Canada Wants to Make Nafta More 'Progressive'

By Paul Vieira Features Dow Jones Newswires

Canada will enter talks to renegotiate the North American Free Trade Agreement with a goal to seek exemptions from Washington's Buy America directives, and push for stronger labor and environmental standards in the pact.

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Canadian Foreign Minister Chrystia Freeland on Monday provided broad outlines on what Canada's bottom line on Nafta renegotiations, which begin in earnest on Wednesday in Washington.

"We will come to the table with goodwill, and Canada's characteristic ability and willingness to seek compromise and find win-win solutions. But we are committed to a good deal, not just any deal. That will be our bottom line," she said.

Ms. Freeland said she is confident the talks will conclude with a "happy ending," but warned there will likely be moments during the talks that turn "messy," "uncomfortable" and "unsettling."

Earlier Monday, President Donald Trump tweeted that U.S. lawmakers over the years "have given us (or not fixed) some of the worst trade deals in World History. I am changing that fast!"

She said among the country's objectives would be a freer market for government procurement across the continent. This could run into opposition from the Trump administration's push to put more teeth into Buy America directives, which preserve them as part of a revamped Nafta.

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She said local-content provisions, such as Buy America, "are political junk-food -- superficially appetizing, but unhealthy in the long run."

Ms. Freeland said Canada also wants to make Nafta more "progressive," through tougher labor and environmental standards. On the environment, she said Canada wants the countries to support efforts to combat climate change, and cast a skeptical eye toward countries that "[weaken] environmental protection to attract investment."

She added Canada would continue to defend the need for an independent dispute-resolution system, which currently allows companies to contest trade sanctions before independent panels instead of through national courts. The Trump administration wants the system scrapped.

Canada also plans to defend its agricultural policies, in which production and prices in dairy and poultry, for instance, are controlled through a quota system, and foreign competition is thwarted through high tariffs.

For Canada's Liberal government, the fate of Nafta is expected to be its major preoccupation for the remainder of the year given how crucial trade with the U.S. is to the country's economy.

Preserving unfettered access to the world's largest economy, which Nafta provides, will be crucial for Prime Minister Justin Trudeau and his officials at the negotiating table. The Liberal government is looking to maintain recent economic momentum -- Canadian growth was tops among Group of Seven countries in the first quarter, and forecast to lead the G-7 in 2017 -- and remove a source of uncertainty for Canadian firms. Further, Mr. Trudeau's re-election bid in 2019 will likely depend on a successful outcome of the Nafta talks.

Roughly three-quarters of Canadian exports, or roughly 20% of the country's economic output, is U.S.-bound. Canada represents just under 2% of the global economy. Yet, two-way trade between the U.S. and Canada hit nearly $550 billion in 2016, trailing only trade ties between the world's two-largest economies, the U.S. and China. The U.S. runs a large goods trade surplus with Canada when energy products are excluded, and an overall trade surplus when both goods and services are incorporated.

Economists and business groups have warned uncertainty over U.S. trade policy was holding back a meaningful pickup in business investment. The Bank of Canada is relying on a pickup in nonenergy exports and business investment to drive growth, with consumer spending and real estate expected to slow.

Write to Paul Vieira at paul.vieira@wsj.com

OTTAWA -- Canada on Monday laid out its goals for a new North American Free Trade Agreement, pledging to press for additional environmental provisions and saying it won't budge on a dispute-settlement process that allows Canadian firms to challenge trade sanctions.

While Canada is open to changing parts of Nafta, like ensuring greater North American content in auto parts, Canadian Foreign Minister Chrystia Freeland said ahead of the start of talks Wednesday that the system members use to fight what they feel are unfair trade tariffs had to be preserved. The process, known as the Chapter 19 provision, currently allows companies to contest trade sanctions before independent panels instead of through national courts.

The Trump administration wants the system scrapped, saying it infringes on national sovereignty.

"Canada absolutely stands very firm in the importance of having such a mechanism," Ms. Freeland said, at a press conference in Ottawa, after delivering a speech on Canada's Nafta objectives and then testifying before a parliamentary committee.

In addition, Ms. Freeland said Nafta should have provisions related to the environment that would prevent a country from intentionally weakening climate-change policies to attract investment, a signal that Canada is prepared to use the talks to push for environmental concessions from the U.S. after the Trump administration recently pulled out of the Paris agreement combating climate change.

While Canada wants to preserve the Chapter 19 provision, she said the country does want changes to a different dispute-settlement provision, one that is contained in Nafta's chapter 11. It allows an investor from one country -- often a large corporation -- to challenge regulations or actions of a government in another country through an international arbitration panel, possibly bypassing national courts.

Canada wants to ensure that governments have "the unassailable right to regulate," Ms. Freeland said. Trade-law experts said Canada likely favors a move to an investor-court system, much like the Canada and the European Union agreed to in the trade pact they reached last year. They added that it is unclear if the U.S. would accept such a structure.

The AFL-CIO has urged removing the chapter 11 provision, which they say favors companies over workers and undermines national court systems. But U.S. corporations, some who worry about discrimination abroad, say they will push to keep it.

Ms. Freeland assured her counterparts that "we will come to the table with goodwill, and Canada's characteristic ability and willingness to seek compromise and find win-win solutions. But we are committed to a good deal, not just any deal. That will be our bottom line."

Earlier Monday, President Donald Trump tweeted that U.S. lawmakers over the years "have given us (or not fixed) some of the worst trade deals in World History. I am changing that fast!"

Preserving Canada's unfettered access to the world's largest economy will be crucial for Canadian Prime Minister Justin Trudeau and his officials at the negotiating table. Roughly three-quarters of Canadian exports, or roughly 20% of the country's economic output, is U.S.-bound. Two-way trade between the U.S. and Canada hit nearly $550 billion in 2016, trailing only trade ties between the world's two-largest economies, the U.S. and China. The U.S. runs a large goods trade surplus with Canada when energy products are excluded, and an overall trade surplus when both goods and services are incorporated.

Ms. Freeland said another objective of Canada is a freer market for government procurement. This could run into opposition from the Trump administration's push to put more teeth into Buy America directives, which preserve them as part of a revamped Nafta.

Later, Canada's chief trade negotiator, Steve Verhuil, told Canadian lawmakers that unless the Trump administration gives Canadian firms increased access to bid on local infrastructure projects, it was unlikely Ottawa would let the U.S. bid on Canadian ones.

Write to Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

August 14, 2017 18:58 ET (22:58 GMT)