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nafta talks

The United States made official its demand that the binational panels used to settle trade disputes under Chapter 19 be done away with.Judi Bottoni/The Associated Press

The United States has formally demanded the Chapter 19 dispute resolution panels favoured by Canada be scrapped from the North American free-trade agreement and broached the thorny subject of government procurement and contracting in the first round of trade talks, The Globe and Mail has learned.

Trade negotiators wasted no time diving into some of the most contentious pieces of NAFTA in the opening round of talks in Washington, which wrapped up Sunday after five days.

The United States did not, however, present further details on the U.S. content requirement in cars and trucks that Washington has signalled it will push for, sources with knowledge of the discussions said.

Opinion: Is Chapter 19 worth fighting for in NAFTA negotiations?

"The scope and volume of proposals during the first round of the negotiation reflects a commitment from all three countries to an ambitious outcome and reaffirms the importance of updating the rules governing the world's largest free trade area," read a trilateral statement from the Canadian, U.S. and Mexican governments Sunday.

The United States made official its demand that the binational panels used to settle trade disputes under Chapter 19 be done away with. One source with knowledge of the talks said American and Canadian negotiators each have presented vastly different texts for a revamped Chapter 19. Ottawa has vowed to walk away from the talks before it accepts a NAFTA without the panels.

The Chapter 19 tribunals allow NAFTA countries to appeal each others' decisions to impose punitive import duties.

The panels have regularly ruled in Canada's favour on the long-running softwood lumber dispute with the United States, and Ottawa sees them as an indispensable tool to guard against the U.S. imposing duties on Canadian goods. Without the panels, such disputes would be settled in U.S. courts.

The United States, for its part, views the tribunals as a breach of its sovereignty and accuses them of not understanding American law.

Negotiations will continue Sept. 1 to 5 in Mexico City, followed by a round in Canada in late September and another session in the United States in October. Washington wants a fast pace for the talks, with the aim of concluding a deal by the end of the year.

U.S. President Donald Trump triggered the renegotiation after promising to overhaul or tear up the pact on the campaign trail last year. Mr. Trump, who has dubbed NAFTA "the worst trade deal maybe ever signed anywhere," blames it for killing factory jobs in the United States.

But the President, currently embroiled in a crisis over his response to a racist rally in Virginia last week, did not once address NAFTA publicly during the first round of talks. And the White House remained hands-off during the negotiations, sources said, leaving the United States' professional negotiators to work.

In the first round, insiders said, American and Canadian officials were quick to table proposed text for a rewritten NAFTA, while their Mexican counterparts largely held back.

Officials covered at least 27 subjects split between several teams of negotiators hunkered down in more than a dozen rooms on the ground floor of the Marriott Wardman Park hotel, according to a schedule of the talks obtained by The Globe. The chief negotiators for each country – Canada's Steve Verheul, the United States' John Melle and Mexico's Kenneth Smith Ramos – also met each day, periodically calling in individual teams to report on their progress, sources said.

After each day's negotiations were done, the Canadian side held evening debriefings and strategy sessions. In addition to 75 professional negotiators, Ottawa also sent a crew of political staff, including members of the special NAFTA war room in Prime Minister Justin Trudeau's office.

Despite the supercharged rhetoric leading up to negotiations, the talks themselves were congenial, insiders said. Located in a heavily air-conditioned hotel on a hilltop three kilometres from the centre of the city, the talks felt a world apart from the broiling summer heat and the political conflagrations of the Trump administration.

The negotiators did, however, delve into tough subjects.

Besides Chapter 19, officials also made proposals on public procurement, which is expected to be an area of major friction in talks, sources said. Washington wants more access for U.S. companies to bid on Canadian and Mexican government contracts, while retaining the right to use so-called "Buy American" provisions to bar Canadian and Mexican firms from seeking U.S. contracts.

So far, procurement discussions have focused on tendering procedures and transparency requirements, and have not yet explicitly dealt with market access, including "Buy American," one insider said. But the United States has signalled it will not back down on the subject: In the midst of NAFTA talks, the Department of Commerce issued a request for feedback from American industry on how trade deals are affecting their access to U.S. government contracts.

American negotiators did not offer up any hard numbers on so-called rules of origin. These rules govern how much of a given product must be manufactured or sourced from the NAFTA zone to be imported or exported between the three countries without tariffs. U.S. Trade Representative Robert Lighthizer said in his speech opening the talks Wednesday that Washington would seek stricter rules of origin, particularly in the automotive industry. Mr. Lighthizer also signalled Washington wants to create U.S.-specific content rules that stipulate how much must be made by American workers.

In negotiations this week, the United States stuck instead to more general language; the actual percentages of U.S. and North American-made content that Washington is seeking won't be on the table until a future negotiating round, sources said.

The three sides also have not yet discussed the topic of Canada's supply-management system for milk, eggs and poultry, sources said. Ottawa agreed under both the Trans-Pacific Partnership and its deal with the European Union to allow a percentage of foreign-produced dairy into Canada's protected market.

Environment Minister Catherine McKenna says the auto industry has expressed its support for free trade in North America. The U.S. chief negotiator targeted the sector on the first day of NAFTA talks in Washington on Wednesday.

The Canadian Press