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‘Close, but not there yet’: Sources say U.S. and Canada near NAFTA deal

‘Lot’s of progress, not there yet’: David MacNaughton on NAFTA
ABOVE: Canada's Ambassador to the U.S. David MacNaughton says there's lots of progress on NAFTA, but there's still a couple of "tough issues."

With time fast running out, Canadian and U.S. negotiators “made lots of progress” on Sunday on a renewed NAFTA but had still not settled tough issues such as American tariffs and access to Canada’s dairy market, an official and sources said.

The administration of U.S. President Donald Trump said Canada must sign onto the text of the updated North American Free Trade Agreement by midnight EDT on Sunday or face exclusion from the trilateral pact, which includes Mexico.

READ MORE: ‘We are not working towards a deadline,’ Marc Garneau on Canada’s NAFTA approach

Prime Minister Justin Trudeau has called a cabinet meeting at 10:00 p.m. Sunday night on Parliament Hill to discuss NAFTA, sources say.

Trudeau arrived at his office around 7:00 p.m., where Foreign Affairs Minister Chrystia Freeland has been working since early Sunday on the deal.

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Freeland has cancelled plans to address the U.N. General Assembly on Monday, a spokesperson said.

Canada’s ambassador to Washington, David MacNaughton, updated reporters earlier Sunday outside the Ottawa building where Canadian officials gathered. “Lots of progress but we’re not there yet … we still have a couple of tough issues, so we’re doing our best,” he said.

“I’m cautiously optimistic, but we’ll see,” he added.

The office of the U.S. Trade Representative told stakeholders over the weekend that Washington was on track to reach a deal with Ottawa by the end of Sunday, said people briefed on the matter.

WATCH: Freeland forgoes speech at U.N. as NAFTA deadline approaches.

Freeland forgoes speech at U.N. as NAFTA deadline approaches
Freeland forgoes speech at U.N. as NAFTA deadline approaches

Officials are talking continuously by telephone. One Ottawa source directly familiar with the talks said the two sides were very close, while another said: “We are close, but not there yet.”

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Trump blames NAFTA for the loss of U.S. manufacturing jobs and wants major changes to the pact, which underpins $1.2 trillion in annual trade. Markets fear its demise would cause major economic disruption.

One of the Canadian sources said Ottawa would take nothing for granted until Trump had signed off on a deal.

READ MORE: What is Chapter 19? The dispute resolution mechanism at the heart of NAFTA talks

U.S. Trade Representative Robert Lighthizer and White House adviser Jared Kushner planned to brief Trump on Sunday on the talks, said a U.S. source familiar with the discussions.

Lighthizer and Kushner have been keeping Trump updated through the weekend, added the source, who was not authorized to speak about the talks publicly.

White House trade adviser Peter Navarro on Sunday said everyone involved was working in good faith and reiterated the Sunday deadline.

“It’s either going to be the text goes in with Mexico and the U.S. or the text goes in with all three countries,” he told the Fox News Channel.

U.S. business groups oppose turning NAFTA into a bilateral deal because the three nations’ economies have become closely intertwined since the original pact came into force in 1994.

WATCH: ‘Reached a deal to replace NAFTA – see what happens with Canada,’ Trump says

‘Reached a deal to replace NAFTA – see what happens with Canada’: Trump
‘Reached a deal to replace NAFTA – see what happens with Canada’: Trump

Officials though have blown through several deadlines since the talks started in August 2017 and a third Canadian source said that if the two sides were close enough at midnight, negotiations could spill over into Monday.

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Negotiators – still apart on matters such as dispute resolution and a U.S. demand for more access to Canada’s dairy markets – are also tackling the matter of American tariffs.

Trump has already imposed tariffs on Canadian aluminum and steel, citing national security, and is threatening similar punitive measures against auto exports. Canadian Prime Minister Justin Trudeau said it makes no sense to sign onto a new NAFTA only to be hit by new tariffs and is seeking safeguards.

WATCH: Trump slams Canada on NAFTA

Trump slams Canada on NAFTA
Trump slams Canada on NAFTA

“It’s a challenging task to figure that out and they’re spending a lot of time on that right now,” said the third Canadian source.

One solution might be to imitate the provisions of the bilateral Mexico-U.S. deal on NAFTA.

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The two nations signed a side letter allowing Washington to pursue tariffs on annual Mexican car and SUV imports of over 2.4 million vehicles, a number that significantly exceeds last year’s total. The Mexican government said the letter provided insurance that gave the auto industry scope to grow.

A fourth Canadian source directly familiar with the negotiations said any suggestion Ottawa would accept a cap or quota on autos exports was completely inaccurate.