate.

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.

According to a schedule seen by Reuters, meetings on government procurement, cross-border services trade, environmental issues and state-owned enterprises were set to conclude for the current round on Thursday.

Talks on rules of origin, a contentious issue involving regional content requirements for autos, are expected to start on Friday and continue through early next week. Discussions on labor, centered on Mexico's chronically low wage rates, also start on Friday.

Some observers said that with the United States' demands, it is difficult to see how the negotiators could reach an agreement.

Jerry Dias, president of Unifor, Canada's largest labor union, said it was clear the United States does not want a deal.

"The comedy show is unfolding in Washington, there's no question about it," he said. "That's exactly what this NAFTA renegotiation is."

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 if three-way negotiations fail..

He was speaking at the White House with Canadian Prime Minister Justin Trudeau, who said Canada was "braced" for Trump's unpredictability but taking a serious approach to the NAFTA talks.

U.S. Commerce Secretary Wilbur Ross defended the nation's government procurement proposal on Wednesday, saying it was based on the relative sizes of the markets in the three countries.

"Our market is 10 times the size of either of those markets, so if you gave equal percentage market share, you'd be giving them 10 for one," Ross told a trade forum organized by a Washington law firm. He added that the past arrangement was "absurd."

On automotive rules of origin, NAFTA negotiators face tough new U.S. demands to increase regional vehicle content to 85 percent from 62.5 percent, with 50 percent 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.

Ross said that he believed higher percentages for automotive content would be achieved, and "car companies will adapt themselves to it."

However, a study released on Thursday by the Motor Equipment Manufacturers Association, which represents U.S. auto parts makers, showed the higher content requirements would lead to the loss of up to 24,000 U.S. jobs, as some companies would forego NAFTA's tariff-free benefits and ship in more components from other countries.

If NAFTA is terminated, up to 50,000 jobs would be lost, the study showed.

(Additional reporting by David Ljunggren; Editing by Lisa Von Ahn)