By Anthony Esposito and Sharay Angulo
MEXICO CITY (Reuters) - The United States called back its negotiator for the contentious issue of regional auto content rules from a round of NAFTA talks for consultations in Washington on Monday, delaying the ongoing conversations in Mexico City, three Mexican and Canadian trade officials said.
One of the officials said the negotiator, Jason Bernstein, had been called for meetings with U.S. automakers and U.S. Trade Representative Robert Lighthizer, and was due back later in the week.
U.S., Mexican and Canadian trade teams began a seventh round of talks to renegotiate the 1994 North American Free Trade Agreement on Sunday aiming to finish reworking less contentious chapters while also meeting to discuss the trickiest subjects.
The change in plans disrupted a schedule for talks early in the week about a proposal by the administration of U.S. President Donald Trump to make automakers source more parts from the region and specifically the United States, a major sticking point that the industry itself opposes.
However, it was not immediately clear if the disruption was a setback or could help lead to a breakthrough after months of talks to rework the trade pact the underpins $1.2 trillion in annual trade between the three countries.
Mexican negotiators have said the auto content issue must be resolved in large part between the White House and the Big Three Detroit automakers who dominate the industry.
“What I’ve heard is that he’s back in Washington because apparently they are meeting with the Detroit three. If that’s the case, that’s really positive," said Flavio Volpe, president of the Toronto-based Automotive Parts Manufacturers’ Association.
"The timing is awkward. But if USTR is finally talking to those companies it’s something that we've been asking for months," Volpe said, referring to the United States Trade Representative (USTR)
Two auto lobbyists in the United States, who spoke on background, said they did not believe there was a joint meeting scheduled with the Detroit auto companies but individual consultations might happen.
Mexico's government is concerned that a lack of progress on the automotive content issue could hurt the wider renegotiation, a former official still familiar with the process said.
Seeking to break the deadlock, the Mexican government has said it would put forward a proposal on rules of origin during the current round of talks, but a Mexican official said on Monday no new ideas had been presented so far.
The renegotiation began last year at the behest of Trump who said the agreement must be overhauled to better favor American interests or Washington would quit the accord. The latest round has been clouded by renewed tension between Mexico and Trump over his planned border wall.
Mexico has consistently rejected paying for the wall, and its government had hoped to arrange a meeting between President Enrique Pena Nieto and Trump in the next few weeks. However, a senior U.S. official said over the weekend that plan had been postponed after a phone call between the two soured over the wall earlier this month.
The trade negotiators have become used to such distractions, but the talks are increasingly centering on U.S. demands that officials say can be resolved only at the top political level.
Mexico's government has not commented officially on the derailment of the Trump-Pena Nieto meeting, but Juan Pablo Castanon, head of the powerful CCE business lobby, was less reticent as he took stock of the unfolding NAFTA negotiations in Mexico City.
"Obviously, the cancellation of the Mexican president's trip to the United States is an important element in the negotiations: it's politics that can help us resolve the technical issues we're moving forward on," Castanon said.
Castanon said several chapters are close to being finished, including measures on e-commerce, telecommunications and sanitary standards for agricultural products. Others close to the talks believe the energy chapter could also be concluded.
Officials do not anticipate major breakthroughs on other intractable issues such as agriculture and dispute resolution mechanisms in the Mexico City round, due to run until March 5.
There was little sign of compromise on any issues early on, with a senior Canadian agriculture official pushing back against U.S. demands to dismantle Canadian protections for the dairy and poultry sectors known as supply management.
"When it comes to supply management, we believe there can be no concession," said Jeff Leal, the minister of agriculture, food and rural affairs for the province of Ontario.
(Additional reporting by Dave Graham; Editing by Frank Jack Daniel, Frances Kerry and Tom Brown)