Canada suggests it could quit NAFTA talks over dispute mechanism

(Photo courtesy Canada Beef Inc.)

Ottawa | Reuters –– Canada laid down a tough line ahead of talks on modernizing NAFTA on Monday, suggesting it could walk away if the U.S. pushed to remove a key dispute-settlement mechanism in the trade deal.

Foreign Minister Chrystia Freeland, giving the most substantive outline yet of Canada’s goals, said she was “very optimistic” the negotiations would be a success.

North American Free Trade Agreement members Canada, Mexico and the U.S. hold their first session in Washington on Wednesday.

Canada, heavily reliant on exports to the U.S., opposes Washington’s push to scrap the so-called Chapter 19 dispute settlement mechanism, under which binational panels made binding decisions on complaints about illegal subsidies and dumping. The U.S. has frequently lost such cases.

“Canada will uphold and preserve the elements in NAFTA that Canadians deem key to our national interest — including a process to ensure anti-dumping and countervailing duties are only applied fairly when truly warranted,” Freeland said in a speech at the University of Ottawa.

Noting that Canada had withdrawn its chief negotiator from 1987 talks on a bilateral trade treaty with the U.S. over the same issue, Freeland said “our government will be equally resolute.”

Freeland later sidestepped reporters’ questions about whether maintaining Chapter 19 was a make-or-break issue for Canada, saying she would let her U.S. counterparts know how important the matter was to Ottawa.

Trade among the three nations has quadrupled since NAFTA came into effect in 1994, surpassing US$1 trillion in 2015. But U.S. President Donald Trump regularly calls the treaty a disaster and has threatened to walk away from it unless major changes are made, citing U.S. job losses and a trade deficit with Mexico.

Toronto trade lawyer Mark Warner said there few surprises in Freeland’s announcement, given Ottawa had already signaled its stance on major issues.

“It’s the beginning of a negotiation. Everybody expects posturing,” he said by phone, noting Washington had reacted calmly to previous Canadian statements about the importance of dispute settlement.

Freeland, who predicted there would be moments of drama during the talks, said Canada wanted a progressive trade deal featuring stricter environmental and labour standards as well as a focus on climate change, a concept Trump has little time for.

“One needs to be ambitious and put everything on the table… what do we have to lose? Nothing,” said Patrick Leblond, a University of Ottawa professor who is a foreign policy specialist.

Outreach campaign

Canada, like Mexico, sends the majority of its exports to the U.S. and would be hurt by U.S. protectionist moves.

The U.S. runs a slight surplus in trade of goods and services with Canada, which has mounted a major outreach campaign to persuade U.S. business leaders and politicians that NAFTA is a success.

“American partners have been listening,” Freeland said. “They understand… our relationship, the greatest economic partnership in the world, is balanced and mutually beneficial.”

Freeland stressed that Canada would protect tariffs and quotas that keep domestic dairy prices high and imports low. U.S. dairy farmers strongly dislike the system.

A modernized NAFTA should take into account technological advances and make it easier for professionals to move from one member nation to another, she added.

Mexico’s goals include prioritizing free access for goods and services and greater labor market integration, according to a document seen by Reuters.

Reporting for Reuters by Andrea Hopkins and David Ljunggren in Ottawa.

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