UPDATE 4-Mexico sees progress in talks to revise USMCA, says drug protections to ease

David Lawder

to ease@ (Adds trade expert on drug protections)

WASHINGTON, Dec 4 (Reuters) - Mexico's government said on Wednesday that progress was being made toward revising a new North American trade pact, and that protections for biologic drugs will be sharply reduced under it, in what would be a setback for U.S. pharmaceutical companies.

Mexico approved the United States-Mexico-Canada Agreement (USMCA) earlier this year, but U.S. ratification has been held up by Democratic lawmakers pressing the Trump administration to make changes to the deal, including on drug protections.

Following nearly four hours of talks with U.S. Trade Representative Robert Lighthizer in Washington, Mexico's top negotiator for the USMCA, Deputy Foreign Minister Jesus Seade, said he believed a deal was closer than it had been.

He told reporters there were still two or three tough questions that needed to be resolved, floating the possibility of thrashing out an accord in the coming days.

"But there are things we can't accept," he said.

Among the most contentious issues under discussion is how to ensure that Mexico raises its labor standards.

Democrats have pressed to get stricter enforcement of new Mexican labor rules enshrined in the deal by proposing that inspectors supervise their implementation.

Mexico has firmly rejected that proposal, although Seade said last week that tweaks could be made to how labor disputes are handled to facilitate an accord.

Separately, in a column for Mexican newspaper El Universal, Seade said "very high protection" for biologic drugs will be "eased drastically" in changes under discussion for the USMCA.

Seade said he could not provide more details for now on the modifications. But U.S. Democratic lawmakers have described as a "giveaway" a provision under USMCA that would grant 10 years of data exclusivity for makers of biologic medicines, arguing that it will lead to higher prices for consumers.

Kenneth Smith, who was Mexico's principal USMCA negotiator from 2017 to 2018, told Reuters that Democrats were pressing to eliminate biologic protections for drug makers.

If the USMCA provision were simply cut, rules could revert to the considerably thinner protections of the 1994 North American Free Trade Agreement (NAFTA), he said. Or, new language could be agreed as a compromise, Smith added.

Mexican business groups have bristled against the Democratic labor market plan as an attempt to make the country less attractive to investment, and President Andres Manuel Lopez Obrador said on Tuesday Mexico would not accept it.

In the column, Seade said there would be no inspectors.

The USMCA is due to replace NAFTA, which U.S. President Donald Trump threatened to scrap if it was not overhauled.

Seade said in his column that existing flaws in NAFTA's dispute resolution mechanisms would be fixed in the adjustments currently being made to USMCA.

He told reporters in Washington he had held meetings through the weekend in Mexico with Lopez Obrador and business groups to address outstanding USMCA issues.

Speaking in Mexico City, Carlos Salazar, the head of Mexico's powerful CCE business lobby, said he was hopeful that Seade could broker an agreement before Dec. 20. Failing that, there could still be a deal in early January, he said.

(Writing by Dave Graham Additional reporting by Ana Isabel Martinez and Sharay Angulo in Mexico City Editing by Lisa Shumaker, Tom Brown and Paul Simao)