Major NAFTA deal close as Canada, US negotiate final details

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Major NAFTA deal close as Canada, US negotiate final details

Reaching a new deal with two close trading partners would be a victory for the Trump administration, which has insisted its get-tough, all-stick-limited-carrots approach to negotiating would pay dividends. | Leon Neal/Getty Images

Trade

The trade deal has been the focus of the president’s criticism.

By ALEXANDER PANETTA
09/30/2018 07:42 PM EDT

Updated 09/30/2018 09:51 PM EDT
2018-09-30T09:51-0400

OTTAWA – President Donald Trump is on the cusp of locking down his biggest international trade agreement after months of public tongue-lashings gave way late Sunday to a frantic few hours of deal-making.

A three-country NAFTA update appears within striking distance, just a few days after the president publicly derided Canadian negotiators during a news conference last week.
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In Ottawa, Canadian Prime Minister Justin Trudeau spent the day working the phones and convened his country’s industry stakeholders ahead of a possible announcement.

Separately, Mexico said it is set to release a draft text of the agreement on Sunday night — with or without Canada.

It’s been a bruising negotiation. In recent months, the U.S. came charging in with unconventional demands that shocked the neighbors. The insults leveled at the G-7 meeting in June as well as tariffs slapped on Canadian goods this summer had some Canadians calling for a boycott of U.S. travel.

After the G-7 meeting, White House adviser Peter Navarro suggested Trudeau deserved eternal damnation for the sin of publicly criticizing the president’s tariffs.

But the countries are now close to a settlement. Mindful of the possibility of yet another hiccup, a senior Canadian official avoided being seen to declare premature victory. “There’s a special place in hell for people who call a deal done before it’s done,” he said on Sunday.

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People briefed on the outlines of a new NAFTA described notable changes in dairy, language to resolve disputes between countries, online shopping, and limits on the U.S. threat of auto tariffs.

These late-stage negotiations are taking place primarily by phone. A public announcement of any new deal could take place late Sunday night, or possibly Monday, sources briefed on the talks said.

Any announced deal still must go through a number of procedural hurdles before it can be sent to U.S. lawmakers for a formal vote, which will not take place before a new session of Congress takes office in 2019.

But reaching a new deal with two close trading partners would be a victory for the Trump administration, which has insisted its get-tough, all-stick-limited-carrots approach to negotiating would pay dividends. It would also give vulnerable Republicans up for reelection a policy achievement to highlight on the trail before the midterm elections.

The Trump administration cut a deal with Mexico weeks ago in an attempt to pressure the northern neighbor, frustrated with Canada’s refusal to bend on several issues.

Sources briefed on the talks said that several important changes would be included in a new deal, including:

— Dairy: An opening of the Canadian dairy market similar to, or slightly more than, the level of liberalization under the Trans-Pacific Partnership, which opened 3.25 percent of Canada’s dairy market to imports.

However, two people familiar with the issue said it could be more significant than TPP, both in terms of a percentage but also in its application. Limits are also expected on Canada’s program for ultrafiltered milk products. Canadian controls on the milk protein byproduct are a source of tension with U.S. farmers.

Any dairy changes are expected to receive political blowback in Quebec, the No. 1 dairy-producing province. As it happens, there’s a provincial election there Monday.

— Autos: Expect a Canadian exemption from auto tariffs in exchange for an import cap, according to two stakeholder sources and one Canadian official. But all three said it would be a flexible quota, allowing for significant growth in Canada’s industry. One person outside government pegged it at around 40 percent larger than current Canadian exports to the U.S.

Two sources said the issue is likely, but not certain, to find itself in a separate agreement and not in the main NAFTA text. Canada was seeking an arrangement that would punt the threat of hypothetical Section 232 tariffs into the future, beyond the term of Trump, who has wielded the national security tariffs aggressively.

— Online shopping: Canada is ready to agree to a higher limit on which imports can come in duty free. This so-called de minimis level is currently $20 Canadian. Two sources familiar with the issue said they expected the final number to resemble the $100 that Mexico agreed to but remain far lower than the $800 allowance in the U.S.

However, one source added an important caveat: The countries are haggling over specific details of the de minimis design, such as how much of it should include a tax exemption, in addition to a duty exemption. That source said the final details could mean a higher or lower dollar amount.

An increased de minimis level would mean cheaper online purchases for Canadians. However, critics argue it would damage Canadian retailers, who must charge sales taxes. The Canadian government also fears a loss in tax revenues.

— Dispute settlement: This was the top sticking point in the original Canada-U.S. free trade negotiations in the 1980s, and arguably remained so this time. Canada has historically insisted on an international panel to judge whether the U.S. improperly uses duties as a commercial weapon.

Sources briefed on the negotiations said the countries were discussing a way to preserve a version dispute panels found in Chapter 19 of the existing NAFTA. However, any future dispute-resolution system would come with limits, possibly including an expiration clause.

On Friday, Trudeau called the heads of Canadian banks to seek their input. Top officials were seen entering the Prime Minister’s Office in casual weekend wear, and they were joined by Trudeau late Sunday evening.

White House adviser Navarro said an announcement on Canada’s status is coming by Monday morning: “You’ll have some news one way or the other that’ll be big, and perhaps market-moving,” Navarro told the Fox Business Network on Sunday morning.

“Everybody’s negotiating in good faith right now, as we speak. The deadline’s midnight tonight.”

He said several sticking points were still being worked out. One Canadian official involved in the talks echoed that over the weekend: “We are not there but getting close.”

Some stakeholders sounded more emphatic.

“My understanding is that the parties have reached an agreement in principle on nearly all major issues and are working on cleanup and timing of an announcement,” said Dan Ujczo, a trade lawyer at Dickinson Wright, who said he discussed developments with representatives of all three countries and stakeholders involved.

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