By Bloomberg
September 30, 2018

The U.S. and Canada are close to a deal on Nafta and there’s optimism it could be struck by a deadline this weekend, avoiding an impasse that would imperil $500 billion in annual trade, people familiar with the talks said.

Negotiations continued on Sunday amid renewed urgency to nail down a new North American Free Trade Agreement that could be published by the end of the day so it can be signed by Mexican President Enrique Pena Nieto before he leaves office, the people said. The U.S. and Mexico reached their agreement in August, triggering talks between the U.S. and Canada, which are being held around the clock this weekend.

The U.S. and Mexico held off on a plan to publish the full legal text of their deal on Friday as the U.S. and Canadian negotiators raced against a Sept. 30 deadline.

Chrystia Freeland, Canada’s foreign affairs minister and chief Nafta negotiator, postponed a planned speech at the United Nations on Saturday, a signal of the Nafta push. It’s not clear whether, or when, a Canadian delegation will travel to Washington.

Big Issues Solved

Reaching a deal would remove a key irritant in the trading relationship between the U.S. and Canada, its top export market. President Donald Trump has threatened auto tariffs in the event a deal can’t be reached.

The U.S. and Canada are on the brink of a deal after making progress on contentious issues, the people said, speaking on condition of anonymity as negotiations continue. At this stage no issue seems too large to overcome, they said.

“Most of the big issues are solved with Canada,” White House trade adviser Peter Navarro said Saturday on Fox News. “It’s a great deal for all three countries in that it would make this hemisphere strong again from a manufacturing point of view.”

Still, one Canadian government official familiar with the talks, asked whether an agreement is imminent, said the nations had been at this stage before, and that nothing is final. Canada’s demands for protection from U.S. tariff measures is one of the last sticking points in negotiations, some of the people said.

Talks have been active over the past few days, including during the United Nations General Assembly in New York. Freeland and U.S. Trade Representative Robert Lighthizer spoke on Friday, one person said.

‘Serious Attempt’

Requests for comment Saturday from the U.S. Trade Representative’s office and the Canadian government weren’t returned. Mexican Economy Minister Ildefonso Guajardo said late Friday that the U.S. and Canada were making a renewed push.

Under U.S. trade law, an agreement must be published for 60 days before it can be signed by leaders of any of the participant countries, putting negotiators on the clock to reach a deal that can be signed by Nov. 30, Pena Nieto’s final day in office.

The U.S. and Canada have been hung up on some core issues. They include:

So-called Chapter 19 dispute panels, which the U.S. wants to eliminate from Nafta and which Canada wants to preserve An exemption for cultural sectors which Canada wants to preserve The use of Section 232 investigations to apply tariffs to steel, aluminum, and potentially autos. Canada is seeking some kind of exemption or protection from those Canada’s dairy sector, which the U.S. wants greater tariff-free access to Intellectual property and certain pharmaceutical patents, each of which the U.S. wants to extend

Auto tariffs would substantially impact Canada, a major auto exporter. However, it would also upend North American supply chains and complicate life for U.S. automakers. Trump said on Sept. 26 that he refused a meeting with Canadian Prime Minister Justin Trudeau while at the UN amid the trade impasse, and threatened auto tariffs, calling them the “mother lode.”

Auto Threat

If the U.S. and Mexico try to advance a bilateral deal without Canada they may face delays in Congress, where key lawmakers have called for the three-nation format to continue. Meanwhile, the existing Nafta remains in effect, and any country can quit on six months’ notice; no country has given such notice.

Failure to reach a deal raises the prospect of what some call a zombie Nafta — a bilateral deal advancing to update a trilateral pact, even while the old agreement remains in place.

A former senior Canadian trade adviser warned that the auto tariff threat outweighs anything else.

“The threats to Canada are much bigger than a potential zombie Nafta; the threats come in the form of auto tariffs that would be very devastating to our economy,” said Meredith Lilly, trade adviser to Canada’s former prime minister, Stephen Harper, and now Simon Reisman Chair in International Affairs at Carleton University in Ottawa.

If a Nafta deal is reached, the U.S. government would see little reason to impose auto tariffs on Canada, but it was unclear whether there would be any hard exemption granted, some of the people said.

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