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

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

Ottawa is under pressure to accept new terms on auto trade and dispute settlement rules after the US and Mexico agreed on Monday to overhaul the North American Free Trade Agreement (Nafta). Canadian Foreign Minister Chrystia Freeland rejoins the year-long talks following a hiatus of several weeks as the US and Mexico ironed out outstanding bilateral disagreements in the renegotiation of the 24-year-old accord.

US 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 US 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,” Videgaray 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 US dollar on Monday, but the peso weakened on Tuesday.

One sticking point for Canada is the US effort to dump the Chapter 19 dispute resolution mechanism that hinders the US from pursuing anti-dumping and anti-subsidy cases.

US Trade Representative Robert Lighthizer said on Monday that Mexico had agreed to eliminate the chapter 19, something that Canada has strongly resisted.

Trump has threatened 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 so-called supply management system, which includes dairy, matches Canadian production to domestic consumption, sets prices and imposes high tariffs to limit imports If a deal is not reached with Canada, Mnuchin said on Tuesday, the US  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.