Canadian, Mexican, and American flags stand on display during the fifth round of NAFTA negotiations in Mexico City, Mexico. (Photographer: Alejandro Cegarra/Bloomberg)

Nafta Deal Unlikely This Week, Raising Tariff Fears

(Bloomberg) -- Nafta talks are picking up again but a deal is unlikely to be reached this week, four people familiar with discussions said -- increasing the odds the latest deadline will be missed amid Donald Trump’s threat to freeze Canada out.

Canadian Foreign Minister Chrystia Freeland, after her first in-person meeting in more than a week with U.S. Trade Representative Robert Lighthizer in Washington on Wednesday, said talks are still productive. Negotiators need to do more work, Freeland told reporters, adding she’ll meet Lighthizer again in the afternoon.

The two countries remain at odds on core issues, including dairy and dispute panels. A deal is unlikely this week without major movement, the people said, speaking on condition of anonymity as negotiations continue. The talks could extend into next week, and several deadlines have been missed so far. A Canadian official had said Thursday was the likely deadline to reach a deal in order to convert it to legal text by the end of the month.

Nafta Deal Unlikely This Week, Raising Tariff Fears

The countries had been pressuring each other on the eve of the meeting. Representative Steve Scalise of Louisiana, a key Republican lawmaker, warned in a statement Tuesday that congressional patience with Canada was wearing thin. Prime Minister Justin Trudeau, at the same time, continues to say he would rather see no deal than be forced to accept a bad one.

“We’ve been very clear that we’re interested in what could be a good deal for Canada, but we’re going to need to see a certain amount of movement in order to get there and that’s certainly what we’re hoping for,” Trudeau told reporters Wednesday in Ottawa.

The U.S. reached a preliminary deal with Mexico in August. Barring an accord with Canada, Trump has threatened to proceed with only his southern neighbor, though Scalise stopped short of saying Congress would go along with that.

“It is growing increasingly unlikely that you can get text to the Congress by Sept. 30,” said Jennifer Hillman, a professor of law at Georgetown University and former general counsel to the Office of the U.S. Trade Representative. It’s even more unlikely to proceed quickly with only Mexico, she said. “Canada does still have some leverage.”

Scalise, the House majority whip, said if Canada does not “cooperate” then Congress would “consider options about how best to move forward,” though he didn’t specify how.

“There is a growing frustration with many in Congress regarding Canada’s negotiating tactics,” Scalise said in the statement.

‘All Three Countries’

There have also been numerous calls in the U.S. to include Canada. In a joint letter dated Monday, three major U.S. business groups -- the U.S. Chamber of Commerce, the Business Roundtable and the National Association of Manufacturers -- said it would be “unacceptable to sideline Canada,” the top buyer of U.S. goods. Prominent members of Congress have also said that Canada should be part of any new North American trade agreement.

“I think that if all three countries are in and all signed up, there’s a much higher likelihood this gets passed,” Bruce Heyman, a former U.S. ambassador to Canada under Barack Obama, said Tuesday on BNN Bloomberg television. There’s no sign a Mexico-only deal can be passed by Congress, he said, while shrugging off the significance of Scalise’s statement. “I think Steve Scalise is carrying water for USTR,” he said.

Panels, Tariffs

Canadian officials are warning that they’re prepared to see the next deadline pass if they don’t get an agreement they can live with, according to two people familiar with the talks. The Canadians need effective dispute settlement provisions in anti-dumping cases, and certainty to avoid misuse of national security investigations, under which Trump has applied tariffs, one of the people said.

Sticking points in talks include dairy, where the U.S., facing a supply glut, is seeking a bigger cut of Canada’s protected market. In exchange, Canada is hoping to preserve some form of anti-dumping panels contained in Chapter 19 of the North American Free Trade Agreement, and an exemption for Canadian cultural industries.

Other American demands include longer intellectual property and pharmaceutical patent protection and a higher threshold for duty-free shipments across the U.S.-Canada border, none of which the Canadians have signaled are deal-breakers.

Nafta Deal Unlikely This Week, Raising Tariff Fears

It’s unclear what will happen if it becomes impossible to publish text of a deal by Sept. 30. The countries could extend talks, but that means Mexico’s president-elect, Andres Manuel Lopez Obrador -- who takes office Dec. 1 -- will have to be the one to sign the new agreement.

‘Always Tough’

Trump could try to proceed with Mexico only, but will face blowback from Congress, and the actual U.S.-Mexico agreement would probably require further changes, Hillman said, because it’s written in a way -- for example, a requirement that 75 percent of auto content be sourced within the trade pact’s member nations -- that appears to presume Canadian involvement. “You wouldn’t want to leave that number at 75 percent if Canada is not included,” because automakers couldn’t meet it, she added.

Trump, meanwhile, took aim at the Canadians again on Tuesday. “Canada has taken advantage of our country for a long time,” he said. “They are in a position that is not a good position for Canada.”

The president has threatened auto tariffs on the Trudeau government if it balks at a deal. Finally, Trump could use another pressure tactic: give six months’ notice of quitting the existing Nafta. Heyman said he was concerned that could happen.

Doing so “could then scramble a lot of things up,” he said. In that case, and others, Congress will be roped in. “These last few days are always tough.”

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