By Julie Gordon and Sharay Angulo
WASHINGTON (Reuters) - Canada's top trade negotiator joins her Mexican and U.S. counterparts in Washington on Tuesday in a bid to remain part of a revamped trilateral North American trade pact, as U.S. officials expressed optimism a deal could be reached this week.
But Ottawa will be under pressure to accept new terms on autos trade, dispute settlement and intellectual property rules after the United States and Mexico agreed on Monday to overhaul the North American Free Trade Agreement (NAFTA).
U.S. President Donald Trump warned he could proceed with a deal with Mexico alone and levy tariffs on Canada if it does not come on board with the revised trade terms.
A spokesman for Canadian Foreign Minister Chrystia Freeland, who arrived in Washington on Tuesday for the talks, said Canada would only sign a new agreement that is good for the country.
Freeland rejoins the year-long talks following a hiatus of several weeks as the United States and Mexico ironed out bilateral differences in the renegotiation of the 24-year-old accord.
They have agreed on several provisions that Canada opposes, making it harder for Freeland to win concessions from U.S. Trade Representative Robert Lighthizer.
"I think he's going to sit there with his arms folded a lot," said Dan Ujczo, a Columbus, Ohio-based trade lawyer who focuses on U.S.-Canada issues. "It's not going to be a positive discussion this week."
U.S. Treasury Secretary Steven Mnuchin told CNBC on Tuesday that he believed the United States could also reach a trade deal with Canada this week.
"The U.S. market and the Canadian markets are very intertwined," Mnuchin said. "It's important for them to get this deal and it's important for us to get this deal."
Mexican Foreign Minister Luis Videgaray told Mexican television on Tuesday the three sides would work for a three-way deal. "We are now going to devote long hours to the negotiation with Canada," he said.
Negotiations among the three partners, whose mutual trade totals more than $1.2 trillion annually, have dragged on for more than a year, putting pressure on the Mexican peso <MXN=> and the Canadian dollar <CAD=>. Both currencies gained against the U.S. dollar on Monday, but the peso weakened on Tuesday.
Canada's main stock index <.GSPTSE> opened higher on Tuesday on hopes for a NAFTA trade deal, before dipping. U.S. stocks edged to record highs for a third consecutive session.
A sticking point for Canada is the U.S. effort to dump the Chapter 19 dispute resolution mechanism that hinders the United States from pursuing anti-dumping and anti-subsidy cases. Lighthizer said on Monday that Mexico had agreed to eliminate the mechanism.
Other hurdles include intellectual property rights, such as the U.S.-Mexico 10-year data exclusivity for biologic drug makers and extensions of copyright protections to 75 years from 50, all higher thresholds than Canada has previously supported.
Trump says he still could put tariffs on Canadian-made cars if Canada did not join its neighbors and warned he expected concessions on Canada's dairy protections.
Canada's dairy farmers operate under a protectionist system that manages supplies and prices, and imposes high tariffs to limit imports. U.S. demands have ranged from ending those tariffs to scrapping a pricing system for milk ingredients that hurt U.S. exports of milk proteins.
"It seems like a pretty steep challenge to now resolve these issues in three days," said David Wiens, a Manitoba dairy farmer and vice-president of industry group Dairy Farmers of Canada.
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If a deal is not reached with Canada, Mnuchin said, the United States would proceed with a separate trade agreement with Mexico.
The Mexican government has also taken that position, even as it says it wants a trilateral deal. Mexican President Enrique Pena Nieto is keen to sign the agreement before leaving office at the end of November.
But U.S. Senate Democratic leader Chuck Schumer said a bilateral U.S.-Mexico raises "serious legal concerns" because the "fast track" negotiating authority used for NAFTA requires a trilateral deal. This may require a far more difficult 60-vote threshold in the Senate for ratification of a U.S.-Mexico bilateral trade deal.
ADVERTISEMENTIf talks with Canada are not wrapped up by Friday, Trump plans to notify Congress that he intends to sign a deal with Mexico, but would be open to Canada joining, Lighthizer told reporters on Monday.
The White House has said Trump will sign the deal 90 days after notification. Congress needs to approve it in a process that will take several months, extending well into 2019.
(Additional reporting by Rod Nickel in Winnipeg and Miguel Angel Gutierrez in Mexico City; Writing by Anthony Esposito and David Lawder; Editing by Dave Graham and Susan Thomas)
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