As Clock Ticks, Canada and US Seek Ways to Salvage NAFTA

August 31, 2018 Updated: August 31, 2018

WASHINGTON—Talks between Canada and the United States intensified on Aug. 30 as the two countries pushed to hammer out a deal on a revamped North American Free Trade Agreement by an Aug. 31 deadline, with both sides upbeat about the progress made so far.

Despite some contentious issues still on the table, the increasingly positive tone contrasted with U.S. President Donald Trump’s harsh criticism of Canada in recent weeks, raising hopes that the year-long talks will conclude soon with a trilateral agreement.

Negotiations entered a crucial phase this week after the United States and Mexico announced a bilateral deal on Aug. 27, paving the way for Canada to rejoin talks to salvage the 24-year-old accord that accounts for over $1 trillion in annual trade.

Negotiators worked late into Aug. 29, officials said, and talks continued the following day between Canada’s lead negotiator, Foreign Minister Chrystia Freeland, and U.S. Trade Representative Robert Lighthizer.

Trilateral talks are already underway at technical level and the U.S., Canadian and Mexican teams have been in touch in the past few days, according to two people familiar with the process. The ministers responsible were poised to meet, possibly as soon as Aug. 30, they added.

The NAFTA deal that is taking shape would likely strengthen North America as a manufacturing base by making it more costly for automakers to import a large share of vehicle parts from outside the region. The automotive content provisions, the most contentious topic, could accelerate a shift of parts-making away from China.

New chapters governing the digital economy and stronger intellectual property, labor and environmental standards could also work to the benefit of U.S. companies, potentially helping Trump to fulfill his campaign promise of creating more American jobs.

Trump has set an Aug. 31 deadline for the three countries to reach an agreement, which would allow Mexican President Enrique Pena Nieto to sign it before he leaves office at the end of November. Under U.S. law, Trump must wait 90 days before signing the pact.

The U.S. president has warned he could try to proceed with a deal with Mexico alone and levy tariffs on Canadian-made cars if Ottawa does not come on board, although U.S. lawmakers have said ratifying a bilateral deal would not be easy.

Late Night Talks

“We have had very intensive work being done by officials who were meeting late into the night last night on a number of different issues and I look forward to reviewing that work with Ambassador Lighthizer,” Freeland told reporters on Aug. 30.

“There’s a lot of goodwill. It’s a lot that we’re trying to do in a short period of time, we’re working very very intensely,” she added.

Trump and Canadian Prime Minister Justin Trudeau expressed optimism on Aug. 29 about reaching an agreement by Aug. 31, although work remains on specific issues.

Trudeau is expected to update premiers of Canadian provinces on Aug. 30 on the progress of the talks.

One sticking point for Canada is the U.S. effort to dump the Chapter 19 dispute-resolution mechanism that hinders the United States from pursuing anti-dumping and anti-subsidy cases. Lighthizer said on Aug. 27 that Mexico had agreed to eliminate the mechanism.

“I think the Canadian view on Chapter 19 is well known,” Freeland told reporters late on aug. 29. “I think it will be most effective if we keep our negotiations on specific issues to the negotiating table.”

Trump also wants a NAFTA deal that eliminates dairy tariffs of up to 300 percent that he argues are hurting U.S. farmers, an important political base for Republicans.

But any concessions to Washington by Ottawa is likely to upset Canadian dairy farmers, who have an outsized influence in Canadian politics, with their concentration in the provinces of Ontario and Quebec.

“Ultimately, we’ve got huge issues that are still to be resolved,” said Jerry Dias, head of Canada’s influential Unifor labor union. “Either we’re going to be trading partners or we’re going to fight.”

By Julie Gordon & Sharay Angulo