Canada seeks trade deal with US as Mexico signs on

Donald Trump's deal with Mexico to revamp Nafta has opened a new rift with Congress over trade after senior lawmakers reacted sceptically to parts of the agreement and urged the US administration to drop its threat to leave Canada out of the pact.

The scuffles between the White House and Capitol Hill came as Chrystia Freeland, Canada's foreign minister, flew to Washington from Europe for high-stakes talks to see if a trilateral deal could be rescued in the coming days.

"We will . . .stand up for the Canadian national interest, and for Canadian values, while looking for areas where we can find a compromise," Ms Freeland said after a first meeting with Robert Lighthizer, the US trade representative on Tuesday evening.

Talks

“This is going to be a full-steam ahead effort,” she added. The talks were scheduled to resume on Wednesday morning.

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On Monday, Mr Trump had invited Canada to rejoin the talks but warned that the US was prepared to plough ahead with a bilateral deal with Mexico, ending the three-country structure of Nafta, if Ottawa did not sign on quickly.

US lawmakers, particularly free trade Republicans with close ties to US business groups, have not only objected to the substance of the deal reached with Mexico, fearing it might restrict trade compared with the status quo, but also balked at the possibility that Canada might be excluded.

In a statement on Tuesday, Pat Toomey, the Republican senator from Pennsylvania, warned that the Trump administration would not be able to use expedited procedures to get congressional approval for a bilateral deal with Mexico.

“The administration . . .must reach an agreement with Canada. Nafta was a tri-party agreement,” Mr Toomey said.

Mr Toomey said he had “serious concerns” about provisions requiring that a certain share of Mexican cars exported to the US be produced by workers earning more than $16 an hour, the “sunset” provision giving the deal a 16-year lifespan and the limiting of investor dispute settlement mechanisms.

The pushback from Congress triggered a mid-morning Twitter post from Mr Trump.

Economics

“I smile at Senators and others talking about how good free trade is for the US. What they don’t say is that we lose Jobs and over 800 Billion Dollars a year on really dumb Trade Deals . . . and these same countries Tariff us to death,” the president wrote.

Ben Sasse, the Republican senator from Nebraska, who said there was "reason to worry" that the deal with Mexico was "a step backward from Nafta for American families", quickly fired back at the US president. "This is simply wrong. Trade creates American jobs, period. This is basic economics, and actual American experience for the last 75 years," he said in a statement.

Members of Congress have also been frustrated by the lack of details on the agreement, since USTR did not formally consult lawmakers on its contents.

In the Oval Office on Monday, Mr Trump had been flippant about Canada’s return to the fold.

“If they’d like to negotiate fairly, we’ll do that,” he said, with the cameras rolling. “With Canada, frankly, the easiest thing we can do is to [impose a] tariff [on] their cars coming in,” he quipped.

Mr Trump’s posturing – and his warning that new levies could be looming on the Canadian auto industry – seemed designed to apply maximum pressure on Ottawa to accept the terms of the deal agreed with Mexico or face an escalating trade dispute with the US.

“We’ve been painted into a corner, Canada is in a bind,” said Peter Mackay, a former conservative Canadian foreign minister working on trade issues for Baker McKenzie, the law firm. If no deal is reached and Canada is left out, “the US will pay a price, but we will pay a bigger price”, Mr Mackay added.

Compromise

Any possible deal with Canada would be likely to hinge on a satisfactory compromise on agriculture, and dairy in particular. The US, along with other nations, has often called on Canada to open up its dairy market to greater competition but been rebuffed. Canada may also seek some tweaks to provisions on investor dispute settlement.

But Ms Freeland said Canada was gratified that Mexico had made “significant” concessions around new rules of origin and wages in car production. “For our government, good jobs for working people in Canada has always been our priority and these concessions are going to be valuable for workers in Canada and the US who have been concerned for some time about their jobs going to lower-wage jurisdictions,” she said.

If US officials believe they have all the leverage in the talks with Canada, they could be mistaken. Mexico itself would prefer to have a three-way rather than bilateral agreement, and approval through Congress would probably be much smoother if Canada were involved.

US business groups, a powerful lobbying force in any congressional vote, have signalled that their support could be conditional on Canada being included in the deal, and politicians, particularly in states close to the Canadian border, could be heavily influenced by those voices.

Canada remains the largest export market for the US.

“In order to do no harm to the 14 million US jobs that depend on trade with Canada and Mexico, the agreement must remain trilateral,” the US Chamber of Commerce, the largest business lobby group in the US, said on Monday.

– Copyright The Financial Times Limited 2018