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World NAFTA’s first round of talks will jump right into Chapter 19

Canadian Foreign Minister Chrystia Freeland. left, greets Mexico Secretary of the Economy Ildefonso Guajardo Villarreal, at the Embassy of Canadian in Washington, Tuesday, Aug. 15, 2017.

Manuel Balce Ceneta/AP

The opening round of talks to renegotiate the North American free-trade agreement will move straight to some of the toughest subjects in the deal, including the Chapter 19 dispute resolution provisions, The Globe and Mail has learned.

And the two subjects that have been allotted the most discussion time over the first five days are investment, including Canada's goal to roll back rules that allow corporations to sue governments, and the digital economy, a wide-ranging topic that includes a push by the United States for Canadian consumers to be allowed more duty-free cross-border online shopping.

A copy of the schedule for the discussions obtained by The Globe and conversations with senior government officials reveal in the greatest detail so far what Canada, the United States and Mexico will focus on for the first session of talks. The opening round kicks off on Wednesday at the Marriott Wardman Park hotel in Washington and lasts until Sunday. Subsequent sessions will be in Mexico next month and Canada after that.

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Read more: What to expect at the NAFTA table

Several teams of negotiators will simultaneously tackle different pieces of the deal, which has been in place since 1994, covering at least 27 policy areas.

Rather than starting with the areas of greatest agreement and saving the harder ones for later, the three sides will promptly tackle some of the thorniest issues.

The schedule shows time blocked off for discussing Chapter 19, which Canada has marked as a "red line" it will not abandon if the United States attempts to gut it; the rules of origin that govern how much of a given product must be made within the NAFTA zone to qualify for tariff-free treatment; and agriculture, which could include a U.S. attempt to pry open Canada's closed system of supply management for milk, eggs and poultry. Two topics – investment and the digital economy – will get a day and a half of discussion, an official familiar with the negotiation process said. All others will have one day.

A U.S. trade official, who briefed reporters on condition of anonymity on Tuesday, said the Trump administration plans to move aggressively. The United States will put proposed text of the changes it wants to NAFTA in front of the other countries, and expects them to do the same. Once the three countries have tabled their texts, they will merge them into a single master text: Areas of agreement will be quickly identified, while the disagreements will be marked in square brackets. Negotiators will then work through those.

The official said the administration's priorities are slashing the U.S. trade deficit, looking at "trade remedies," adding a chapter to NAFTA on the digital economy, increasing U.S. agricultural exports, bringing labour and environmental standards into the deal, eliminating subsidies and protecting intellectual property.

"We are going to be fairly ambitious in this first round. … We will move pretty quickly to table text," the official said on Tuesday, advising that people should expect the "tables to be pretty crammed over the next five days."

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Robert Holleyman, a deputy U.S. trade representative during the Obama administration, said the NAFTA talks are an atypical renegotiation because many of the issues were discussed during negotiations for the Trans-Pacific Partnership. In that context, it makes sense to go straight to the contentious subjects to see immediately what the chances are of resolving them quickly. The Trump administration wants to conclude the renegotiation to go swiftly so the President can fulfill a key campaign promise.

"Given that this round isn't a typical first round, all bets are off," Mr. Holleyman said in an interview. "If you can't deal with the tough stuff, then you can't get expedited talks."

Chapter 19 allows countries to challenge one another's punitive anti-dumping and anti-subsidy duties at bi-national trade panels. The panels have ruled in Canada's favour on major trade disputes, including softwood lumber, and the United States wants them eliminated. Foreign Affairs Minister Chrystia Freeland said earlier this week that Ottawa would walk away from talks if Washington insists on killing the panels.

On a different dispute-resolution mechanism – one that allows companies to take governments to court for passing laws that harm corporate investment – Canada wants to loosen the rules. Ms. Freeland argues that investor-state dispute-settlement mechanisms make it harder for politicians to pass laws to protect the environment. Such a proposal is certain to be controversial among companies across the NAFTA zone.

The digital-economy chapter will have to be written largely from scratch, because NAFTA predates the rise of e-commerce. It will also involve numerous tricky issues. One is the "de minimis" amounts of cross-border goods consumers are allowed to buy online without paying duty: For Canadian consumers, that amount is $20; for Americans, it is $800 (U.S.). Washington wants to bring Canada up to its level, while Ottawa is expected to argue that doing so would hurt Canadian retailers by exposing them to greater online competition.

The United States and Mexico are also determined to improve cross-border data flows, including making sure companies that do business in NAFTA partner countries do not have to maintain servers there. This was complicated to sort out in the TPP talks, particularly for financial companies, Mr. Holleyman said: If countries cannot force foreign banks to store data on local servers, they must have a different way of obtaining that data when they need it for regulatory purposes.

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The Canadian Bankers Association told the federal government that provisions of the TPP are a good model for how the subject should be dealt with in NAFTA. Those include the prohibition of customs duties on electronic transmissions; adoption or continuation of laws to protect consumers' personal information; and a ban on fraudulent and deceptive electronic commerce activities.

Rules of origin are expected to be among the more contentious areas of negotiation. Any U.S. demands for an increase in the 62.5-per-cent North American content rule in cars and trucks would run afoul of the auto industry, which has argued against increasing the 62.5-per-cent threshold for duty-free shipment within NAFTA, saying that local-content requirement is the highest of any trade bloc in which automobiles are manufactured.

On the eve of the talks, the junior partners in the deal made a public display of camaraderie. Ms. Freeland met with Mexican Economy Secretary Ildefonso Guajardo at the Canadian embassy in Washington on Tuesday afternoon. At a subsequent photo-op, she threw her arm around him and told reporters: "We're friends. We've been friends for a long time."

Mr. Guajardo said he had no illusions about what awaited the three countries at Wardman Park the next day.

"I have always said that the negotiations cannot be … optimistic," he said. "It has to be realistic with a positive approach."

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