U.S., Canada slug it out as deadline looms to clinch NAFTA deal

By Julie Gordon and Sharay Angulo

WASHINGTON (Reuters) - Talks between Canada and the United States to revamp NAFTA appeared to stumble on concessions over agriculture, as top negotiators struggled for a fourth day to meet President Donald Trump's Friday deadline.

U.S. Trade Representative Robert Lighthizer and Canadian Foreign Minister Chrystia Freeland resumed talks on Friday, with Mexico still on standby to return to talks aimed at ending a year of hard-fought negotiations on the three-way North American Free Trade Agreement.

But Canadian officials expressed 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 had refused to budge despite repeated efforts by Freeland to offer some dairy concessions to maintain an independent trade dispute mechanism in NAFTA, a big sticking point for Canada.

However a spokeswoman for USTR said Canada had made no concessions on agriculture, which includes dairy, but added that negotiations continued.

"We've all had a night to reflect, and I'm looking forward to hearing what Ambassador Lighthizer has to say this morning," Freeland said before heading into talks on Friday.

Trump argues Canada's hefty dairy tariffs are hurting U.S. 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.

The United States also wants to eliminate Chapter 19, the 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.

Still, a bilateral deal announced by the United States and Mexico on Monday has fueled hopes for an eventual new NAFTA, and Trump hinted at flexibility over his Friday deadline in an interview with Bloomberg. "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.

The new NAFTA 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, labor and environmental standards could also work to the benefit of U.S. companies, possibly helping Trump to fulfill his campaign promise of creating more American jobs.

"I think everybody is working towards a deal," Flavio Volpe, president of Canada's Automotive Parts Manufacturers Association, said on Thursday.

Juan Pablo Castanon, head of the umbrella group representing Mexico's private sector in the NAFTA talks, told local radio MVS on Friday that there will be meetings between representatives of all three countries later in the day.

"Today the meetings will be trilateral looking at scenarios to conclude the talks," he said from Washington, adding: "Details on an agreement are still missing."

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 Organization.

MSCI's gauge of world stocks was down 0.5 percent and the S&P 500 and the Dow Jones Industrial Average were largely flat on concerns about the trade talks. The dollar was stronger on the day, with the Canadian dollar off by more than half a percent for the second straight session.

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 U.S. law, Trump must wait 90 days before signing the pact.

(Reporting by Julie Gordon and Sharay Angulo; Additional reporting by David Lawder in Washington and Veronica Gomez in Mexico City; Writing by Denny Thomas; Editing by Paul Tait and Susan Thomas)