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NAFTA's Not Dead Yet for Canada If US-Mexico Deal Moves Ahead

Sept. 27, 2018
Canada's Prime Minister Justin Trudeau downplayed the urgency of the latest deadline in negotiations.

The Trump administration is set to push forward a Mexico-only NAFTA update -- but that doesn’t mean Canada is out of luck.

Officials from Washington and Ottawa remain at loggerheads in trade talks despite weeks of face-to-face negotiations to update the North American Free Trade Agreement and keep it as a three-country deal. The impasse raises fears the U.S. will leave Canada, its biggest export market, out of the renegotiated trade bloc, resulting in potential barriers for more than $500 billion in annual cross-border trade.

The U.S. is planning to publish the text of its bilateral trade accord with Mexico on Friday, which will likely exclude Canada, according to three people familiar with the matter. But Prime Minister Justin Trudeau doesn’t sound fazed.

“We will keep working on a broad range of alternatives, a broad range of paths are ahead of us,” he said Wednesday. “We’re going to keep focusing on trying to get to the right deal for Canadians.”

Here’s a look at some of the options for the northern nation to preserve its regional trading ties.

1. Canada Could Still Join

It’s possible Canada could still be tucked into a deal before it’s signed by Nov. 30, when the current Mexican president leaves office. The countries are in a hurry because, under U.S. trade law, the text of a deal needs to be published 60 days before it can be signed. If Congress turns a blind eye to fudging certain rules, they may be able to. “We’re going to go ahead with Mexico. If Canada comes along now, that’d be the best. If Canada comes along later, then that’s what’ll happen,” U.S. Trade Representative Robert Lighthizer said Tuesday.

Some interpreted his comments as a reprieve for U.S.-Canada talks. “It looks like Canada bought itself a few more weeks. But that patience will not be infinite at either White House or in Congress,” according to trade lawyer Dan Ujczo, at Dickinson Wright. However, it will be procedurally difficult to shoe-horn Canada in, he said.

2. Congress Fights Back

The U.S. began NAFTA renegotiation by triggering a congressional process for a three-country deal. It’s hoping to use that same track to now advance a two-country deal, something key lawmakers have warned won’t fly. That might force President Donald Trump to restart the process, or see Congress simply balk and tell the administration to come back when it has a deal that includes Canada. John Cornyn, the second-ranking Senate Republican, believes it may violate U.S. trade law to try and ram forward with a two-country deal. “That is a really big concern in terms of us getting something approved over here,” he said Wednesday.

3. A Separate Deal?

Lighthizer has floated the prospect of pivoting to separate talks with Canada once the deal with Mexico is approved. “Hopefully, we’ll end up with something with Canada. If not, we’ll have to do it in a separate deal as soon afterwards as we can,” he said on Tuesday. Trump regularly says he prefers bilateral deals, but that could mean restarting the Congressional clock.

4. Hello, NAFTA 1.0

Amid all this wrangling, the original NAFTA remains on the books. It’s unclear if, or when, Trump will give the required six months’ notice to withdraw from that trade deal, or if he’d actually follow through. If he tries to, yet another fight could loom on Capitol Hill -- the U.S. has never quit a major trade deal, and there’s uncertainty over his powers to do so. He might, for instance, be able to quit, but Congress would need to repeal NAFTA’s enacting legislation. If it doesn’t, Canada would still have some form of the original NAFTA to rely on.

By Josh Wingrove

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