In Nafta Rewrite, Canada Took Cue From Mexico: Make a Big Concession

As Trump’s deadline for the negotiation neared, Canadian negotiators struggled to make the U.S. give ground

Mexican Economy Minister Ildefonso Guajardo offered advice: Make a key concession to the U.S. to break the logjam. Mexico had bent to U.S. pressure on policies aimed at shifting auto production from Mexico back north, opening the way for Mexico and the U.S. to strike a broader deal a month earlier.

.. For Canada, the equivalent of Mexican cars was dairy. Canadian negotiators had already been thinking along the same lines, and the next day, Canada sent the U.S. a document that included detailed plans for easing curbs on American milk and cheese products, a Canadian official said.

.. Two sectors drew outsize attention in the talks—auto and dairy—that came to be dubbed by some the “cars and cows” negotiations. The path to the deal had plenty of twists and gambits that backfired over the 13 months of meetings, as Mexico and Canada at times accused each other of betraying their early oath to present a united front.

The tone for the Nafta talks was set in October 2017, when Mr. Lighthizer made a number of controversial demands that would recast the pact, such as injecting a “sunset clause” making it easier for a country to terminate the pact and weakening the mechanisms allowing challenges to American trade penalties.

Among the most controversial proposals was one requiring that half the content of cars built in North America come from the U.S. Both Canada and Mexico quickly rejected that as incompatible with the core principles of an agreement designed to tighten integration of a continentwide bloc.

.. But behind the scenes, Canadian officials thought they could work with the idea. They asked a longtime trade bureaucrat to find a creative way to satisfy U.S. goals without capitulating to U.S. demands. He put together a plan that would change the criteria for what qualifies as “North American content,” in a way that would emphasize higher-value input such as software.
.. “It became clear at that stage that Lighthizer wasn’t going to give us anything at all until he knew the outcome of negotiations for the auto sector,”
.. At the end of August, Messrs. Trump and Peña Nieto announced a deal that included the requirement that 40% to 45% of North American auto content be made by workers paid at least $16 an hour.
.. Though the Nafta dairy market is worth a fraction of the auto industry—and the U.S. runs a dairy surplus with Canada—it became an important issue for Mr. Trump after he got an earful during an April 2017 visit to Wisconsin. The president made Canadian dairy a staple of stump speeches and tweets complaining about how Canada took advantage of the U.S.
.. Mr. Kushner had come to play a behind-the-scenes role in the Nafta talks, and Canada’s negotiators wanted him to see right away a document that included Canada’s formal offer on dairy. The key concession had been made and the U.S. soon responded by giving in to some of Canada’s key demands.