'Yay!': How the Canadians won the argument that opened the door to a NAFTA deal

After months of what had been described as "continuous negotiations," a crucial breakthrough materialized Saturday — a major concession by the U.S. team that made it easier for the Canadians to get to 'yes' on a new trilateral trade deal.

'There was [on Saturday] a sense things were falling into place' - Trudeau

Prime Minister Justin Trudeau and Minister of Foreign Affairs Chrystia Freeland hold a press conference at the National Press Theatre in Ottawa. Sources described to CBC News how Canada secured a concession on Chapter 19 before signing the new U.S., Mexico, Canada Agreement (USMCA). (Sean Kilpatrick/Canadian Press)

After months of what had been described as "continuous negotiations," a crucial breakthrough materialized Saturday — a major concession by the U.S. team that made it easier for the Canadians to get to 'yes' on a new trilateral trade deal.

Prime Minister Justin Trudeau's closest advisers and the country's top trade bureaucrat were huddled together around a speakerphone in the office of his chief of staff, Katie Telford. U.S. Trade Representative (USTR) Robert Lighthizer was on the line. They listened as the American trade diplomat made his pitch, the mute button securely in the 'on' position.

Lighthizer has developed a reputation in trade circles as a protectionist and, in the vein of other conservative-minded Americans, a strong proponent of U.S. sovereignty in the face of the globalizing effect of institutions like the UN and the World Trade Organization (WTO). Trump himself said Monday he picked Lighthizer as his trade czar because of his 'America First' instincts on trade.

So when Lighthizer agreed to a longstanding Canadian demand to preserve Chapter 19 of the original NAFTA, in its entirety — a dispute settlement mechanism that Lighthizer personally loathes — the Canadians gathered in Telford's office gasped, senior government sources told CBC News.

Foreign Affairs Minister Chrystia Freeland, Canada's political lead on the file, threw her hands up in the air and shouted, "Yay!"

The others in the room — Canada's Ambassador to the U.S. David MacNaughton; Telford; Gerry Butts, the prime minister's principal secretary; John Hannaford, the prime minister's foreign and defence policy adviser; Steve Verheul, Canada's top trade negotiator; and Jeremy Broadhurst, Freeland's chief of staff — were equally elated at the prospect of U.S. intransigence on this chapter — a dispute resolution mechanism that also was crucial to securing Canada's signature on the original NAFTA — melting away.

It wasn't the first time Freeland had expressed her relief at securing a concession with that sort of physical display of glee. She had done it many times before.

Minister of Foreign Affairs Chrystia Freeland and Gerald Butts, senior political advisor to Prime Minister Justin Trudeau, walk in the loading dock of the Office of the Prime Minister and Privy Council where NAFTA talks were being held. (Canadian Press)

But this was a pivotal moment. For 14 months, Lighthizer had made preserving Chapter 19 appear very unlikely. With the dispute settlement mechanism secure, the Canadians knew they were on the cusp of pulling together a new NAFTA.

Other, less controversial chapters had been written up and agreed to weeks before. It was the dispute mechanism, and the question of what the Canadian side would give up on supply management, that held up a deal to the very end.

Sources told CBC News the Chapter 19 breakthrough was the "turning point in all this."

The Canadians were never entirely sure the Americans were serious about getting a trilateral trade deal. For most of his adult life, Trump has railed against NAFTA and treaties like it, loudly proclaiming his belief that the U.S. has been hosed on trade by its supposed allies. Lighthizer also has described NAFTA as a deal that had "fundamentally failed many, many Americans."

A reversal of this sort showed the Americans were serious about replacing NAFTA with something. Canada had said all along that ditching Chapter 19 was a red line they simply would not cross.

After the Telford group ended the call with Lighthizer, they placed another call to the PM to give him the news: a deal looked close.

'Ah-ha moment'

"I think we have all been through moments over the course of the negotiations where we felt very close, only to see it not end up working out ... I have to say, from my own perspective, there wasn't a single 'ah-ha' moment. There was just a series of, 'OK, we got this one settled. Wow. We have to talk about this one,'" Trudeau said, describing the process.

"But there was [on Saturday] a sense things were falling into place. I think one of the moments for me was when we realized we had an intact Chapter 19. That's where I started to think, 'OK, we're going to be able to get to a place,' because we kept in place the rules that protect trade and enforce trade agreements like this."

Leaders of both Canada and the United States held press conferences Monday, trying to sell the new USMCA trade deal to their respective countries. 1:05

From the outset, the Canadians sought assurances that a new agreement would preserve Chapter 19 of the original NAFTA, a dispute resolution mechanism the countries can turn to if they feel wronged by the imposition of an anti-dumping or countervailing duty.

Canada has successfully challenged U.S. actions on the softwood lumber file in the past through Chapter 19.

"When we began the work of updating NAFTA, we kept our focus on what really matters," Trudeau said.

CBC's Paul Hunter asks Trump about his relationship with Trudeau now:

U.S. President Donald Trump tells CBC's Paul Hunter that relations between his country and Canada will be "better than ever" now that they have a new trade agreement 1:42

"The new agreement would need to preserve jobs, foster growth, expand the middle class and support people working hard to join the middle class. It also needed to be fair.

"Which meant that it would have to preserve the fundamental principle of the original agreement, which is that when your trading partner is 10 times your size, you need rules. You need a level playing field."

Lighthizer, for his part, steadfastly opposed retaining Chapter 19, arguing that it constitutes a violation of U.S. sovereignty to have a multinational panel of arbiters decide on the acceptability of U.S. tariffs.

He relented as the deadline his boss came up with — midnight Sunday — drew nearer. The U.S. wanted to get a text to Congress so that leaders could sign it before Mexican President Enrique Peña Nieto's term comes to an end on Dec. 1.

After that concession, of course, it was time for the Canadians to give the Americans — and Trump specifically — what they really wanted all along: greater U.S. access to Canada's dairy market to placate swing-state voters in places like Wisconsin and upstate New York, where farmers are awash in an oversupply of milk.

And while there was talk of clashing personalities (Trump said last week that his people basically didn't like Freeland or her negotiating tactics), MacNaughton said a deal was reached ultimately because of Lighthizer's personal "professionalism."

Canadian Ambassador to the U.S. David MacNaughton joined Power & Politics Monday to discuss the new trade deal secured with Mexico and the U.S.. 9:13

"It's been a long, exhaustive period. We used to go to bed at midnight and get up and be back at work at 7 a.m. and these issues are really intense, so sometimes there are tempers lost and everything else," he said in an interview with CBC's Power & Politics.

"But I gotta tell you, the professionalism at the table on the part of Ambassador Lighthizer and Jared Kushner and, on our side, Minister Freeland, Steve Verheul, it was really something."

Lighthizer also thanked Kushner, the president's son-in-law, saying a deal would not have been possible without his interventions.

Kushner was on the other end of many calls from Butts and others in the prime minister's inner circle when talks soured.

White House senior adviser Jared Kushner, right, stands behind President Donald Trump, left, during a news conference as the president announced a revamped North American free trade deal in the Rose Garden of the White House in Washington on Monday. (Pablo Martinez Monsivais/AP Photo)

Chapter 19, and the deal itself, still came at a price for Canada.

Under the United States-Mexico-Canada agreement (USMCA), the U.S. will have more access to the Canadian dairy market than what the Trudeau government gave up earlier this year when it signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a trade deal with 10 Asia-Pacific countries.

With that agreement, those 10 countries will have market access that equals 3.25 per cent of Canada's annual milk production. The Americans will have more: 3.6 per cent.

Perhaps most importantly for dairy producers, Canada has agreed to end what's called class 7 pricing, a milk class created in March 2017 that slashed prices on some Canadian-produced milk ingredients — like protein concentrates, skim milk and whole milk powder — used to make cheese and yogurt.

Dairy farmers were already warning Monday that without the 18 month-old pricing scheme, the viability of the industry is in question.

Ultimately, the prime minister and his team decided that preserving much of the tariff-free access Canadian companies currently enjoy with the U.S. — access worth more than $700 billion US a year — was worth the sacrifice. But not without Chapter 19.

Corrections

  • A previous version of this story said Jeremy Broadhurst is the prime minister's deputy chief of staff. In fact, he is the chief of staff to Foreign Affairs Minister Chrystia Freeland.
    Oct 01, 2018 6:53 PM ET