Canada rejoins talks to stay in NAFTA, deal possible this week

WASHINGTON (Reuters) – Canada’s top trade negotiator joins her Mexican and U.S. counterparts in Washington on Tuesday in a bid to remain part of a revamped trilateral North American trade pact, as U.S. officials expressed optimism a deal could be reached this week.

But Ottawa will be under pressure to accept new terms on auto trade and dispute settlement rules after the United States and Mexico agreed on Monday to overhaul the North American Free Trade Agreement (NAFTA).

U.S. President Donald Trump warned he could proceed with a deal with Mexico alone and levy tariffs on Canada if it does not come on board with the revised trade deal.

A spokesman for Canadian Foreign Minister Chrystia Freeland, who is due to arrive in Washington on Tuesday for the talks, said Canada would only sign a new agreement that is good for the country.

Freeland rejoins the year-long talks following a hiatus of several weeks as the United States and Mexico ironed out outstanding bilateral disagreements in the renegotiation of the 24-year-old accord.

U.S. Treasury Secretary Steven Mnuchin told CNBC on Tuesday that he believed the United States could also reach a trade deal with Canada this week.

“The U.S. market and the Canadian markets are very intertwined,” Mnuchin said. “It’s important for them to get this deal and it’s important for us to get this deal.”

Mexican Foreign Minister Luis Videgaray told Mexican television on Tuesday the three sides would work for a three-way deal. “We are now going to devote long hours to the negotiation with Canada,” he said.

Negotiations among the three partners, whose mutual trade totals more than $1 trillion annually, have dragged on for more than a year, putting pressure on the Mexican peso and the Canadian dollar. Both currencies gained against the U.S. dollar on Monday, but the peso weakened on Tuesday.

Canada’s main stock index opened higher on Tuesday on the prospect of Ottawa reaching a deal this week, before dipping.

A 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. U.S. Trade Representative Robert Lighthizer said on Monday that Mexico had agreed to eliminate the mechanism.

Trump says he still could put tariffs on Canadian-made cars if Canada did not join its neighbors and warned he expected concessions on Canada’s dairy protections.

Canada’s dairy farmers operate under a protectionist system that manages supplies and prices, and imposes high tariffs to limit imports. U.S. demands have ranged from ending those tariffs to scrapping a milk ingredient pricing system called Class 7.

“It seems like a pretty steep challenge to now resolve these issues in three days,” said David Wiens, a Manitoba dairy farmer and vice-president of industry group Dairy Farmers of Canada.

If a deal is not reached with Canada, Mnuchin said, the United States would proceed with a separate trade agreement with Mexico. The Mexican government has also taken that position, even as it says it wants a trilateral deal.

Videgaray said in Washington on Monday that scope for making changes with Canada to what the United States and Mexico had agreed was “significantly larger” this week, though he did not rule out alterations after that.

“But it would certainly be much better to have an understanding by the end of the week,” he told reporters.

If talks with Canada are not wrapped up by the end of this week, Trump plans to notify Congress that he has reached a deal with Mexico, but would be open to Canada joining, Lighthizer told reporters on Monday.

The White House said Trump will sign the deal in 90 days. Congress has to approve it.

FILE PHOTO: Canadian Foreign Minister Chrystia Freeland gestures during a joint news conference on the closing of the seventh round of NAFTA talks in Mexico City, Mexico, March 5, 2018. REUTERS/Edgard Garrido/File Photo

Additional reporting by Rod Nickel in Winnipeg and Miguel Angel Gutierrez in Mexico City; Writing by Anthony Esposito; Editing by Dave Graham and Susan Thomas

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