G7 hostility puts NAFTA future on shaky ground

A backdrop of new hostility is hurting chances for Washington and Ottawa to successfully overhaul the NAFTA trade deal.

Chrystia Freeland, centre, with Ildefonso Guajardo, left, and Robert Lighthizer. Picture: Getty Images

A backdrop of new hostility is hurting chances for Washington and Ottawa to successfully overhaul the North American Free Trade Agreement, sources say, even as Canada has vowed to forge ahead with the negotiations.

Before the weekend’s Group of Seven leaders’ summit, the fate of NAFTA was on shaky footing following the US decision to impose tariffs on Canadian and Mexican-made steel and aluminium on national security grounds.

Canada, the largest foreign supplier of both metals to the US, and Mexico unveiled retaliatory tariffs, and former trade negotiators warned the levies would only strengthen Canadian and Mexican resolve not to give in to unconventional US demands in NAFTA.

A successful outcome for the trade pact now seems even more tenuous after US President Don­ald Trump abruptly withdrew US support for a G7 final communique and he and advisers issued a series of highly personal attacks on Twitter and in interviews against Canadian Prime Minister Justin Trudeau and Ottawa’s plan to hit back at the US.

Canadian Foreign Minister Chrystia Freeland said negotiators would continue to work on NAFTA. She spoke with US Trade representative Robert Lighthizer on Monday, and NAFTA and the steel and aluminium levies were the focus of a conversation, an ­official said. Ms Freeland said she remained optimistic that agreement on a revamped NAFTA was possible. However, she said the “ad hominem attacks” from Trump economic advisers Peter Navarro and Lawrence Kudlow “are not a particularly appropriate or useful way to conduct relations with other countries”.

A spokesman for Mr Lighthizer said the US was continuing negotiations with Canada and Mexico “both separately and together’’.

“We are making progress and hope to reach agreement before too long,” he said.

Eric Miller, global fellow at the Wilson Centre’s Canada Institute, said Mr Trump’s “accusatory tweets at Trudeau are really bad news for NAFTA”. He said the Navarro and Kudlow comments “provide the narrative foundation for the US to walk away (from NAFTA) … I would place the odds of a US withdrawal at 75 per cent.”

The worries come even as Mr Trump of late has largely steered clear of repeating previous threats to withdraw from the 1990s-era trade deal. On Monday, Mr ­Kudlow said the US could pursue bilateral deals with Canada and Mexico, though it was far from clear that the other countries would accept that. Mexican Economy Minister Ildefonso Guajardo last week said NAFTA talks had a significant bilateral element because of the nature of the issues, but that did not mean Mexico would accept a bilateral trade treaty with the US.

“There have been talks between Mexico-US, Canada-US and Mexico-Canada … they are very useful, as long as the tri-national character of NAFTA is maintained,” Mr Guajardo said.

Mr Trudeau’s comments at a concluding press conference at the G7 meeting, in which he said Canada “will not be pushed around” by US threats of tariffs, reflected what he had said both in public and in private conversations with the President, the Canadian leader’s spokeswoman said. But they appeared to have rankled Mr Trump and spurred his later Twitter tirade; while Mr Trump was at the summit, he had said his relationships with G7 counterparts were strong despite differences on trade policy.

Omar Allam, a former Canadian diplomat and head of trade consultancy Allam Advisory Group, said relations had been poisoned by the Twitter attacks and could be hard to rebuild.

“What you are seeing is a real lack of trust. The unpredictability is off the charts,” Mr Allam said.

The Trump administration has said a new NAFTA must have a sunset clause, under which it would expire if not explicitly renewed every five years. Mr ­Trudeau has said Canada is “unequivocal” in its opposition to that, and both made clear at the G7 that that issue was arguably the biggest obstacle in the NAFTA talks.

Mr Trudeau said he was open to alternatives to a sunset clause that “would not be entirely destabilising for a trade deal”.

After the trade attacks on Mr Trudeau, Canada’s main political parties rallied behind the Prime Minister. Canada’s legislature adopted a motion yesterday by unanimous consent that rebuked the remarks from Mr Navarro and Mr Kudlow, and backed the Liberal government’s decision to impose retaliatory tariffs on US goods starting July 1 in response to metals tariffs.