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Canada Seeks Nafta Progress on Cars Amid Warnings Trump May Quit

 January 11, 2018 by Josh Wingrove

A day after expressing concerns President Donald Trump will walk away from Nafta, Canada’s government signaled it will try to keep negotiations moving forward by seeking to break an impasse over autos.

Foreign Minister Chrystia Freeland pledged she’d bring “new ideas” to the next round of negotiations in Montreal this month while two government officials, speaking on condition they not be identified, said the country is ready to shift its approach on the contentious issue of automobile-trade rules. The officials didn’t provide specifics, but such a push could dovetail with a Mexico initiative to also focus on auto rules in an attempt to satisfy U.S. negotiators who have been demanding radical changes in the pact to balance out trade flows.

With little progress made after five rounds of talks, worries have mounted in Canada that Trump may give notice of withdrawal from the pact to press for concessions. The Canadian dollar, the Mexican peso and the stocks of companies that rely on the North American Free Trade Agreement slumped Wednesday after Canadian officials said they think the chances of such a move are rising. A White House official later said the president’s position on Nafta hadn’t changed.

“When it comes to the more unconventional U.S. proposals, we have been doing some creative thinking, we have been talking with Canadian stakeholders, and we have some new ideas that we look forward to talking with our U.S. and Mexican counterparts about in Montreal,” Freeland said Thursday in London, Ontario in comments aired by the Canadian Broadcasting Corp.

Freeland acknowledged the chances of the U.S. pulling out of Nafta are real and said she was taking Trump at his word that he’s considering it.

Shares of auto parts makers Magna International Inc. and Linamar Corp. rebounded Thursday. “I think if there’s goodwill on all sides, we could have a great outcome in Montreal,” Freeland said.

The three countries are also “close” to reaching agreements on some individual subjects, known as chapters, of Nafta, Freeland said, describing them as “bread and butter” issues. In addition to the thorny automotive issue, other contentious U.S. demands are on dairy, dispute panels, government procurement and a sunset clause.

The chief executive of the region’s biggest parts supplier, Magna, warned earlier this week that overly complex Nafta changes could leave U.S., Mexican and Canadian manufacturers vulnerable.

“If it becomes too complicated, too bureaucratic, too costly that you can’t get low-cost, high-labor products into this region — then all of a sudden we have damaged the whole Nafta region,” Chief Executive Officer Don Walker said. “It’s going to be a lose-lose-lose.”

Magna’s shares rose 0.4 percent as of 11:32 a.m. in New York after the news of Canada’s involvement. Linamar reversed declines, trading up 1 percent.

Watch: Josh Wingrove explains why Canada sees rising odds of Trump leaving Nafta

Flavio Volpe, president of the Toronto-based Automotive Parts Manufacturers Association, said progress was made on autos during a mini-round of talks last month in Washington. “All sides understand each other’s core imperatives much better now,” he said Thursday in an email. “The tone is respectful and everyone appears to actually want a solution that the others will be able to sign off on.”

The U.S. is proposing to raise the minimum content requirement, for a typical vehicle or auto part to be traded under Nafta, to 85 percent from the current 62.5 percent, while also requiring that a full 50 percent of content comes from the U.S. The proposals were flatly dismissed by Canada and Mexico. The U.S. also wants to substantially expand the so-called tracing list, which means more products and parts would need their origins tracked and documented.

‘Every Eventuality’
One of the Canadian officials said Freeland was referring to autos with her comments Thursday. Freeland didn’t say whether she believes the chances of a U.S. withdrawal notice are rising. Such a notice, which would be given under Article 2205, isn’t binding, meaning it could still be issued and Nafta still survive.

“The U.S. has been very clear since before the talks started that invoking Article 2205 was a possibility, and I think we need to take our neighbors at their word, take them seriously,” Freeland said. “So Canada is prepared for every eventuality.”

Finance Minister Bill Morneau, speaking at the same event, said Canada has “made preparations and considered every scenario” when it comes to Nafta. “What we are trying to achieve is an improvement in Nafta. We know that’s better for Canada and we will continue down that path.”

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