Lengthy Nafta fight would only hurt investment, Canada warns

[OTTOWA] Canada wants to move quickly with US President Donald Trump to update the North American Free Trade Agreement (Nafta), as delays in talks over that deal and any new border taxes will discourage investment across the continent, Canada's ambassador to Washington said.

"People are sitting on their wallets and they're not investing as much as they would if there was more certainty," said envoy David MacNaughton, a veteran lobbyist who celebrated a year on the job last week.

He cited the future of Nafta, Buy-American provisions and US House Speaker Paul Ryan's proposal for a tax on imports as issues that have caused concern among investors.

"The reality is that uncertainty will hurt Canada and the United States, so we need to work together to remove that," he said in a wide-ranging interview on March 3.

"And you know what? They agree."

The stakes are high. Canada-US trade in goods and services totalled US$669 billion in 2015, narrowly ahead of China as the top US trading partner, US Bureau of Economic Analysis data show. And while Mr Trump criticises a hefty trade imbalance with China, US trade with Canada - easily the top buyer of US exports - is roughly balanced. It's a relationship Prime Minister Justin Trudeau's government is fighting to preserve.

Mr Trump has criticised Nafta as a terrible deal that's been responsible for huge losses in US jobs.

Canada and Mexico are in different positions on Nafta, Mr MacNaughton acknowledged, although he said suggestions that Canada will abandon Mexico and focus on bilateral US talks are "complete nonsense".

"I think there's genuine desire on the part of the new administration to find a way to continue Nafta and to remove some of the irritants with Mexico in particular. Whether or not they can get there, I don't know," Mr MacNaughton said.

Mexico, he added, has "got some challenges that we don't have with the Americans".

The Trump administration has dialled back some of the pledges that initially stunned its northern neighbour, saying it's only looking for "tweaking" of trade with Canada. It has exempted TransCanada Corp's Keystone pipeline from Buy American requirements on steel and shown no signs it wants a cut of the pipeline's revenue, as Mr Trump once indicated.

Mr Trump isn't alone in seeking Nafta changes. Canada is seeking, among other things, improvements that had been included in the Trans Pacific Partnership trade pact, which Trump withdrew from.

Canada is seeking provisions on pre-clearance of cargo, on establishing government powers in labour standards and dispute settlement - provisions that were changed in Canada's EU trade deal to save it from defeat last year.

Canada also wants to streamline dispute resolution procedures, whether through Nafta or the World Trade Organization, Mr MacNaughton said.

The countries have clashed in recent years over things like super-calendared paper, and are heading into what could be a lengthy battle on softwood lumber, an industry the US has long alleged is unfairly subsidised by Canadian rules.

"It takes too long to resolve any disputes and we should find a way to make it move along quicker," he said, adding he's heard no concerns from the US that Canada abuses those provisions.

"I haven't heard that officially from the administration, but you know, we would say things quite differently. We would say that their allegations of subsidization on certain products are crazy."

Canadian officials have had regular meetings with senior Trump officials including Stephen Bannon, Reince Priebus, Jared Kushner and Gary Cohn.

"Our dealings with the White House, I have no complaints. They've been constructive, they've been open, they've been responsive," Mr MacNaughton said.

Asked about timing of Nafta or other trade measures, he listed the lengthy to-do list of the Trump team, including tax reform, health-care reform and a series of bilateral trade negotiations - all of which could take years.

Mr MacNaughton nonetheless said he expects a notice of Nafta renegotiation "sooner, rather than later," adding he doesn't expect Mr Trump to issue a six-month notice of withdrawal from Nafta as he could.

"I don't think that's going to happen," he said, brushing aside whether Canada would ever give its own withdrawal notice as a tactic.

"If I was going to do that, I sure as hell wouldn't tell you it," he said, laughing.

Canada's core message to the US is that the countries' relationship is working and that they're committed to working to improve things.

Mr Trump's America-first philosophy, and protectionist mood on both sides of the aisle in the US Congress, won't end one of the world's foremost trading relationships, Mr MacNaughton said.

"We will find a way to get to a good place on trade," he said, adding it won't necessarily be easy.

"I don't want to say, if it ain't broke, don't fix it, but," Mr MacNaughton said, trailing off.

"We've got a relationship that's working. Let's make it better, OK?"

BLOOMBERG