Prime Minister Justin Trudeau and his Mexican counterpart said they won't abandon NAFTA negotiations because of hardline bargaining positions taken by the United States, but behind the scenes Canadian officials said they are growing increasingly doubtful that a deal can be struck.
Mr. Trudeau and President Enrique Pena Nieto were asked Thursday at a press conference about the Trump administration's proposal that a sunset clause be included in a renegotiated NAFTA – a provision that would automatically terminate the deal in five years unless the U.S., Canada and Mexico agreed to keep it in place. That demand comes amid escalating protectionist rhetoric from U.S. President Donald Trump, who threatened Wednesday to scrap the agreement and pursue bilateral talks with Mexico or Canada.
"We will not be walking away from the table based on proposals put forward," Mr. Trudeau said, adding he is committed to a "win-win-win" deal. "We will discuss those proposals. We will counter those proposals, and we will take seriously these negotiations."
Mr. Pena Nieto said he did "tackle" the topic of bilateral agreements with Mr. Trudeau, but reiterated his desire for an updated NAFTA.
Both leaders said they remain dedicated to a modern NAFTA agreement. But Mr. Pena Nieto also said he wouldn't be "held hostage" by the talks.
"It cannot be good for just one country, and we cannot be held hostage from a bad situation," he said.
Mexico is working on plans that include tariff measures and finding substitute markets in case NAFTA talks are unsatisfactory, Finance Minister Jose Antonio Meade said on Thursday.
The Prime Minister's first official visit to Mexico, where he was celebrated in a lavish welcoming ceremony at the National Palace, comes after Mr. Trump told Mr. Trudeau on Wednesday in a face-to-face meeting at the White House that he might kill NAFTA and pursue a separate trade deal with either Canada or Mexico.
Canadian officials are increasingly pessimistic that a revamped North American free-trade agreement is possible despite Mr. Trudeau's best efforts to persuade Mr. Trump that the 23-year-old trilateral trade deal is in America's economic interests.
A high-level Canadian source said Mr. Trudeau's intervention with Mr. Trump in the Oval Office on Wednesday was positive and that he did nothing to "damage personal relations" with the mercurial President.
But the source said there were no signals from Mr. Trump that he is backing off his strong protectionist stand, which has been amplified at the NAFTA bargaining table by hardline demands from U.S. negotiators, with tough U.S. content requirements for cars and trucks expected as early as Friday.
As the fourth round of talks continues in Arlington, Va., the Trump administration demanded a sunset clause be included in a renegotiated NAFTA.
"The negotiations so far, with the exception of the easy stuff, are not going well," said the source, who was not authorized to speak on the record. "They are not going well because you are negotiating a free-trade agreement with a protectionist Donald Trump. It is the most protectionist administration since the early 1930s."
Although it is still too early to determine, the source said it may be that Canada will end up pursuing bilateral negotiations with the United States and leave Mexico to fend for itself.
One Canadian government source said Mr. Trudeau's Wednesday meeting with the U.S. House ways and means committee was in part a safety measure to get legislators on side if Mr. Trump attempts to kill NAFTA. If the President tried to withdraw the United States from the pact, Congress would have to pass legislation to roll back its provisions. This could allow legislators significant power in restraining the White House.
U.S. negotiators formally tabled the sunset clause proposal late on Wednesday during NAFTA talks in a Washington-area hotel, said a source with knowledge of the closed-door discussions, speaking on condition of anonymity to reveal confidential details.
U.S. officials have been informally floating such a proposal for months. At a September forum organized by news website Politico, U.S. Commerce Secretary Wilbur Ross said a sunset clause would allow the countries to evaluate whether the deal was working and kill it if it wasn't.
Canadian and Mexican officials have publicly disparaged the idea, which they argue would make it hard for companies to make long-term investments because they could not be guaranteed that their access to other NAFTA markets would remain intact. It could also force the three countries to go through another contentious NAFTA renegotiation five years from now.
Mexican Finance Minister Jose Antonio Meade said on Thursday that the country is working on plans that include tariff measures and finding substitute markets in case NAFTA talks are unsatisfactory.
Experts say Mr. Trudeau is facing increased pressure from Mexico to follow the country's hard line on keeping NAFTA a three-way deal.
Former Mexican ambassador to Canada Francisco Suarez said that the Mexican government will want to see Mr. Trudeau "clarify" that Canada is committed to North America, and he won't drop the trilateral NAFTA to strike a bilateral trade deal with the United States.
"There's this ambiguity. I hope that's clarified," said Mr. Suarez, who was Mr. Pena Nieto's envoy to Canada from 2013 to 2016. "I think that's something the President himself will say: I think it's important that we clarify that."
The Mexican government will also be looking for Canada to join Mexico in its warning to Mr. Trump that if he triggers the six-month notice period for withdrawal from NAFTA, the talks will stop. Mexico has said it won't negotiate under those conditions, but Mr. Trudeau has not.
"On the basic approach, we should be taking the same position. Because Mr. Trump will try to split us."
With reports from Adrian Morrow in Washington and Campbell Clark in Mexico City and from Reuters