Canada preparing for possibility Trump will pull out of NAFTA: sources

The Canadian government is actively preparing for the possibility U.S. President Donald Trump could soon signal his intent to withdraw from the North American Free Trade Agreement, Liberal government sources told CBC News.

Despite those preparations for a possible pullout, Canada will stay at the negotiation table even if Trump makes that call, those sources said, speaking on the condition of anonymity.

Canada is still optimistic there could still be some sort of positive resolution to these fractious trade talks, the sources said, and will continue to pursue its aggressive outreach plans in the U.S., which include meetings with U.S. state governors and lawmakers in Washington.

The next round of NAFTA talks — the sixth so far — will be held in Montreal from Jan. 23 to 28.

Reuters reported earlier Wednesday that Canada is "increasingly convinced" Trump will abandon renegotiation talks and announce he is initiating the withdrawal process. A party's withdrawal takes effect six months after it provides written notice to the other member countries.

In response to the Reuters story, the White House said "there has been no change in the President's position on NAFTA," which offered little clarity as Trump has routinely threatened to walk away if he cannot extract concessions from the other two trade partners.

Canadian officials, speaking to CBC News, said they are prepared for Trump to signal an intent to withdraw in six months by January's end, but no one would be astonished if he opted to keep his officials at the table.

In the meantime, Canadian ministers would use the notice period to keep talking with the White House while taking the fight to allies in the U.S. Congress which votes on American trade pacts.

The mere suggestion of Trump's intent to withdraw put downward pressure on the loonie Wednesday. The Canadian dollar has performed well against its U.S. counterpart so far in 2018. The loonie bounced back late in the trading day after government officials on both sides of the border suggested there was no immediate change in Trump's NAFTA position.

'Zombie NAFTA'

Laura Dawson, the director of the Canada Institute at the Wilson Centre in Washington, said it should come as no surprise that Trump is prepared to use the threat of withdrawal as a negotiating tactic.

"In my opinion, I think at a certain point Donald Trump will launch an intent to withdraw but the difference between the intent to withdraw and fully realizing that objective are very, very different," Dawson said in an interview with CBC's Power and Politics.

Dawson said Canada is likely to stay at the table as long as possible because there has been meaningful progress made on modernizing the deal, including talk around thinning the border, customs, regulatory issues, and addressing the realities of an increasingly digital economy.

Brett House, the deputy chief economist at Scotiabank, said while there might be "catastrophic sounding headlines" at this critical juncture, it is unlikely anything will change in the near future. It is more likely a "zombie NAFTA" will continue even if Trump pulls out, as such an action could be held up in the U.S. court system and members of congress would have to authorize the addition of new tariffs on goods from Canada.

Talk of walking away from NAFTA came on a day when Canada announced it would appeal some of the tariffs — which have recently been levied on a host of Canadian goods by the Trump administration — to the World Trade Organization (WTO).

U.S. Trade Representative Robert Lighthizer was quick to label Canada's complaint as bad for the bilateral relationship.

"This is a day of high drama but we do need to take a breath and put things into perspective. The timing on this, while potentially unfortunate as we are in a trade negotiation with U.S., but the WTO moves poisonously slowly," Dawson said of Canada's move.

"Canada has to defend its domestic interests ... and they have to be shown as not just rolling over to Donald Trump. But, in the long run, I don't think this has changed anything on the NAFTA front."

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