A proposal that would lower country-of-origin thresholds in the automotive sector and could undermine Canada’s privileged access to the U.S. market has emerged as a key impediment to a Trans-Pacific free trade agreement.

Negotiators from Canada, Mexico and the U.S. met in Washington Thursday in an effort to smooth differences over the surprise U.S., Japan side deal that would water down the North American auto industry’s domestic content requirements. Canadian officials declined to comment on progress of the confidential negotiations.

Industry sources say Canada is willing to give in, in order to gain more access to countries such as Japan — but can’t afford to lower the auto parts threshold below 50 per cent.

Under the North American Free Trade Agreement at least 62.5 per cent of a vehicle’s content must be produced in the country of origin in order to avoid tariffs within the economic zone.

Critics say a diminished content provision would encourage car makers to source parts from lower cost jurisdictions outside the Trans-Pacific trading block, triggering wholesale jobs and investment loss in North America.

The Mexican government says any agreement that lowers the threshold below 50 per cent would unravel gains in the country’s auto parts sector, which has grown into a major employer and global player.

Flavio Volpe, president of Canada’s Automotive Parts Manufacturers’ Association, said lower country-of-origin thresholds are a concern to Canadian suppliers.

“The federal government has enjoyed the strong support of the automotive supplier sector throughout the various rounds of TPP negotiation,” the association said in statement.

“We fully support the government’s defense of the sector’s hard fought gains and continue to applaud its effort to reject country-of-origin thresholds that unduly risk our future prospects in a very globally competitive market.”

The group said the continued prosperity of 85,000 Canadian auto parts employees depends on the ability to win access to new markets in Asia while continuing to protect market position in North America.

The Trans-Pacific Partnership Free Trade Agreement would create an economic bloc embracing 12 countries on both sides of the Pacific: Canada, the United States, Mexico, Australia, Japan, New Zealand, Malaysia, Singapore, Vietnam, Chile, Peru and Brunei.

The federal Conservatives had hoped a completed deal or major progress toward an agreement could be fodder in their campaign for the Oct. 19 election — proof of their ability to secure new markets for Canadian business.

The Conservatives say a TPP will provide new market access and broaden economic relationships with countries that do not grant preferential treatment to Canadian goods and services.

They say it also creates an opportunity to deepen and modernize trading relationships with countries including Chile, Mexico and the United States which already have trade deals with Canada.

Trade department officials say Canadian exporters would gain “preferential access” to fast growing Asian markets to create exports, growth and jobs. Canadian consumers could see lower prices at the checkout counter as a result of more industry competition.

In the U.S., President Obama says the deal will eliminate tariffs “and other barriers” to trade while encouraging production and supply chain co-operation among member countries.

While the text of TPP draft agreements has not been made public, leaks suggest it covers everything from food products to intellectual property and addresses policy issues such as the environment and labour rights.

The proposed deal also broaches sensitive areas, with dairy and poultry farmers concerned that it could unravel a tightly controlled supply management system. A leaked investment chapter draft shows the deal would allow corporations to sue countries within the TPP block

Prime Minister Harper in June said Canada would defend the supply management system but added that the country cannot afford not to be part of the TPP.

The negotiations raise questions about Canada’s participation during an election campaign, added Jim Stanford, an economist with Unifor encompassing the former CAW union. He called any agreement reached under the circumstances illegitimate.

The Trans-Pacific Partnership negotiations began under President George W. Bush in 2008 and continued with the inauguration of Obama in 2009. Canada became an observer in 2010 and joined in 2012 along with Mexico. Japan followed in 2013.

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According to the U.S. Department of Foreign Affairs, the countries involved have a combined GDP of $28.5 trillion (U.S.), representing nearly 40 per cent of global GDP and a market of 800 million consumers.

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