U.S.-Canada Rift Roils Nafta Talks

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

Before this past weekend’s Group of Seven leaders’ summit, the fate of Nafta was on shaky footing following the U.S. decision to impose tariffs on Canadian- and Mexican-made steel and aluminum products on national-security grounds. Both Canada, the largest foreign supplier of both metals to the U.S., 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 U.S. demands in Nafta.

A successful outcome for the trade pact now seems even more tenuous after President

Donald Trump

abruptly withdrew U.S. support for a G-7 final communiqué and he and advisers issued a series of highly personal attacks on Twitter and in interviews against Canada’s prime minister,

Justin Trudeau

and Ottawa’s plan to hit back at the U.S.

Canadian Foreign Minister

Chrystia Freeland

said negotiators would continue to work away on Nafta. She spoke with U.S. Trade Representative

Robert Lighthizer

on Sunday, and Nafta and the steel and aluminum levies were the focus of a constructive conversation, an official said.Ms. Freeland told reporters Sunday in Quebec City that she remains optimistic that agreement on a revamped Nafta is 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 the U.S. Trade Representative Robert Lighthizer said the U.S. is continuing negotiations with Canada and Mexico “both separately and together.” He added, “We are making progress and hope to reach agreement before too long.”

Eric Miller,

global fellow at the Wilson Center’s Canada Institute, said Mr. Trump’s “accusatory tweets at Trudeau are really bad news for Nafta.” He added that the Navarro and Kudlow comments “provide the narrative foundation for the U.S. to walk away [from Nafta].…I would now place the odds of a U.S. withdrawal at 75%.”

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 Sunday, Lawrence Kudlow, White House economic adviser, said the U.S. could pursue bilateral deals with Canada and Mexico, though it is far from clear that the other countries would accept that. Mexican Economy Minister

Ildefonso Guajardo

said last week that Nafta talks had a significant bilateral element because of the nature of the issues, but that doesn’t mean that Mexico would accept a bilateral trade treaty with the U.S.

“There have been talks between Mexico-United States, Canada-United States and Mexico-Canada… they are very useful, as long as the tri-national character of Nafta is maintained,” Mr. Guajardo told reporters.

Mr. Trudeau’s comments at a concluding press conference at the G-7 meeting, in which he said Canada “will not be pushed around” by U.S. threats of tariffs, reflected what he has said both in public and in private conversations with the president, the Canadian leader’s spokeswoman said. But those comments appeared to have rankled Mr. Trump and spurred his


tirade from a flight on his way to his summit in Singapore with North Korea’s leader; while Mr. Trump was at the summit, he had said his relationships with G-7 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,” said Mr. Allam.

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 leaders made clear at the G-7 summit that that issue is 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 destabilizing for a trade deal.”

The trade attacks on Mr. Trudeau prompted Canada’s main political parties to rally behind the prime minister in a rare show of unity. Canada’s legislature adopted a motion Monday by unanimous consent that rebuked the remarks from Messrs. Navarro and Kudlow, and backed the Liberal government’s decision to impose retaliatory tariffs on U.S. goods starting July 1 in response to metals tariffs.

Mark Warner, an international trade lawyer who practices in Toronto and New York, said Mr. Trudeau’s tone was likely aimed at a domestic Canadian audience and that he was likely to keep up the tough stance against Mr. Trump. But that could encourage Mr. Trump to “up the ante” and dim prospects for a Nafta deal down the road, Mr. Warner noted.

Write to Paul Vieira at paul.vieira@wsj.com and Sara Schaefer Munoz at Sara.Munoz@wsj.com

Appeared in the June 12, 2018, print edition as ‘U.S.-Canada Dispute Roils Talks on Nafta.’

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