Canada, U.S. deadlocked as Mexico rejoins NAFTA talks

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Talks between Ottawa and Washington remain deadlocked over U.S. access to the heavily protected Canadian dairy market and the future of the binding Chapter 19 dispute-settlement mechanism, even as Mexico returns to the American capital to hammer out the text of a proposed bilateral deal that Donald Trump says could proceed without Canada.

Foreign Affairs Minister Chrystia Freeland returned from Washington on Wednesday to join the Liberal caucus retreat in Saskatchewan, but said officials from both Canada and the United States will continue to talk and are now in a “continuous negotiations phase.” She declined to say when she would return to Washington, but said she is continual contact with U.S. Trade Representative Robert Lighthizer.

Trade players say they are being told that not much was achieved during the single day of talks this week between Ms. Freeland and Mr. Lighthizer.

“I heard it didn’t go very well. The U.S. isn’t moving much,” said Dan Ujczo, an Ohio-based international trade lawyer who has worked for the Canadian and U.S. governments and monitors the NAFTA talks closely.

A source close to the talks said discussions remain stymied over dairy access and Chapter 19 and that, as of Wednesday afternoon, there was no sign of a breakthrough. The source said that a deal did not seem possible this week even if Ms. Freeland returned to Washington in the next few days.

NAFTA’s saga so far: A guide to trade, the talks and Trump

Mr. Lighthizer may be busy at least part of Friday this week and unable to meet with Ms. Freeland. He’s scheduled to meet with the House ways and means committee to talk about the state of trade talks with Mexico and Canada, Inside U.S. Trade reported.

Mexico, meanwhile, is moving ahead to draw up the text of the proposed bilateral deal it reached with the United States in August. Kenneth Smith Ramos, Mexico’s chief negotiator, said via Twitter on Wednesday that he is back in Washington to review the agreement made with the the United States.

The U.S. President has set a deadline of Sept. 30 for the text that would form the basis of what he calls the United States-Mexico trade agreement, a deal he proposes would replace NAFTA and leave Canada on the sidelines if Ottawa didn’t also sign up. Some in Congress, including Democratic Senator Patrick Leahy, have rejected Mr. Trump’s plan, saying the proposed deal would not pass the Senate unless it included Canada, which he described as the United States' “greatest trading partner.”

It’s not clear that Sept. 30 is a hard deadline for Canada because as trade watchers have noted, the terms of agreement with the Canadian government could be added to the revised NAFTA deal even after legislation was drawn up.

Canada is facing a slew of demands by the Trump administration to tilt the NAFTA playing field more in the Americans’ favour. The resulting deal, as envisioned by the White House, would mean concessions to keep alive preferential access to the U.S. market.

Ms. Freeland left Washington on Tuesday evening, saying talks were at a juncture where it was essential that she consult personally with Prime Minister Justin Trudeau.

Mr. Ujczo said he’s hearing that talks are entering a possible end stage where top political leaders in each country have to make difficult decisions. “There’s increasing awareness that the parties have laid out their positions and political leadership needs to make the call,” he said.

“I think that is the phase we’re entering into, is what is each other’s bottom line and are we willing to take it and ‘Let’s close the deal.’”

Canada and the United States have been in two-way negotiations since late August, when Washington unveiled a proposed deal with Mexico and pressed the Canadians to sign on or be left out. The United States wants to water down or eliminate NAFTA’s Chapter 19, which provides for binding-arbitration decisions to settle disputes. It also wants significant new access to Canada’s sheltered dairy industry and the relaxing of foreign-ownership restrictions on Canadian media companies by removing a cultural exemption clause in NAFTA. So far, Canada has been unable to obtain a guarantee from the United States that Canadians would not be hit with punitive American auto tariffs if Ottawa agrees to a new NAFTA deal with Washington.

Canada is also under pressure to strengthen patent and copyright protection − which would benefit U.S.-based entertainment and drug companies − after the Mexican government unilaterally agreed to extend patents during talks in August. These include extending protection for cutting-edge biologic pharmaceutical innovations to 10 years from the eight Canada had previously agreed to in a pan-Pacific trade deal known as the Trans-Pacific Partnership.

The United States also wants Canada to agree to give Hollywood and the U.S. music industry the power to demand that content be removed from Canadian websites if they consider it to be breaching their intellectual property. Washington is also seeking agreement from Canada to add as much as 20 to 25 years more copyright protection to works, including books and music. “Generally speaking, the United States got its wish list on intellectual property in the deal with Mexico,” said Michael Geist, a law professor at the University of Ottawa and Canada Research Chair in Internet and E-commerce Law.