US-Canada Nafta talks resume with focus on dairy

[WASHINGTON] Canada's foreign minister expressed support for changes to Nafta's rules for car content as talks resumed between the US and its northern neighbor to update the trade accord.

"Rules of origin in cars is an incredibly complicated issue, but we had reached a high-level agreement with the US in the spring, and we are encouraged by the progress they made with Mexico this summer," Canadian Foreign Minister Chrystia Freeland told reporters Wednesday on her way into meetings with US Trade Representative Robert Lighthizer.

"Mexico has made some significant concessions which would be really good for Canadian workers," she told reporters outside the USTR offices in Washington.

Talks to update the North American Free Trade Agreement resumed Wednesday in Washington with a focus on dairy as the US pressures Canada to strike a deal by Friday, a US official familiar with the negotiations said.

The Trump administration plans to inform Congress by the end of the week that President Donald Trump intends to sign a trade deal with Mexico in 90 days to replace Nafta, and it's urging Canada to join it.

This week's Nafta showdown has Canada under the gun to either strike a deal both can live with, cave to Trump's pressure tactics or dig in and see what the US will do.

The US and Mexico announced a deal Monday after weeks of talks with just the two nations. Under the proposed agreement with Mexico, cars will be required to have 75 per cent of their content originate in the US and Mexico. The current Nafta requires that 62.5 per cent originate within North America. Under the new deal with Mexico, 40 per cent to 45 per cent of auto content would have to be made by workers making more than US$16 per hour, a condition that favors the US and Canada.

Trump is now using that agreement to pressure Canada to come on board, though several key issues remain.

Dairy is scheduled to be the main focus of the talks Wednesday, the official said. Mr Trump has previously said that Canada must reduce its tariffs on dairy and dismantle a system designed to avoid oversupply to reach a deal. At the same time, the US has prepared scenarios that would allow Canadian negotiators to claim a win on other issues, allowing Prime Minister Justin Trudeau and his team to save face, two US officials said.

The US made clear that the deadline for an agreement in principle is Friday, with no wiggle room, one official said. Despite US-Mexico progress, hurdles remain for Canada, although markets are betting a deal will be reached that includes Ottawa even as Trudeau's political rivals begin to blame him for risking Nafta's collapse.

Ms Freeland said Tuesday it will be an "important and constructive week" and that Canada was encouraged by progress made without them.

The US has told Canada they've already compromised on the issue of the sunset clause, which was a sticking point for Canada, and that they hope that helps pave the way to a quick deal, one of the US officials said.

Mr Trump is prepared to move forward with Mexico alone, on the belief that Canada has more to lose from such an arrangement, the officials said.

There are also warnings that US trade law will prevent, or impede, Mr Trump from ramming ahead on a quick timeline with only a two-country deal, and key figures in Congress are calling for Canada to be included. Mr Trump has threatened to apply auto tariffs to Canadian exports if a deal isn't reached.

The nations are pushing to sign a deal before Mexico's president-elect takes office Dec 1. Due to timelines set out in US trade law, the US would need to notify Congress of a deal by Friday, Lighthizer said this week. However, he said a notification could be sent that left open the possibility of Canada reaching a deal sometime after Friday.

Commerce Secretary Wilbur Ross said on Tuesday that it's likely the deal will be voted on next year after congressional midterm elections in November.

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