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Canada, U.S. would resort to FTA if NAFTA collapses: Verheul

Canada and the United States would fall back upon a decades-old bilateral free trade agreement should current renegotiations of the North American Free Trade Agreement collapse, Canada’s chief negotiator told MPs Monday — adding it likely would require “a presidential proclamation” to bring the suspended free trade agreement into effect.

The United States and Canada would also “probably both have to make some regulatory changes in order to comply,” Steve Verheul told MPs.

Verheul was addressing the House of Commons trade committee Monday afternoon, providing an update on ongoing efforts by Canadian, American and Mexican officials to revise the 23-year-old NAFTA trade deal. Five rounds of negotiations have concluded. A sixth round is planned for January 23 – 28 in Montreal. An inter-sessional period of talks between officials from all three countries is planned for next week in Washington.

Canadian officials are “struggling” to figure out what the United States needs to secure “a win” at the NAFTA negating table, Verheul said.

“We can certainly bring a lot of creativity to the table in developing outcomes that we think could certainly be characterized as a ‘U.S. win’ or a ‘North America win,'” he told MPs, citing areas like auto, the sunset clause and dispute settlement.

“Our concern is what the U.S. has described as their overriding objective … to take benefits enjoyed by Canada and Mexico and reduce those … so that the U.S. benefits more and Canada, Mexico benefit less,” he said. Canada and Mexico aren’t interested in a trade agreement with that outcome, Verheul told MPs.

That means the Americans pulling out of NAFTA remains a possible outcome.

“We certainly have been doing our due dilligence in thinking about what would happen if the U.S. withdraws from NAFTA,” Verheul said, adding Canada has been looking at which sectors would be hardest hit by a NAFTA withdrawal and what levels of tariffs would come into effect. Sectors that would be particularly hard hit, Verheul said, would include footwear and textiles

Canadian officials are actively working on possible “contingency” plans on a sector-by-sector basis to cope with the “worst case scenario.” Verheul did not offer details about what those contingency plans would look like.

“We’re doing some internal thinking on that. We’re not really ready to talk about the details of what that would be. That’s still under consideration,” he told reporters after the meeting.

Any contingency plan would be compliant with World Trade Organization rules, he said. Canada and Mexico also have agreed to continue forward with a NAFTA-like bilateral trading environment if the U.S. withdraws.

Verheul said he expects significant pushback from within the United States should the Trump administration even give notice it is triggering the sixth-month withdrawal period – a reaction Canada plans to use to its advantage. He told MPs Canadian officials plan to work with U.S. industry to try and avoid Washington moving forward with the “second step”: full withdrawal.

Still, a finalized NAFTA remains elusive.

Verheul said the United States has tabled a number of “extreme” proposals which Canada has deemed “unworkable.” Those include drastic changes to rules of origin for the auto industry, which Verheul told MPs would render the North American market “less competitive” than its international counterparts. The United States also wants to eliminate NAFTA dispute resolution sections and has demand a dollar-for-dollar approach on the government procurement file.

An American demand for a five-year sunset clause, he added, is a request “that is going to be a significant chill on investment, planning … this goes absolutely in the wrong direction.”

The United States also has called for the elimination of all tariffs on Canadian dairy, egg and poultry exports without proposing similar changes for American exports like dairy and sugar, which also face higher tariffs. Verheul said Canada has rejected that proposal outright.

No counter proposals have tabled in any of the “extreme” U.S. proposals, Verheul said, nor has Canada asked the United States to eliminate its sugar tariff.

On the Canadian side, Verheul said Canada has put an “ambitious” labour chapter on the table. The proposal follows international labour agreements, of which the United States has only ratified two clauses. “Probably not surprising that the United States is resisting that proposal,” Verheul said.

“We see no reason to back down from it.”

Source: Ipolitics

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