MNI: Canada Loses Leverage Ahead Of NAFTA Deadline

By Yali N'Diaye

     OTTAWA (MNI) - A bilateral agreement between the U.S. and Mexico has

reduced Canada's leverage ahead of President Donald Trump's end-of-week deadline

for renegotiating the North American Free Trade Agreement, but experts say

Ottawa will have little choice but to seek to sign up to the deal.

     From Canada's standpoint, the U.S.-Mexico deal announced on Monday is not

all negative, since Mexico made concessions on auto workers' wages, which would

make investment in Canada and the U.S. more attractive. Raising the share of

North American auto content is also positive for Canada.

     U.S. negotiators, for their part, watered down demands related to a NAFTA

sunset clause: countries are now set to decide every six years whether to modify

the treaty, instead of every five as Washington originally wanted, and have 10

years to agree on changes, spreading the entire process over a 16-year period.

The U.S. is also reportedly ready to agree to preserve in some form the

dispute-resolution system that Canada has defined as a red line.

     Trump, who has threatened to impose 25% tariffs on auto imports from

Canada, is now saying "we're probably on track" for reaching a deal that

includes Ottawa on Friday. Canada's Foreign Minister Chrystia Freeland said she

was "optimistic" following meetings with U.S. negotiators in Washington.

     While the U.S.-Mexico deal puts Canada in a position of potentially signing

up to an agreement that has already been largely negotiated, with scope for

tweaking it best, the alternative could be for Canada to be left out in the

cold.

--EXPORT DEPENDENCY ON U.S.

     While the U.S. Congress is seen as favoring a three-country deal, Ian Lee,

associate professor at Carleton University Sprott School of Business, warned

that the U.S. legislature might be prepared to accept a simple U.S.-Mexico

agreement.

     He told MNI that, in a mid-term election year, neither Republicans nor

Democrats will want to reject a deal that forces Mexico to raise its wages and

increases American content in cars.

     Canada exports 75% of its goods to the U.S., and the threat of 25% tariffs

on its auto sector is a heavy one. Uncertainty related to U.S. trade policy has

been a key factor holding back the Bank of Canada's normalization of monetary

policy at a time when the economy is already operating close to capacity.

     If "the U.S. would impose the auto tariff, this would hit Ontario heavily,"

Kurt Huebner, a politics professor at the University of British Columbia, told

MNI.

     Trump wants to open up Canada's dairy market, and with 270% tariffs on

imports of U.S. dairy products, experts say there is room to do so.

     Canada is now faced with "take it or leave it," Lee told MNI. "The

negotiations are essentially over," he continued, adding that "just about any

trade deal is better than no trade deal."

     Lee said there is room to modify the dispute resolution mechanism in ways

that could still save Canada's face.

--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com

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