WASHINGTON (REUTERS) - Canada and the United States will make a final push to iron out differences on a pact to modernise the North American Free Trade Agreement (Nafta) by a Friday (Aug 31) deadline set by President Donald Trump, but the atmosphere soured late on Thursday according to a media report.
US Trade Representative Robert Lighthizer and Canadian Foreign Minister Chrystia Freeland were unable to clinch a deal despite meeting late into the evening on Thursday. They will reconvene on Friday morning, with Mexico on standby to return to talks aimed at ending a year of hard-fought three-way negotiations.
But Canadian officials are now expressing concern that a final Nafta deal will not be concluded on Friday, the Globe and Mail reported, citing a source familiar with situation.
The report said Lighthizer refused to budge despite repeated efforts by Freeland to offer concessions to maintain an independent trade dispute mechanism in a revamped trade deal, which has been the biggest sticking points for Canadians.
A bilateral deal announced by the United States and Mexico on Monday was a breakthrough that fuelled hopes for a new Nafta.
Trump hinted at flexibility over his Friday deadline in an interview with Bloomberg on Friday.
"Canada's going to make a deal at some point. It may be by Friday or it may be within a period of time," he said.
After several days of rallying on the apparent progress in the Nafta talks, global stocks were weaker for a second day on Friday following Trump's hawkish comments on trade with China and his threat in the Bloomberg interview to withdraw from the World Trade Organisation.
MSCI's gauge of world stocks was down 0.25 per cent and US stock market futures pointed to a lower open on Wall Street. The dollar was stronger on the day, with the Canadian dollar off by more than half a percent for the second straight session.
The latest talks between Canada and the United States have been intense but constructive, officials on both sides said earlier on Thursday, which would mark a departure from acrimonious tit-for-tat that surrounded past rounds.
"I think everybody is working towards a deal," said Flavio Volpe, president of Canada's Automotive Parts Manufacturers Association.
Trump's deadline for the three countries to reach an agreement would allow outgoing Mexican President Enrique Pena Nieto to sign it before he leaves office at the end of November.
Under US law, Trump must wait 90 days before signing the pact.
The new Nafta agreement that is taking shape will likely strengthen North America as a manufacturing base by making it more costly for automakers to import a large share of vehicle parts from outside the region.
New chapters governing the digital economy and stronger intellectual property, labour and environmental standards could also work to the benefit of US companies, possibly helping Trump to fulfill his campaign promise of creating more American jobs.
But challenges remain. The United States wants to eliminate Chapter 19, a dispute-resolution mechanism that has hindered it from pursuing anti-dumping and anti-subsidy cases.
Lighthizer said on Monday Mexico had agreed to cut the mechanism but Canada wants to keep dispute resolution in Nafta.
Canada has reportedly offered to make concessions on its protected dairy industry, which has come under repeated attack from Trump, in an effort to retain Chapter 19.
Trump argues Canada's hefty dairy tariffs are hurting US farmers, an important political base for his Republican party. But dairy farmers have great political clout in Canada, too, and concessions could hurt the ruling Liberals ahead of a 2019 federal election.
"To continually undermine the industry is absolutely devastating and it weakens our industry overall," said David Wiens, vice president of Dairy Farmers of Canada. Trump wanted changes that would destroy family farms across Canada, he said.
A spokeswoman for the United States Trade Representative's office, however, said on Friday that Canada has made no agriculture concessions to the United States.
"The negotiations between the United States and Canada are ongoing. There have been no concessions by Canada on agriculture," the spokeswoman said.