With a deal with Mexico out of the way, U.S. trade officials are due to resume talks with Canada on Tuesday to try to salvage the North American Free Trade Agreement as a trilateral accord.
After months of intense negotiations, the United States and Mexico announced an agreement Monday on a thorough overhaul of the 25-year-old free trade pact but President Donald Trump suggested he could cut Ottawa out.
Canadian Prime Minister Justin Trudeau stressed in a phone call with Trump on Monday the aim was to reach a new NAFTA deal.
The leaders “had a constructive conversation” on NAFTA, and “look forward to having their teams engage this week with a view to a successful conclusion of negotiations,” Trudeau’s office said.
Canadian Foreign Minister Chrystia Freeland interrupted a trip to Europe to rush back to Washington to begin talks with US Trade Representative Robert Lighthizer.
But it remains unclear when the trade officials will begin their discussions or whether the first meeting will happen Tuesday after all.
Mexico’s President Enrique Pena Nieto and President-elect Andres Manuel Lopez Obrador both said NAFTA should remain a trilateral deal.
The outlines of a NAFTA 2.0 are now on paper, including provisions on auto trade, tougher worker protections and a provision to review the deal every six years.
“It’s a really good deal for both countries,” President Trump said in announcing the agreement from the Oval Office.
Negotiators have worked for a year to update and rewrite NAFTA but in the last five weeks Washington and Mexico City held talks to resolve their bilateral issues, especially on the auto industry rules, without Ottawa.
Trump stressed that he could go ahead without Ottawa in the new agreement.
“We could have a separate deal or we could put it in the same deal,” Trump said.
He indicated he would take a tough line with Canada on autos and dairy tariffs, long a source of tension between the neighboring countries.
White House economic adviser Larry Kudlow reiterated that point on Tuesday, saying the United States would not accept continued steep tariffs on dairy exports.
“There’s a word that Canada has trouble with — it’s M-I-L-K,” Kudlow said on Fox News.
The Canadian government effectively sets production quotas and the price of milk, which ends up costing consumers a bit more but provides farmers with a stable income.
The system has been in place since the 1970s and has survived several attempts to undo it — as well as the prohibitive tariffs that limit foreign imports.
However, U.S. Treasury Secretary Steven Mnuchin said the administration was keen to get Canada on board quickly.
“The US market and Canadian markets are very intertwined,” Mnuchin said on CNBC. “It’s important for them to get this deal and it’s important for us to get this deal.”
There is some urgency as the United States seems eager to have the issue resolved before the November midterm elections, and Pena Nieto wants to sign it before handing the reins over to Lopez Obrador on December 1.
But Canada may not feel the pressure to hurry, especially at the expense of a good deal.
Trudeau’s government also faces political pressure with elections due in a year, which could make him wary of being seen as capitulating to Trump, especially on the sensitive dairy supply management system.
Freeland’s spokesman Adam Austen said in a statement Canada would “only sign a new NAFTA that is good for Canada and good for the middle class. Canada’s signature is required.”
Mexican officials have insisted all along that the NAFTA must be a trilateral deal, but also acknowledged that either way their country would have free trade commitments with both nations.
Lighthizer said the administration would notify Congress by Friday of the new agreement, which would allow the required 90 days’ notice to get the pact signed by December 1.
However, legislators and former US trade officials say the White House does not have the authority to replace NAFTA with a two-nation trade agreement, and must have the text of the treaty ready by September 30.
Not a sunset clause
The Canadian team could be more amenable to the talks now that the United States has backed away from a controversial and strenuously-opposed provision to require the three nations to renegotiate NAFTA after five years.
Instead, senior US officials told reporters the agreement had been extended for 16 years but would be reviewed every six years.
“It’s an alternative to sunset which we think works,” another senior official said.
A key element of the U.S.-Mexico talks has been content requirements for autos produced in the region in order to qualify for duty-free NAFTA treatment, which Mexico agreed to increase to 75 percent from 62.5 percent.
The two sides also agreed that 40-45 percent of vehicles must be made at “high wage” factories where workers receive $16 an hour, something that could deter off-shoring US auto manufacturing to Mexico.