Canada, U.S. see common ground on autos as three-way NAFTA talks resume

By Andy Blatchford, The Canadian Press

WASHINGTON — Canada and the U.S. agreed Tuesday that one of NAFTA’s most significant hurdles — defining the content rules of North American autos — may have been resolved by Monday’s side deal between the Trump administration and Mexico.

The White House is calling on Canada to endorse what President Donald Trump has described as the North America Free Trade Agreement’s replacement, by the end of the week. Trump has already rebranded it the “United States-Mexico trade agreement.”

Top members of Canada’s negotiating team made an abrupt return to NAFTA talks in Washington where they face stiff pressure from Trump to join the deal his administration struck Monday with Mexico.

Both Larry Kudlow, the director of Trump’s National Economic Council, and U.S. Commerce Secretary Wilbur Ross turned up the heat on Canada’s negotiators during televised interviews prior to Canada’s return.

Serious differences remain on other issues, including agriculture, how to settle disputes, and a U.S. proposal for a sunset clause.

But Ross also said the progress the U.S. and Mexico made on autos would be palatable to Canada.

The U.S. and Mexico agreed that 75 per cent of automobile content would come from within North America, an increase from the current 62.5 per cent. They also agreed workers earning at least $16 an hour should make 40 per cent to 45 per cent of autos.

“We’ve already resolved the automotive issues with Mexico, and those are not issues that are particularly adverse to Canada,” Ross told the Fox Business Network program Mornings With Maria.

Prime Minister Justin Trudeau signalled agreement.

“There’s been some very positive progress particularly on autos and we’re glad to be engaging as we have been,” he told reporters Tuesday in Longueuil, Que.

If Canada declines to join the U.S.-Mexico deal, Trump has threatened automotive tariffs that would cause considerable damage to both economies.

He also warned he would terminate the 24-year-old NAFTA, a treaty between Canada, the U.S. and Mexico that has been economically significant for the continent.

Kudlow told the Fox Business Network show Varney & Co. that Trump would “love to make a deal with Canada” but it has to be in the interests of American workers and farmers.

Kudlow said he didn’t want to pre-empt what U.S. Trade Representative Robert Lighthizer would put before Canada’s Foreign Affairs Minister Chrystia Freeland on Tuesday, but he said Canada “really ought to look at what the U.S. and Mexico just completed as an example of what can be done if there’s good faith negotiating and a willingness to compromise in the interests of both parties.”

For the last five weeks, Ottawa has watched from afar as Canada’s two continental partners moved forward with one-on-one trade talks of their own.

“We have been encouraged by the progress made by our NAFTA partners over the past weeks. This was an important step to moving forward on renegotiating and improving NAFTA,” Trudeau said.

Freeland arrived in the U.S. capital and met with Lighthizer late Tuesday afternoon, cutting short a week-long diplomatic trip to Europe. Freeland has said she stayed in close contact with Lighthizer and Mexican Economy Minister Ildefonso Guajardo throughout their summertime talks.

The U.S. and Mexico agreed on issues including intellectual property, digital trade, labour, financial services and Mexico’s de minimis threshold for duty-free on-line sales that cross borders.

In addition, the new deal would expire after 16 years with reviews every six years, a senior U.S. administration official said Monday during a briefing. Canada had rejected an earlier U.S. proposal that NAFTA 2.0 be renegotiated — or sunsetted, in trade lingo — every five years.

Trudeau sidestepped a question about the new version of the sunset clause in the U.S.-Mexico deal.

Trump, who has called NAFTA a “rip off” for the U.S., called Monday’s announcement a big win.

He then delivered his ultimatum to Canada.

“One way or the other, we have a deal with Canada,” Trump said from the Oval Office, where he was joined on a speaker phone by Mexican President Enrique Pena Nieto.

“It will either be a tariff on cars, or it will be a negotiated deal; and frankly a tariff on cars is a much easier way to go, but perhaps the other would be much better for Canada.”

Trudeau offered a more measured assessment on Tuesday, saying the Canadian contingent in Washington was “digging into the progress made and looking at what the next steps are. We will engage in a positive and constructive way as we always have been, and look forward to ultimately signing a deal as long as it is good for Canada, and good for middle class Canadians.”

For Trump, striking a new trade deal with Mexico — and possibly Canada — would be welcomed as a political win for Republicans ahead of the crucial U.S. midterm elections this fall.

Mexico would like to seal a new trade agreement before the incoming government of president-elect Andres Manuel Lopez Obrador takes office Dec. 1.

— With files from Mike Blanchfield in Ottawa.