Canada's top trade negotiator said on Friday she and her counterpart were making "very good progress" in talks to save the North American Free Trade Agreement amid increasing Canadian optimism that a deal could be reached.
Canadian Foreign Minister Chrystia Freeland repeated her upbeat assessment of the negotiations, again terming them constructive, as she spoke to reporters after talks in Washington with Trade Representative Robert Lighthizer.
"We are certainly making very good progress at understanding each other, understanding what each side needs," Freeland said.
The main sticking point in discussions appeared to be Canada's dairy quota regime, according to the White House's top economic adviser, Larry Kudlow, who spoke before the start of the latest talks.
Kudlow spelled out "M-I-L-K" in an interview with Fox Business Network for emphasis.
President Donald Trump has struck a trade deal with Mexico and threatened to push ahead without Canada, a move that would kill NAFTA, which covers $1.2 trillion in trade between the three countries, and further spook financial markets.
Other sticking points include Ottawa's desire to keep the 1994 pact's Chapter 19 dispute resolution mechanism, and Canadian media laws that favour domestically produced content.
"I'm working on Canada now," Trump told reporters aboard Air Force One. "You know, people can say, 'Oh I'm too tough on Canada.' Look, Canada's been ripping us off for a long time. And now they've got to treat us fairly."
A Canadian source, who declined to be named given the sensitivity of the situation, said Canadian negotiators thought it was quite possible the talks would continue until the end of this month.
A official told Reuters on Thursday that Canada needed to move further on dairy. In its recent trade deal with the European Union, Canada made concessions on dairy imports.
"We're down to three issues: Chapter 19, the cultural issues and dairy. We've created leverage and driven Canada to the table," the official said. "Part of our problem is that Canada has been backsliding on its commitments (on dairy)."
Trump has targeted what he sees as "unfair" trade as part of his "America First" agenda to boost manufacturing and jobs, imposing tariffs on trading partners, including Canada, China, the EU and Mexico. That has prompted retaliation.
Tens of billions of dollars in Chinese imports have been slapped with tariffs and a new round of duties is due to be triggered soon.
Both Canada and Mexico want Trump to agree to permanently exempt them from tariffs on steel and aluminium imports. Washington has used those tariffs as leverage in the NAFTA talks.
For its part, Canada has used the provisions of NAFTA's dispute resolution mechanism to defend its lumber exports to the United States. Washington charges that Canadian lumber unfairly undercuts prices on lumber.
APPROVAL OF CONGRESS
Negotiators and their staff have held several late-night sessions in a bid to overcome disagreements this week.
"We are really in a continuous negotiation phase," Freeland said.
The Republican chairman of the House of Representatives Ways and Means Committee, Kevin Brady, a powerful voice in Congress on trade, told reporters differences remained between the two sides over Canada's dairy quota regime, a trade dispute resolution settlement procedure and "other longstanding issues."
"My sense is that everyone is at the table with the intention of working these last, always difficult issues out," Brady told reporters after speaking with Lighthizer on Thursday.
Trump has notified Congress he intends to sign the trade deal reached last week with Mexico by the end of November, and officials said the text would be published by around October 1.
Despite pressure from Washington to sign onto a deal similar to the one agreed with Mexico, Ottawa has resisted. Canadian officials also are aware that business and labour groups are pushing Trump to keep NAFTA as a trilateral deal.
Negotiators have blown through several deadlines since the talks started in August 2017. As the process grinds on, some in Washington insist Trump cannot pull out of NAFTA without the approval of Congress.