Canada has rejoined continental free trade talks in Washington after the United States and Mexico on Monday announced a deal on bilateral issues but Ottawa and Washington are under time pressure to seal a deal by Friday.
The United States is Canada's largest trading partner, with more than two thirds of Canadian export goods going to the southern neighbor. Canada is also the top destination for US goods exports.
Canada categorically opposes US demands to weaken or eliminate the dispute resolution mechanism outlined in Chapter 19 of NAFTA. Ottawa has used the establishment of arbitration panels under Chapter 19 to resolve trade conflicts, to defend against US anti-dumping and countervailing duties, notably against its key lumber industry.
Canada's supply-managed dairy market
Canada's supply-managed dairy system has been in place since the 1970s and has survived several attempts to undo it. The government effectively sets production quotas and the price of milk, which raises prices to consumers but provides farmers with a stable income. Tariffs of up to 275 percent keep most foreign milk out of the Canadian market. Prime Minister Justin Trudeau has vowed not to give in to US demands to dismantle the system but his trade negotiators could offer to grant US milk producers an increased share of the Canadian market as was done for Europeans in a Canada-EU trade pact that provisionally entered into force in 2017.
Washington has watered down its demand for a so-called "sunset clause" that would require the agreement to be reviewed every five years, agreeing instead in talks with Mexico to six-year reviews, with a minimum 16-year lifespan for the deal. Ottawa had rejected the original proposal, fearing the uncertainty it would create would drive away investment. It welcomed the concession but is reviewing the terms.
With retailing increasingly going online, the United States pressed Canada to raise its allowance for duty-free goods from Can$20, which was set decades ago, to match the US amount of US$800. Ottawa is concerned this could harm smaller Canadian retailers.
The United States asked to reduce or eliminate barriers to US investment in key protected sectors of the Canadian economy, notably its cultural industries (film and television), its publicly-funded healthcare and education and telecommunications.
The United States and Mexico agreed to strengthen intellectual property protections, particularly as these apply to drug patents, but Canada has resisted such a move that could hurt its generic pharmaceuticals industry.