U.S. to partially unveil key NAFTA proposal, talks seen dragging

A sign is pictured where the third round of NAFTA talks involving the United States, Mexico and Canada is taking place in Ottawa, Ontario, Canada, September 23, 2017. REUTERS/Chris Wattie

By Lesley Wroughton and David Ljunggren OTTAWA (Reuters) - U.S. trade negotiators will only partially unveil new text on modifying a key chapter on investment under NAFTA, two well-placed sources said on Sunday, underlying the cautious pace of talks that are supposed to wrap up by the end of the year. The sources, with knowledge of the effort to modernize the trilateral North American Free Trade Agreement (NAFTA), said the proposal on investment would not elaborate on possible changes being weighed by Washington under Chapter 11 of NAFTA. U.S. officials, speaking on condition of anonymity, said the administration was still consulting with stakeholders, including business, on the issue. Trade experts say the sluggish tempo of the talks mean it is doubtful whether Canada, Mexico and the United States -- meeting in Ottawa for the third of seven planned rounds -- can come to a deal by the end of December. Chief Canadian negotiator Steve Verheul said he did not expect the U.S. side to present detailed proposals in Ottawa on major issues such as dispute settlement, the dairy sector and tougher rules for North American content on autos. "We're making good solid progress ... but the end game is always the hardest part and impossible to predict," he told reporters toward the end of the day. U.S. President Donald Trump, who frequently describes the 1994 treaty as a disaster, is threatening to walk away unless major changes are made. Verheul told reporters the talks were constructive, although they had occasionally "become a little more heated". He said had seen no sign so far that the U.S. delegation might be preparing to leave the talks. NAFTA underpins more than $1 trillion in trade between the three countries a year, accounting for 39 percent of Canada's GDP and 40 percent of Mexico's, but just 5 percent in the case of the United States, the world's largest economy. NAFTA's Chapter 11 allows an investor from a member country to sue a member government on the basis that it was not treated fairly. While corporations want the administration to keep Chapter 11 -- the investor state dispute settlement -- in NAFTA, some U.S. lawmakers argue that it infringes on sovereignty by allowing foreign investors to sue the U.S. government over laws that are valid. Canada is proposing a similar arrangement to the one it has in its free trade deal with the European Union, a senior Canadian source said. Canada and the EU have agreed to set up a permanent investment court to settle disputes. U.S. Trade Representative Robert Lighthizer told a U.S. Senate committee he was "troubled" by Chapter 11 but pushed back at suggestions that it should be abolished. The sources said that when the U.S. team unveiled its proposal later in the round, it would focus on eliminating barriers to investment in all sectors in the NAFTA countries, but not weigh into possible changes to Chapter 11. The three member nations want to seal a deal before Mexico's presidential election campaign kicks into high gear early next year. Canadian officials said on Sunday there had been advances in less heated subjects such as the environment and small and medium-size enterprises. (Reporting by Lesley Wroughton and David Ljunggren; Editing by Sandra Maler)