By William Mauldin 

The Trump administration's top trade negotiator threatened to move forward with a bilateral accord with Mexico amid a lack of progress with Canada on renegotiating the North American Free Trade Agreement.

"Canada's not making concessions in areas we think are essential," U.S. Trade Representative Robert Lighthizer said on Tuesday at a conference on the sidelines of the United Nations General Assembly.

The shot across Canada's bow comes after the Trump administration in August said it had resolved differences with Mexico on a new version of Nafta, a 24-year-old treaty among the three countries. The White House in August sent Congress formal notice of intent to sign a deal -- with or without Canada -- in late November, before Mexico's new president takes office.

The Trump administration's threat raises uncertainties for business leaders and farmers, both of which have relied on duty-free trade among the three countries since Nafta's inception in 1994. Many states along the U.S. border with Canada rely heavily on trade with neighboring Canadian provinces, and the treaty has allowed automobile makers and other industries to create supply chains that span the continent.

A bilateral trade deal would disrupt those supply chains and raise the possibility of an eventual price increase for U.S. car buyers, because of the tariffs that would be imposed on Canadian-made cars and auto parts. About 1.8 million cars sold in the U.S. were built in Canada last year, according to LMC Automotive. Car makers, such as General Motors Co. and Fiat Chrysler Automobiles NV, would be among the hardest hit by any import duty because they manufacture popular vehicles in Canada that are then shipped to the U.S.

Dropping Canada from a new Nafta would face opposition from businesses and their allies in Congress, which must ratify any renegotiated treaty before it can take effect. Big business groups and labor unions want Canada to stay in the trade agreement, so a two-way deal would bring strong opposition from Republican and Democratic lawmakers.

The U.S. Chamber of Commerce, Business Roundtable and National Association of Manufacturers last week sent a letter to Mr. Lighthizer asking for Nafta's trilateral architecture to be preserved.

It would likely take the Trump administration well into next year to win such approval from Congress -- if it is able to do so at all. As such, many observers consider Mr. Lighthizer's warnings as part of the administration's efforts to take a tough negotiating position ahead of the end-of-the-month deadline, and that a deal without Canada is unrealistic. Moreover, talks could well continue even if the parties miss the end-of-September deadline.

"Don't assume that just because they miss this deadline that they'll stop the negotiations with the Canadians," said Myron Brilliant, the head of international relations at the Chamber of Commerce who interviewed Mr. Lighthizer on Tuesday. "A bilateral between Mexico and Canada is not likely to win over the business community or Congress; that's going to be problematic for the administration."

Indeed, Mr. Lighthizer seemed to nod to this possibility on Tuesday. "If Canada comes along later, then that's what will happen," he said.

Canada seems in little hurry to bend to U.S. pressure, perhaps because Canadian consumers are a significant export market for particularly U.S. agricultural goods. Canadian buyers in 2017 purchased $20.6 billion of food and farm products from U.S. producers, according to the U.S. Department of Agriculture. Beef cattle cross the U.S.-Canada border in both directions, with Canadian imports of U.S.-raised beef cattle hitting a 10-year high in 2017.

"We know that Canada's interests are what we have to stand up for, and we will," Canadian Prime Minister Justin Trudeau said Tuesday morning at an event in New York, adding that it is possible to build upon the deal that the U.S. and Mexico cut. A spokesman for Canadian Foreign Minister Chrystia Freeland said the country "will only sign a good deal. Our focus is the substance, not timelines."

President Trump campaigned for office on a promise to renegotiate Nafta, claiming it hurt American workers by sending jobs across borders. While his administration cut a deal to redo the U.S.-Mexican portion of the treaty, such a deal with Canada has been elusive, and tensions have remained high with Mr. Trump using Twitter to attack Mr. Trudeau in June following the Group of Seven summit in Quebec.

The two leaders aren't scheduled to have a bilateral meeting this week at the General Assembly, but aides don't reject the idea that they could speak during the event. At an address on Tuesday at the U.N., Mr. Trump defended his hard-line trade approach, saying that for years the U.S. engaged in trade deals but that many "other countries did not grant us fair and reciprocal access to their markets in return." He said his administration is systematically renegotiating "broken and bad" trade pacts.

Mr. Lighthizer says he is under pressure to stand firm and wait for a deal that improves conditions for U.S. exports to Canada, including dairy products, which face tariffs and quotas as a part of the Canadian system for protecting its dairy farmers.

Nafta talks have missed several deadlines, but Mr. Lighthizer said he is seeking to move ahead with the Mexico deal so it can be signed before Andrés Manuel López Obrador, the country's president-elect, takes office Dec. 1.

Under U.S. law, the text of a trade agreement must be published at least 60 days before it is signed. That requirement means Mr. Lighthizer needs to release the details of the deal with Mexico -- or possibly a trilateral deal including Canada -- by the end of September, congressional aides and trade experts said.

Trade experts said it is possible for the U.S. to publish and sign a deal with Mexico, then later reach an agreement with Canada, sign it, and submit a revised three-nation pact to Congress next year. Still, congressional aides say the complexity of a deal assembled piecemeal could lead to uncertainty and hurt the final outcome.

Politics are complicating the talks, and Canada's second-most-populous province of Quebec faces elections on Oct. 1, right around the deadline. Some people following the talks say Mr. Trudeau may be reluctant to make major concessions to the U.S., especially on dairy trade, ahead of that vote.

On the U.S. side, midterm elections are a reason for the Trump administration to reach a three-way Nafta deal he can present as a win for Republicans, officials and congressional aides say. Meanwhile, if Democrats take over one or both chambers of Congress, it could weigh on efforts for Mr. Trump to win passage of a new Nafta or other legislative priorities next year.

Another complicating factor is the tariffs Mr. Trump imposed on imported steel and aluminum on national-security grounds, as well as a threat to place duties on cars and auto-part imports. Mr. Lighthizer said Mexico and Canada "clearly" want to be excluded from any auto-industry tariffs, but he said negotiations on lifting the metals duties would come in the next stage of trade talks, following the new Nafta deal. Another deep division for negotiators involves the dispute-resolution provisions of Nafta, with Canada seeking to preserve arbitration panels that can challenge the way countries including the U.S. assign duties to allegedly dumped or subsidized imports.

Canada is seeking an exemption from all the national-security tariffs, and that has emerged as a late deal-breaker, people familiar with the talks said.

Mr. Lighthizer has proposed abolishing the system, which is contained in Nafta's Chapter 19.

--Paul Vieira in Ottawa, Chester Dawson in Detroit, and Jacob Bunge in Chicago contributed to this article.

Write to William Mauldin at william.mauldin@wsj.com

(END) Dow Jones Newswires

September 25, 2018 19:17 ET (23:17 GMT)