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Canada’s politically powerful dairy farmers are likely to resist changes to the price controls and high tariffs that protect them from foreign competition. But as an Oct. 1 deadline to renegotiate NAFTA looms, Canada is prepared to offer similar concessions on the dairy industry to those that it agreed to in free trade deals with the European Union and Pacific Rim nations, the sources said.

“I think we understand there are certain issues on which we will need to compromise,” one of the sources said when asked about increased dairy access for the U.S. industry.

U.S. dairy farmers have long demanded more access to Canada’s market and also are unhappy about a Canadian decision to allow farmers to sell milk protein products to the country’s processors at a lower price, cutting off American supplies.

In return for concessions on dairy, Canada could request U.S. concessions on the so-called Chapter 19 dispute resolution mechanism that allows Canada to combat U.S. anti-dumping duties that Ottawa regards as unjustified. Prime Minister Justin Trudeau has said the mechanism is crucial to a new NAFTA, but Mexico already has agreed to drop it.

‘A Lot of Thinking’

After leaving the U.S. Trade Representative offices following an initial meeting on Tuesday, Freeland described a positive atmosphere as the two sides work “extremely intensively.”

“Both sides did a lot of thinking over the weekend, so this was a very productive meeting. Having said all of that, nothing is done until everything is done,” Freeland told reporters.