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FILE PHOTO: Employees work at an Audi Q5 2.0 production line of the German car manufacturer's plant during a media tour in San Jose Chilapa, Mexico April 19, 2018. REUTERS/Henry Romero/File Photo

Henry Romero/Reuters

The Trump administration is closing in on a deal with Mexico to raise wages in the auto sector and push more manufacturing jobs to the United States – a major breakthrough in the renegotiation of the North American free-trade agreement.

Mexico is ready to agree to virtually all of the United States’ auto demands, said sources with knowledge of the closed-door talks in Washington, in a bid to drive NAFTA talks forward.

American and Mexican industry sources said Mexico is close to accepting a key U.S. demand that between 40 per cent and 45 per cent of the content of all vehicles manufactured in the NAFTA zone come from factories paying at least US$16 an hour. Mexican auto workers currently make roughly US$4.

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The Trump administration is hoping the wage requirement will drive car and truck makers to set up shop in the United States by negating Mexico’s ability to use far lower wages to attract them. Mexico had initially demanded a 10-year phase-in for any such new rules, but may agree instead to a five-year period, one source said.

Explainer: NAFTA’s saga so far: A guide to trade, the talks and Trump

It is still unclear when Canada will return to the table. The United States has not invited Canadian officials to participate in the most recent round of negotiations – in part because the talks have focused on issues that primarily concern the United States and Mexico.

But people briefed on the talks expected Canadian officials to be brought in once U.S.-Mexico bilateral issues are cleared out of the way. Negotiators will then turn to matters involving all three countries, such as dispute resolution and intellectual property.

Canada has already privately told the United States it is willing to agree to U.S. auto demands, one official said, because Canada would benefit from them along with the United States.

Negotiators worked all night on Wednesday, only clocking out at 4:30 a.m. on Thursday. Mexican Economy Secretary Ildefonso Guajardo Villarreal, Foreign Affairs Secretary Luis Videgaray Caso and Jesus Seade Kuri, an adviser to Mexican president-elect Andres Manuel Lopez Obrador, met for two hours later in the morning with U.S. Trade Representative Robert Lighthizer.

“We are advancing and progressing with various issues. This morning we covered a good number of them,” Mr. Guajardo told reporters outside Mr. Lighthizer’s office. “We are doing our best to do it as fast as possible.”

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A key sticking point is how to punish automakers – primarily European companies making vehicles in Mexico – that do not adhere to the new auto-content rules. The United States wants to impose even higher tariffs on them than are currently provided for under World Trade Organization rules.

Mexico is also prepared to agree to U.S. demands that 70 per cent of all steel, aluminium and glass used in vehicles and electronics come from North America, as well as rules that would reduce the amount of non-North American content in textiles, sources said.

In exchange, the Trump administration would lift steel and aluminum tariffs on Mexico and promise not to impose threatened 25-per-cent tariffs on Mexican autos. The United States would also back down on some demands to limit Mexican produce exports to the United States.

From the archives: Mexico’s low wages a sticking point in NAFTA talks, but labour woes run deeper

Canada has not taken part in NAFTA negotiations since the spring. Current sessions have mostly focused on resolving U.S.-Mexican stumbling blocks. Two sources said the United States believed the Canadians’ presence would make talks more difficult because American officials have long found the Canadians intransigent.

One Canadian official played down any suggestion of tensions. Canada simply isn’t involved at the moment, they said, because there is currently more distance between the United States and Mexico on several key files.

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Daniel Ujczo, an Ohio-based trade lawyer who has been closely following the talks, said the United States’ exclusion of Canada was a practical matter to avoid distractions while sorting out its differences with Mexico.

“As soon as we resolve these bilateral issues, Canada will be back,” he said.

NAFTA talks have dragged on nearly a year, but have achieved a palpable momentum in the past few days.

“I do see the possibility of having an agreement done before the end of the month,” said Luz Maria de la Mora, a Mexico City-based consultant and former trade negotiator. “The issues left on the table are ones that have to be done at the political level.”

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