(Bloomberg) -- U.S.-Canada trade talks are poised to come to a head this week, as negotiators bear down on their next deadline amid President Donald Trump’s threats to cut his largest export market out of the deal.
High-level negotiations are expected to resume this week in a bid to reach a deal for Canada to remain in the three-nation North American Free Trade Agreement, a Canadian government official said, speaking on condition of anonymity. Congress is pressing for Canada to be kept in Nafta, after the U.S. and Mexico struck their own deal last month.
Time is running out to reach an accord that can be signed before Mexico’s president-elect takes office. There are no high-level talks scheduled Monday, and the middle of this week -- probably Thursday -- is considered the next deadline to reach a handshake deal that could be converted into legal text by the end of this month, the official said.
The Trump administration -- facing a fight with China, falling approval ratings and upcoming midterm elections, among other issues -- has begun to show more flexibility and the progress of talks picked up last week, two officials familiar with negotiations said. Whether it will be enough is the major question.
“What has surprised me is looking at the conciliatory position of the U.S. on a lot of issues,” said Laura Dawson, Director of the Wilson Center’s Canada Institute in Washington. The U.S. has dropped some of its most high-profile demands, but she stopped short of making any bets. “They’re closer now than they have been; that’s all I’ve got.”
Congress View
If the countries fail to get a deal this week, they’ll be at a crossroads. Trump has threatened to proceed without Canada, but Congress has warned he can’t do that on the current U.S. legal path, which was for a three-country deal. House Speaker Paul Ryan and Minority Leader Nancy Pelosi last week called for Canada to be included. Trump has also threatened to apply tariffs to Canadian auto exports to the U.S.
“It should be trilateral,” Pelosi, whose Democrats are poised to potentially take control of the House of Representatives, said Friday. Asked about a Mexico-only deal, she said: “I just don’t think that is in the interest of this hemisphere to be able to prevail in the global marketplace.”
Sticking Points
Canada is offering certain concessions, such as on dairy, in exchange for keeping parts of the current deal it deems essential. Here are the core remaining issues:
- Dispute panels: Anti-dumping panels contained in Nafta’s Chapter 19. U.S. Trade Representative Robert Lighthizer has long despised them and sees them as an assault on sovereignty and wants to kill them; Canada calls this a red line issue, and sees them as an essential arbiter in a trade pact with a country 10 times its size.
- Cultural exemptions: Canadian Prime Minister Justin Trudeau doesn’t want to open the door to U.S. takeovers of Canadian TV networks, or a flood of U.S. content.
- Dairy: This is probably Canada’s big bargaining chip. It’s not in Nafta now but the U.S. is seeking more access to Canada’s protected market. Trudeau has said he’ll bargain here.
- Cross-border shipping: The U.S. wants Canada to raise its so-called de minimis level, under which cross-border shipments are shipped duty-free.
- Pharmaceuticals: The U.S. and Mexico agreed to 10-year patent protection for biologic drugs, but Canada wants a shorter period. Longer patent protection raises drug costs, and Canada is eyeing expanded public funding for pharmaceuticals.
- Intellectual Property: Mexico and the U.S. agreed to tougher protections here. It’s a sticking point, but there have been scant signs that Canada sees this as a core issue.
The U.S.-Canada deal won’t substantially change any of the autos agreement already struck by the U.S. and Mexico, officials familiar with talks have said. Autos had been the biggest sticking point in earlier talks. In other words, two of the subjects Trump talks about most -- cars and dairy -- are resolved or within grasp.
Next Steps
The countries have been close to a deal for weeks, but remain at loggerheads. This week, Canada’s parliament returns from its summer break, squeezing Canadian bandwidth. Foreign Minister Chrystia Freeland, who is Trudeau’s Nafta minister, is scheduled to be in parliament Monday and will host a summit in Montreal beginning Friday. A Canadian cabinet meeting is also scheduled for Tuesday, one Canadian government official said.
The official confirmed that Thursday is a target for any agreement this week -- but also stressed Canada doesn’t think it’s a hard deadline. Trudeau has said as much publicly, saying so-called deadlines have come and gone in talks.
“We will do the work needed and try and get there as quick as we can, but we are going to make sure that we are doing what is necessary to get the right deal for Canadians,” Trudeau said Sept. 13.
A spokesman for Lighthizer didn’t respond to a request for comment. Without a deal this week, there’s likely little hope that text of a trilateral pact can be published by Sept. 30 -- though Nafta talks have already blown through several deadlines, and wouldn’t necessarily collapse if they miss that one. If text isn’t published by then, a deal probably can’t be signed before Andres Manuel Lopez Obrador takes office as Mexico’s president Dec. 1.
Then the next step would be up the U.S. -- it could extend the clock a bit for further talks, or ramp up fights with Canada and Congress by trying to go ahead with Mexico only, possibly begin an exit of the existing accord and proceed with auto tariffs on Canada. All that would be a dramatic escalation of trade tensions with Canada, the U.S.’s second-biggest trading partner and top export market.
It may not come to that: a deal could be reached or talks could continue. But even if there is a deal, it’s not over. It will almost certainly be up to the next U.S. Congress to pass it, a process through which Trump’s threats to quit the current deal will continue. The Nafta saga isn’t over yet.
