By David Lawder
WASHINGTON, June 30 (Reuters) - U.S. President Donald Trump's administration is expected to formally declare on Wednesday that it will not extend the U.S.-Mexico-Canada Agreement on trade, starting a decade-long clock to wind down the 32-year-old North American free trade zone as the three countries haggle over proposed changes.
That declaration will kick off a six-year review session, part of a "sunset clause" negotiated by President Donald Trump's first administration. However, it will do little to alter contentious negotiations over the pact's future, including sweeping demands to boost U.S. and regional content in North American automotive production and trade protections to block Chinese goods from benefiting from USMCA.
Trade chiefs from the U.S., Mexico and Canada are expected to meet virtually on Wednesday and declare whether they want to extend the pact for another 16 years.
A spokesperson for U.S. Trade Representative Jamieson Greer said he has made no formal announcement of his intention towards USMCA. But Greer has already scheduled a third round of negotiations with Mexico for the week of July 20, signaling his intent to keep pushing for changes.
"We expect July 1st to come and go, and for the United States to not confirm its wish to extend," said Greta Peisch, a former USTR general counsel who is now a trade partner at Wiley Rein in Washington.
Peisch added that it's unclear "whether the U.S. says exactly what it's looking for in a public way" in a statement expected after the meeting.
Mexican President Claudia Sheinbaum on Tuesday told reporters that she had signed a letter calling for USMCA to be extended for 16 years.
Canadian Prime Minister Mark Carney said he expected a "constructive exchange" between the three countries but no agreements to sign.
"The priority is to get a new deal," Carney said. "We're ready to negotiate an improvement of this agreement."
Trump has already unilaterally ended the duty-free status of USMCA by imposing tariffs of 25% on Canadian and Mexican autos and parts and 50% on steel and aluminum from the two countries, prompting retaliation from Canada.
Although Canada has not yet participated in formal negotiations with the U.S., Carney said technical talks on aluminum, steel, autos and softwood lumber have produced some improvements.
"So we're ready to continue those discussions but that will take time, which we've known for a while," Carney added.
Failure to reach agreement on revisions to USMCA would keep the trade pact in an indefinite limbo, with similar review sessions annually for the next 10 years, after which the North American trade pact would expire on July 1, 2036.
The review and sunset process, which was considered controversial when it was enacted, is separate from a termination clause that U.S. President Donald Trump or his Mexican and Canadian counterparts could exercise, triggering a U.S. withdrawal from the pact within six months.
Trump, whose first administration negotiated USMCA to replace the 1994 North American Free Trade Agreement, hailed its 2020 launch as "the fairest, most balanced, and beneficial trade agreement we have ever signed into law."
But he quickly soured on USMCA as the U.S. goods trade deficit with Mexico expanded, partly because companies shifted supply chains away from China after he imposed steep tariffs on Chinese goods. Trump frequently says that he doesn't want to renew USMCA, favoring instead the steep tariffs that he has imposed on Mexican and Canadian autos, steel and aluminum.
U.S., MEXICO TALK WITHOUT CANADA
For now, the U.S. is holding formal negotiating rounds with Mexico only, leaving Canada to the side amid a long list of bilateral trade irritants ranging from Canada's restricted dairy market to Canadian provinces pulling American liquor from store shelves.
Greer has planned no schedule to launch formal negotiations with Canada, though he holds discussions with his Canadian counterpart, trade minister Dominic LeBlanc.
North American automakers have urged the Trump administration to maintain the trade pact as a trilateral agreement, saying parts often flow multiple times across the northern and southern U.S. borders before assembly into vehicles.
Matt Blunt, president of the American Automotive Policy Council, a trade group representing Ford, General Motors and Stellantis, urged a swift and durable resolution that provides investment certainty and a level playing field.
"North American economic integration enables enormous competitive benefits for the region, and American Automakers are encouraged by ongoing negotiations with the U.S., Mexico and Canada," Blunt said in a statement. "U.S. automakers currently face a disadvantage versus imports from countries whose exports face a flat 15 percent tariff and are not subject to comparable rules of origin."
In the Mexican negotiations, the U.S. has demanded that all North American-built vehicles contain 50% U.S.-specific content, a figure that would drive regional required content up to 82% to qualify for U.S. benefits, sources familiar with the talks have said. Vehicles assembled in Mexico and Canada would still likely be charged some level of tariffs, Greer has said.
A Mexican official said that the U.S. and Mexico have discussed the idea of a universal global tariff of 15% on autos, but a lower rate for vehicles from Mexico and Canada if they agree on stricter rules of origin.
The official said Mexico and the United States broadly agree on USMCA’s problems: A steady decline in U.S. manufacturing jobs; falling U.S. content in autos as Asian parts increase; and concerns over increasing transshipment.
"Mexico and the U.S. are in agreement about the goals. What we are discussing is how to reach them," the official added.
(Reporting by David Lawder; Additional reporting by Promit Mukherjee and Maria Cheng in Ottawa and Emily Green and Aida Pelaez-Fernandez in Mexico City; Editing by David Gaffen and Daniel Wallis)
