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Canada demands tariff protection in NAFTA

U.S. has reached deal with Mexico, but not Canada, in negotiations to revamp NAFTA.

by Josh Wingrove

Canada needs some kind of “curb” to protect it from U.S. tariffs as part of any NAFTA agreement, otherwise the deal is meaningless, according to Justin Trudeau’s ambassador to Washington.

David MacNaughton, one of the top Canadian officials taking part in talks to update the North American Free Trade Agreement, said Wednesday Canada wants to reach a deal that U.S. President Donald Trump can hail as a victory but nevertheless has red-line issues, including the need for dispute panels and protection from tariffs. 

“I don’t like playing chicken with the future of the Canadian economy,” MacNaughton said Wednesday at a Politico event in Toronto, where he struck a relatively upbeat tone. “On the other hand, there are things where basically we are just not prepared to give into because it would really render the agreement meaningless.” 

MacNaughton’s comments come with the U.S. and Canada still at odds on any update to the 1994 continental trade pact, after the U.S. reached a bilateral deal with Mexico last month. American negotiators are pushing to publish text of that deal within days, and it’s unclear where that will leave Canada. U.S. Trade Representative Robert Lighthizer said Tuesday Canada may join the Mexico deal later, or the U.S. and Canada may have talks toward their own deal.

Sticking Points

MacNaughton cited two irritants on which Canada is digging in. One is dispute resolution: the Trudeau government wants to keep some form of NAFTA’s Chapter 19 panels, while the U.S. wants to eliminate them. Another is Section 232 tariffs, which the Trump administration has imposed on steel and aluminum imports from Canada and other countries. The U.S. is also threatening similar tariffs on auto imports. 

“If you can’t resolve disputes in a fair and balanced way, then what’s the use of the agreement?” MacNaughton said. “If you can’t have some curb on the arbitrary use of tariffs under the guise of national security with a member of NORAD and somebody who is your closest defense partner, then I don’t think it’s much of agreement.” 

Auto tariffs in particular “would change the whole relationship for a long time come,” he added. He said he didn’t know when, or if, those might be imposed by the president. “The person who would impose them doesn’t call me on a regular basis to ask my advice,” MacNaughton said.

A day earlier, Lighthizer also cited Chapter 19 as a sticking point, while saying the subject of 232 tariffs would probably be dealt with later, rather than as part of an overall NAFTA deal as initially sought. He also said dairy is a sticking point.

Canada is looking for a way to reach a deal Trump can hail as a triumph, MacNaughton said. “Our desire is to try and find a way in which we can get this agreement done where he can, in his own way, declare victory -- to have some kind of a win for what he said he wanted to achieve.”

Any final deal on NAFTA will include language around gender and indigenous rights, as initially sought by Canada, he said. Neither Lighthizer nor other U.S. negotiators ever cited that as a major sticking point in talks, he said. MacNaughton praised Trump’s trade chief and said the tone of talks remains generally constructive, despite the countries still being at odds.

“I wouldn’t overemphasize personal differences. Bob Lighthizer is a real pro, he’s been around a long time. I don’t agree with him on some of his views about managed trade, but I get along with him well personally,” the Canadian envoy said. “Whenever we have a real difficult moment, I try to change the conversation to golf.”

To contact the reporter on this story: Josh Wingrove in Ottawa at jwingrove4@bloomberg.net

To contact the editors responsible for this story: Theophilos Argitis at targitis@bloomberg.net Stephen Wicary, Chris Fournier

© 2018 Bloomberg L.P 

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