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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
--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
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
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: firstname.lastname@example.org
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