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New optimism on NAFTA: Sides start engaging on hard topics

MONTREAL — A glimmer of optimism is emerging at NAFTA talks, with the countries starting to engage on difficult topics after months marked by finger-pointing, recriminations and threats of a U.S. withdrawal.

Several sources say the current week-long round in Montreal has been more constructive than past rounds as countries dive into a new back-and-forth about auto rules, dispute resolution, and a five-year review clause.

That's according to multiple people attending the talks — sources from two national governments, several lawmakers from Canada and the U.S. attending the talks, as well as industry stakeholders being briefed.

"I'm always optimistic. Even more so after the meeting this morning," said Dave Reichert, the Republican chairman of a powerful U.S. congressional trade committee, after a breakfast meeting Saturday with Canadian and American officials.

"I think we're going to continue to have opportunities to learn a lot more that will hopefully lead us all to believe we'll have an end in sight."

His Democratic colleague Bill Pascrell concurred: "I'm more optimistic than I was six months ago ... I think we’re in better shape than we were six months ago ... The attitude about tearing it all down — that's changed, and we've become more positive."

The negotiations have not produced major breakthroughs this week — just greater dialogue.

This round was viewed as a major litmus test of whether the NAFTA process has potential or is doomed to fail.

There are barely eight weeks left before the current schedule of talks expires, and U.S. President Donald Trump faces a decision soon about whether to extend the talks, pause during national elections in the U.S. and Mexico or start the process of cancelling NAFTA.

But everyone adds a note of caution. The serious engagement has just begun, none of the hard topics have been completed and negotiators are waiting to hear what U.S. trade czar Robert Lighthizer says when he attends the talks Monday.

Canada presented ideas for a new way to calculate where a car comes from in sessions between Wednesday and Friday. Sources say the Canadians proposed formulas that would inflate the American content share — by counting not just traditional pieces, but also the cost of research and intellectual-property where the U.S. dominates.

One person familiar with the talks said the countries are now taking that basic idea and working out various models, gauging their effect on the production of parts and on their own domestic industries.

Canada also suggested an overhaul of the investor-state dispute system under Chapter 11. The Canadian proposal would arguably strengthen the system for countries wishing to keep participating, but allow the U.S. to leave if it wants.

The Trump administration had previously demanded that Chapter 11 become voluntary for countries to participate in. It views the investor-state system as an inducement for companies to outsource to Mexico, by providing additional legal security through a forum to sue for unfair treatment.

The Canadian suggestion: exclude American companies from the system, if the U.S. truly wants out.

Several people gathered in Montreal said they saw things moving in a positive direction.

"With every passing round of negotiations more and more of the contentious issues are getting closer to being solved," said Canadian Liberal MP Andrew Leslie, a parliamentary secretary for Canada-U.S. relations.

"(This process) will progress until the end of the first quarter of this year. Having said that, if there's further extensions it will have to be decided by the three parties."

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