(Updates with comment from chief Canadian negotiator) By David Ljunggren and Dave Graham MEXICO CITY, March 1 (Reuters) - Negotiators trying torework the NAFTA trade deal on Thursday were hit by the prospectof conflict over U.S. steel tariffs that could complicatecarmaking in North America, one of the most sensitive issues atthe talks. U.S. President Donald Trump said he would impose the tariffsbeginning next week, raising the risk of exacerbating tensionsat negotiations already facing serious challenges. Officials were unable to say immediately whether the tariffswould include imports from Canada and Mexico, the other twopartners in the 24-year-old North American Free Trade Agreement. The lack of clarity created uncertainty as some countriesmight be exempt or taxed at a lower rate, analysts said.Automakers and other users of the metals are also worried aboutretaliatory tariffs that might affect their finished products. For months, the United States, Canada and Mexico have beenmired in disagreement over a U.S. demand to require a greaterportion of North American auto parts and components under NAFTA,which Trump has threatened to ditch if it is not recast to hisliking. Moises Kalach, head of the international negotiating arm ofMexico's CCE business lobby, said Trump's call for a 25 percenttariff on imported steel appeared intended to increase U.S.content in industrial goods but would have unintendedconsequences. "Who is the priority here? Workers? Consumers? Somebody willend up paying for this," Kalach told Reuters on the sidelines ofthe latest NAFTA talks in Mexico City. "What's going to happento the competitiveness of North America?" Canada is the largest exporter of steel by far to the UnitedStates, and Trump's proposed tariff would raise the cost ofbuilding vehicles, experts said. "This would be very bad news for the auto industry," saidone person close to the negotiations. Canada's chief negotiator, Steve Verheul, said his team was"keeping an eye on what's going on outside" when asked how thetalks were progressing late on Thursday. "It's a bit of a distraction," he added, withoutelaborating. Although it differs by company, for their vehicles made inNorth America, Fiat Chrysler , Ford Motor Co andGeneral Motors Co source the vast majority of their steelfrom North America, according to the auto industry. GM said in a statement on Thursday that 90 percent of thesteel in its U.S.-built vehicles came from U.S. suppliers.
AUTO TALKS The United States, Mexico and Canada had already beenplanning to schedule extra discussions on trade rules for autoproduction, two people familiar with the matter said. The proposed talks, at the level of technical experts, wouldtake place in March before the next formal NAFTA session, whichis due to be held in Washington in late March or early April. Talks on the issue during the seventh round were suspendedthis week when the U.S. negotiator overseeing auto rules oforigin, Jason Bernstein, unexpectedly returned to Washington forconsultations with industry. Officials have made little progress on the most contentiousfiles since the talks started in August, and the talks look setto drag on well beyond March, when negotiators had hoped tofinish. Under NAFTA, 62.5 percent of the net cost of a passenger caror light truck must originate in the NAFTA region to avoidtariffs. Trump wants the threshold raised to 85 percent and isalso seeking to ensure that half the total content is U.S.-made. The auto industry has opposed those demands, arguing itwould disrupt supply chains and raise costs. Negotiators have struggled to advance on the auto proposalsince it was submitted in October. Automakers are evaluatingideas put forward by Canada last month to include newertechnology in the calculation of a vehicle's value. The current round of negotiations is set to end on Monday,when Mexican Economy Minster Ildefonso Guajardo, U.S. TradeRepresentative Robert Lighthizer and Canadian Foreign MinisterChrystia Freeland are scheduled to meet in the Mexican capital. Separately, Mexico's chief NAFTA negotiator, Kenneth Smith,said on Twitter the three sides had completed talks on goodregulatory practices. Sources close to the talks said negotiators had also pavedthe way for closing the telecommunications portion of the tradedeal this weekend, as the United States had dropped a proposalthat Mexico opposed. Canada's Verheul noted that the three sides were close tocompleting the section relating to technical barriers to tradebut needed more time on the environment, two of the areas thatsome officials say are close to being concluded. (Additional reporting by Anthony Esposito, Lesley Wroughton andSharay Angulo in Mexico CityEditing by Leslie Adler and Peter Cooney)
Messaging: dave.graham.thomsonreuters.com@reuters.net)) Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.