Latest U.S. NAFTA deadline not firm but Canada's window closing, say insiders

With the release of the text of the U.S.-Mexico trade agreement expected Friday, the political pressure is mounting on Canada to join a new North American Free Trade Agreement.

Analysts and insiders say the latest American-imposed deadline for Canada to join by Monday is not set in stone, and that there is still time for the Liberal government to negotiate with the Trump administration after that.

But they caution the window is closing and Canada's time may be running out.

Mexico and the United States announced their own bilateral deal last month, sparking a renewed round of negotiations between Washington and Ottawa to bring Canada into the NAFTA fold.

The formal text is being released so it can be presented to the U.S. Congress by month's end and fulfil a 60-day notice requirement that would allow lawmakers to approve it by Dec. 1 before the newly-elected Mexican government takes power.

Multiple sources say the sticking points between Ottawa and Washington include dairy, preserving Canada's cultural exemption and Canada's insistence on preserving the Chapter 19, which allows for independent panels to resolve disputes involving companies and governments.

One source says Chapter 19 has not survived the Mexico-U.S. deal, but Chapter 20, the government-to-government dispute settlement mechanism, has been preserved in its entirety.

Mexican ambassador Dionisio Perez Jacome said his country still wants Canada to come on board, even if the deadline of the next few days comes and go.

"Hopefully Canada can be included already in the text. If not, then the process gets more complicated, but it's also possible to come in ... some days after."

Sources say Mexico is fine with the Trudeau government waiting past Monday's Quebec election because it understands any concession it might be willing to make on allowing greater U.S. access to dairy would be a political bombshell in the final days of the provincial campaign.

A source close to the negotiations told The Canadian Press that the vast majority of the U.S.-Mexico text — more than 20 of its approximately 30 chapters — is not the least bit contentious for Canada.

That comes as no surprise to trade experts.

Laura Dawson, director of the Canada Institute at the Wilson Centre in Washington, said major work has been completed on the vast majority of the chapters since Canada and the U.S. resumed talks.

"They are closer now than they've ever been. There's a potential landing strip in all of the negotiated areas."

Meredith Lilly, an international trade expert at Carleton University in Ottawa, said there's virtually nothing in the text that will take Canadian negotiators by surprise.

"They should have seen the text by now as part of earlier negotiations, as well as more recent bilateral negotiations," she said.

There's no guarantee Congress would allow U.S. President Donald Trump to move forward with a two-country deal that excludes Canada because it originally granted him the authority to negotiate a three-country pact.

Sarah Goldfeder, a former U.S. diplomat based in Ottawa, said she's not sure Trump actually wants a deal with Canada before the U.S. midterm elections in November because periodically beating up on Canada and Prime Minister Justin Trudeau is a convenient channel changer in a news cycle that has no shortage of bad news for him.

"It's a deflection from a number of different problems," she said.

Trump says he will pursue a trade deal with or without Canada, and has repeatedly threatened to impose punitive tariffs on Canadian automobiles if a trilateral deal can't be reached.

Trump has already imposed hefty steel and aluminum tariffs on Canada and Mexico, using a section of U.S. trade law that gives him the authority to do that for national security reasons.

The Trudeau government has branded the 232 tariffs illegal and insulting given the close security relationship between Canada and the U.S., including their shared membership in Norad, which defends North American airspace.

Mexico didn't win any relief from the U.S. on the 232 tariffs in their deal, but Canada is pushing hard for that in the current negotiations.

"It will be really hard for negotiators to bring a deal back to Canada and say 'I think we got a pretty good deal, but we didn't get a release from these national security tariffs'," said Dawson.

"That's going to make it very difficult to sell a deal at home."

— With files from Dan Healing in Banff, Alta.