POLITICS
09/07/2018 14:48 EDT | Updated 09/07/2018 16:46 EDT

Larry Kudlow Says 'M-I-L-K' Is To Blame For Why There's No NAFTA Deal With Canada Yet

The U.S. wants Canada to open its market to American dairy.

Larry Kudlow, director of the U.S. National Economic Council, speaks during a television interview outside the White House in Washington, D.C. on Sept. 7, 2018.
Bloomberg via Getty Images
Larry Kudlow, director of the U.S. National Economic Council, speaks during a television interview outside the White House in Washington, D.C. on Sept. 7, 2018.

WASHINGTON — The vexing issue of securing more American access to Canadian dairy remains the major obstacle to the two countries concluding their negotiations on the North American Free Trade Agreement, says a top Trump administration adviser.

Larry Kudlow, the director of President Donald Trump's National Economic Council, laid that out in the plainest terms possible during a televised interview Friday morning an hour before Foreign Affairs Minister Chrystia Freeland started her latest meeting with her U.S. counterpart, trade czar Robert Lighthizer.

"I think the United States would rather have a trade deal with Canada, but it has to be a good deal, right? And the word that continues to block the deal is m-i-l-k, OK?,'' Kudlow said on the Fox Business Network show "Varney & Co.''

"I'm just saying, 'Let go. Milk, dairy, drop the barriers, give our farmers a break and we can fix some other things.' So I want to predict. I'll just say Bob Lighthizer is doing a great job and the president is encouraging it.''

Freeland isn't talking specifics, having made a deal with Lighthizer not to negotiate in public.

But as she emerged Friday from her latest meeting with Lighthizer, she said the talks have entered a "very intense'' phase of "continuous negotiations.''

Officials are meeting "24-7'' and "when we find issues that need to be elevated to the ministerial level, that's where Ambassador Lighthizer and I need to talk,'' Freeland said, adding that "there continues to be a lot of goodwill and good faith on both sides. The atmosphere continues to be constructive.''

Freeland departed the headquarters of the United States Trade Representative for the Canadian Embassy. It wasn't clear whether she would be speaking to Lighthizer again before the weekend.

Her departure was part of a familiar rhythm that has taken hold this week during her time in Washington — back and forth between the two locations, while officials continue the nitty gritty negotiations, and Prime Minister Justin Trudeau is kept in the loop in Ottawa.

The U.S. wants Canada to open its dairy market to greater American access, as it has done in two previous major trade agreements, with the European Union and in a re-booted Trans-Pacific Partnership.

The latter deal offered 10 other Pacific Rim countries access to 3.25 per cent of Canada's dairy market — and most analysts predict the U.S. will settle for nothing less in NAFTA.

Trump also wants Canada to scrap its two-year-old pricing agreement that has restricted U.S. exports of ultra-filtered milk used to make dairy products.

Both those issues are non-starters for the Canadian dairy industry, which makes the subject particularly politically charged in Ontario and Quebec.

In addition to dairy, the two countries still have to resolve differences on culture and the Chapter 19 dispute resolution mechanism.

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Canada and the U.S. are trying to agree on a text that could be submitted to the U.S. Congress by month's end in order to join the deal the Trump administration signed with Mexico last week.

The hope is for a trilateral agreement in principle that Congress can approve before Mexico's new president takes office on Dec. 1.

'We do love Canada': U.S. president

Trump is threatening to move ahead on a deal that excludes Canada, but he also needs a win on trade ahead of midterm elections in November that will test his ability to keep control of Congress.

"We do love Canada,'' Trump told supporters at a rally in Montana on Thursday night.

"They've treated us pretty badly in trade for the last 40 years, but that's OK, it wasn't my fault. We're going to make a fair deal with Canada, just like we did with Mexico.''

Trump reiterated his desire to rename the 24-year-old continental trade deal after his "historic announcement'' with Mexico.

"We're replacing NAFTA with a beautiful new brand, because it's a much different deal. It will be called the U.S.-Mexico trade deal,'' he said to partisan applause.

Trump said he thinks Canada will join the deal. But if it doesn't, the U.S. can live with that.