Canada’s Foreign Affairs Minister Chrystia Freeland. Photo by TTCFANBOY / Wikimedia Commons

The mood surrounding the fate of the North American Free Trade Agreement (NAFTA) was changing daily in the past week as negotiators from Canada, Mexico and the U.S. are preparing for the sixth round of talks in Montreal on January 23-28.

In the most recent twist of events, Canada seized on the opportunity to improve sentiment by calling out a quote from the U.S. President Donald Trump’s Thursday interview for the Wall Street Journal that the upcoming election in Mexico was making a lot of things “hard to negotiate” and that the U.S. was therefore “leaving it a little bit flexible.” The Mexican general election, in which voters will pick a new president and members of the legislature, 500 deputies and 128 senators, is scheduled on July 1, 2018.

Canada’s Foreign Affairs Minister Chrystia Freeland took the Trump comment as an indication that nothing needed to be decided by the end-March negotiation deadline and called it “a sensible suggestion” from the president. “We have always felt that imposing artificial deadlines was not necessary from the Canadian standpoint,” she said. A potential suspension of the whole renegotiation process had allegedly been discussed informally for weeks, according to a person close to the talks quoted by Reuters.

Prepared for everything

Freeland was working to undo the market scare Reuters agency caused on Wednesday, January 10, by citing two sources from the Canadian government as saying that Ottawa was increasingly convinced Washington would announce pulling out of the NAFTA (read Lattin Magazine’s coverage here). The report was swiftly denied by senior Canadian officials, but at the same time Freeland reiterated on Thursday that the government was “also prepared for the worst.”

“We have always felt that imposing artificial deadlines was not necessary from the Canadian standpoint.”

By Sunday the cabinet, which spent Thursday and Friday at its traditional winter retreat in London, Ont., had that response fixed. The foreign minister, speaking Sunday morning to Global News, tried three different ways to deny the Reuters report without actually denying it and to drive home the message that while Ottawa was “absolutely prepared” for “every eventuality” regarding Washington’s next move, including potential withdrawal, it was approaching the Montreal talks with “positive intent” and hope of “meaningful progress.”

“We expect the unexpected. We have heard … repeatedly from the U.S. administration that the administration is considering invoking article 2205, which would give the U.S. the right, after six months, to withdraw from NAFTA, and so it’s only prudent and appropriate for us to be absolutely prepared for that,” Freeland said.

Her comments were echoed by International Trade Minister François-Philippe Champagne, who also said it was about having “every eventuality mapped out.”

Going into the London cabinet session, Freeland divulged Canada had done “some creative thinking” and came up with new ideas on how to engage with the “more unconventional” U.S. postulates regarding NAFTA modernization, but refused to discuss any details.

Trade Wars

An extra layer of complexity is added by Canada’s all-out complaint against the U.S. to the World Trade Organization (WTO), which had been filed on December 20, but made public by the WTO on January 10, the same day the Reuters report came out. In a 32-page document, Ottawa lists well over a hundred examples of what it sees as unfair international trade practices by its neighbour, most concerning anti-dumping and countervailing measures on third countries rather than on Canada itself. And the country that figures most prominently in the long list is China.

The complaint comes to light at a sensitive time for the U.S. trade, just before Trump has to decide on a series of key imports issues, including that of Chinese steel. As noted by the U.S. Council on Foreign Relations expert Edward Alden, this week the president is supposed to receive formal recommendations from his commerce secretary on whether Chinese steel and aluminium imports threaten the domestic defense industries and, by the same token, national security. The anti-dumping and countervailing measures in place appear to be insufficient in blocking purportedly harmful imports and Washington is weighing whether to impose a global ban.

The U.S. is also finalizing an investigation into whether solar panel imports from China, which the U.S. believes to be unfairly priced, are causing a massive market disruption, which would be a premise to block them legally under WTO rules. Trump’s decision on the matter is also expected this month. A similar concern pertains to South Korean washing machines. And all that on top of the Montreal talks.

Canada first?

The timing of the dispute and its wide-ranging character have been taken to mean that with all its focus on dialogue, Canada can also flex the occasional muscle. While the U.S. commentators noted sarcastically that Canada was waging a trade war on behalf of the whole world, domestic press has written of “good-cop, bad-cop” tactics and a “tough-guy” move. The complaint certainly angered the U.S. chief trade negotiator Robert Lightizer, who said it was a “broad and ill-advised attack on the U.S. trade remedies system.”

The timing of the dispute and its wide-ranging character have been taken to mean that with all its focus on dialogue, Canada can also flex the occasional muscle.

The Canadian government officials insist the goal was “to send a clear signal that we would defend Canadian interests,” as phrased by Champagne. The idea seems to be that using a similar rhetoric that Trump himself uses can get Canada further. “I think the American colleagues understand when you stand strong in sending a message that said, ‘We will stand up for the forestry industry, we will stand up for aerospace industry, we’ll stand up for Canadian workers’,” Champagne is cited as saying. “When people see that you’re firm, you get respect.”

Freeland framed the dispute as being chiefly motivated by “unfair and unjustified” duties on imports of Canadian softwood lumber, and insisted it was “on a quite separate track from the NAFTA negotiations.” The grudge is about a combined final duty rates range of 10 to 24 percent, as the U.S. International Trade Commission ruled in December that Canadian exports harmed the American lumber industry.

On another front, in October the U.S. proposed slapping nearly 300 percent punitive duties on CSeries jets produced by the Canadian aerospace giant Bombardier, which it argued were sold to America at “absurdly low” prices. The final vote on the matter at the U.S. International Trade Commission is slated for January 25 – right in the middle of the Montreal round of talks.

The atmosphere in the room is bound to be dense.