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U.S. President Donald Trump is facing increasing resistance to his threats to rip up NAFTA and exclude Canada from the proposed trade deal struck with Mexico last week.

On Sunday, the U.S. labour movement – one of the trade pact’s longest-standing critics – insisted Canada must stay in the North American free-trade agreement. While labour figures have long argued that the pact moved manufacturing jobs to Mexico, industries from steel to autos rely heavily on supply chains that cross the border. “Our economies are integrated,” AFL-CIO president Richard Trumka told Fox News. “It’s hard to see how that would work without Canada on the deal.”

Members of Congress, including Republicans, and the U.S. Chamber of Commerce had already weighed in on Friday against Mr. Trump’s assertion that the tentative bilateral pact with Mexico could supplant NAFTA.

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Negotiations between Canada and the U.S. are hung up over the Chapter 19 dispute-resolution mechanism and Canada’s protected dairy market. But people with knowledge of the closed-door talks said negotiators from both countries have been working seriously on potential compromises.

The two countries are scheduled to return to the bargaining table in Washington on Wednesday after missing Mr. Trump’s Friday deadline for a three-way deal with Canada. On Friday, the Trump administration notified Congress of its proposed bilateral deal with Mexico, triggering a 90-day review that could allow the U.S. to sign a deal with Mexico before that country’s new president takes office Dec. 1.

The President on Saturday continued criticizing NAFTA, tweeting that it was “one of the WORST Trade Deals ever made,” and blaming it for killing “millions” of U.S. jobs.

“There is no political necessity to keep Canada in the new NAFTA deal. If we don’t make a fair deal for the U.S. after decades of abuse, Canada will be out,” he warned. “Congress should not interfere with these negotiations or I will simply terminate NAFTA entirely and we will be far better off.”

Mr. Trump was trying to cut off Canada’s strongest leverage point in the talks: The possibility that Congress, which has significant authority on the trade pact, would refuse to pass an overhauled NAFTA that includes only Mexico and the United States.

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Orrin Hatch, the Utah Republican who oversees the trade file in the Senate, cautioned that “a final agreement should include Canada,” while Nancy Pelosi, leader of the Democrats in the House of Representatives, said “without a final agreement with Canada, the administration’s work is woefully incomplete.”

Some legislators were more pointed, with Vermont Democratic Senator Patrick Leahy warning that he would not back a trade deal without Canada. “There would be grave concerns on both sides of the aisle about proceeding with an incomplete agreement,” he tweeted.

The country’s largest business lobby group said there was little chance a non-Canada deal would get through.

“Anything other than a trilateral agreement won’t win congressional support and would lose business support,” Thomas Donohue, CEO of the U.S. Chamber of Commerce, said in a statement.

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Despite the President’s threats, four sources with knowledge of the talks, both inside and outside government, said the tenor at the bargaining table is more cordial and productive. Two of the sources said that Chapter 19 – which Canada wants to keep and the U.S. wants to scrap – has not yet been resolved. The dispute-settlement process, which has allowed Canada to challenge punitive American tariffs on softwood lumber and other exports, is a must-have that Ottawa has insisted it will never give up.

One source said the U.S. has not been stonewalling Canada on the matter, but has actually been gaming out ways the dispute-settlement process could be reworked. Another source, however, said it was still unclear whether the two countries would find a way to satisfy both of their demands on the matter.

A third source said talks will ultimately come down to what Canada is willing to give the U.S. on dairy. Mr. Trump has complained for over a year about the Canadian supply management system – which imposes tariffs up to 275 per cent on foreign imports to guarantee revenues for Canada’s farmers – and a rule that effectively prevents U.S. farmers selling ultrafiltered milk, a cheese-making ingredient, in Canada.

The source said that, in addition to these issues, talks would also include negotiations over ingredient rules and standards, as well as U.S. accusations that Canadian dairy farmers are dumping excess product into the global market and pushing down prices internationally. Talks have only begun to dig into these highly technical issues, the source said.

Prime Minister Justin Trudeau has vowed not to dismantle dairy supply management. But Canadian officials have said they are willing to negotiate within it, such as by changing rules on ultrafiltered milk and giving U.S. farmers a percentage of the Canadian dairy market.

One Canadian official said Ottawa believes the U.S. is genuinely trying to reach an agreement on the pact, but cautioned that both sides must be flexible to get there.

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With files from John Ibbitson.

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