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Canada Still Has Hope for NAFTA … If Trump is at the Table

Feb. 1, 2018
The differences have been in plain sight over six rounds of negotiations, which have yielded agreement on just three of roughly 30 chapters, leaving much ground to cover and talks poised to stretch into 2019.

Canada wants a NAFTA deal as soon it can get one. Until then, every day of talks is better than the alternative.

Chrystia Freeland, Canada’s NAFTA chief, rattles off all the barriers that lie ahead. Canada and the U.S. are at odds on the very philosophies of trade, immigration, protectionism — and, of course, on the merits of NAFTA itself, flawed and aged as it is, that Donald Trump has been threatening to kill.

And yet he hasn’t. That gives Freeland cautious optimism NAFTA will prove to be too good a deal to pass up, even for Trump, even with deep divisions. Until then, she’s staying at the table.

“We all do want to get to a deal and I think we are all really trying — within the confines of having quite different visions of trade — trying to reach a successful conclusion,” she said in an interview with Bloomberg News in New York on Wednesday, adding a sobering caveat: “I wouldn’t want to, in any way, exaggerate the progress we’ve made.”

Her trip to New York came one day after U.S. President Donald Trump sidestepped NAFTA in his State of the Union speech while saying the U.S. “turned the page on decades of unfair trade deals.” The latest round of NAFTA talks that ended Monday in Montreal yielded some progress, and U.S. demands to speed things up.

Freeland, Canada’s foreign minister with the added responsibility for U.S. economic ties, remains at odds with Trump on many things. The U.S. is “openly and proudly protectionist,” she said, with “serious reservations about the value of trade” leading to demands Canada has never agreed to before.

“We are negotiating with a counterparty that has quite a different vision,” she said. “We don’t think that trade or, for that matter, immigrants are the reason the middle class is being hollowed out.”

The differences have been in plain sight over six rounds of negotiations, which have yielded agreement on just three of roughly 30 chapters, leaving much ground to cover still. While Trump wanted a deal by the end of 2017, talks are now poised to run well into this year and possibly into 2019. “History shows us these take a long time to get right,” Freeland said, and warned against “false artificial deadlines.”

The two sides are farthest apart on the core issues, like the car sector, including a U.S. proposal to require 50% U.S. content in North American-built cars traded under NAFTA. Freeland has rejected that idea, but has sought common ground in other ways. These include Canadian proposals such as changing how a car’s value is calculated, encouraging things like autonomous vehicle development and using North American steel.

NAFTA’s auto sector rules are “fiendishly” complicated and that substantial changes “will have potentially a dramatic impact on the car industry,” Freeland said.

U.S. Trade Representative Robert Lighthizer effectively dismissed those efforts for an autos breakthrough on Monday, a sentiment voiced separately by U.S. Commerce Secretary Wilbur Ross on Wednesday. “Little has been done on the hard issues,” Ross told CNBC, where he reiterated the threat that Trump could still give notice of quitting.

The Canadians are also indicating a willingness to compromise on NAFTA’s existing investor dispute system, under Chapter 11, which the U.S. wants to opt out of and which Canada thinks could live on bilaterally with Mexico.

Canada recommended another U.S. proposal — to allow automatic termination of the agreement after five years unless the parties agree to extend the deal — could instead be replaced by a periodic review of the agreement.

One area Freeland indicated is not up for bargaining is the mechanism that allows companies to challenge anti-dumping and countervailing duties. Freeland said those Chapter 19 panels are “essential” for Canada.

Fundamentally, Freeland is optimistic economics will win the day. She described herself as an “economic determinist,” stopping short of predicting NAFTA’s survival but expressing faith in the forces that may save it. She invoked Martin Luther King Jr. in predicting the “arc of history” will bend toward the better outcome.

By Josh Wingrove, with assistance from Michael McKee, Anne Riley Moffat and Greg Quinn.

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