[CTC] A few more on potential NAFTA withdrawal notice (& Canada's WTO case against the US)

Thu Jan 11 04:55:49 PST 2018

Several articles below...

https://www.bloomberg.com/news/articles/2018-01-10/canada-officials-said-to-see-odds-rising-of-trump-leaving-nafta-jc9gua48 <https://www.bloomberg.com/news/articles/2018-01-10/canada-officials-said-to-see-odds-rising-of-trump-leaving-nafta-jc9gua48>

BLOOMBERG

Canada Raises Alarm on Trump Leaving Nafta
By Josh Wingrove
January 10, 2018, 2:36 PM EST Updated on January 10, 2018, 4:19 PM EST
Loonie, peso fall ahead of next round of talks in Montreal
U.S. bristles after Canada escalates trade fight at WTO

Canadian government officials say there’s an increasing likelihood U.S. President Donald Trump will give six-months’ notice to withdraw from Nafta.

The officials, speaking Wednesday on condition they not be identified, declined to say whether they think the likelihood of Trump following through on repeated threats to quit the pact now exceed 50 percent. The loonie fell <https://www.bloomberg.com/news/articles/2018-01-10/mexican-peso-canadian-dollar-drop-on-report-u-s-may-exit-nafta> along with Mexico’s peso and yields on Canada’s government bonds. 

A White House official, speaking on background, said there hasn’t been any change in the president’s position on the North American Free Trade Agreement. The Canadian officials said a U.S. withdrawal notice could come at any time, and Prime Minister Justin Trudeau’s government is considering all options related to industries that would be most affected.

Trade relations between the two countries have taken a dramatic turn this week, with Canada escalating its spat <https://www.bloomberg.com/politics/articles/2018-01-10/trump-s-trade-chief-lashes-out-after-canada-broadens-wto-fight> with the U.S. by filing a World Trade Organization complaint over American duties against Canada and other countries. U.S. Trade Representative Robert Lighthizer responded Wednesday, calling that move a “broad and ill-advised attack.”

Officials from the three nations are maneuvering to frame the debate ahead of the sixth round of talks in Montreal starting Jan. 23, when negotiators are expected to tackle contentious issues <https://www.bloomberg.com/politics/articles/2017-10-17/mexico-and-canada-reject-u-s-nafta-demands-as-talks-wrap-up> they bypassed at discussions last month in Washington.

Market Reaction
Implied odds that Bank of Canada Governor Stephen Poloz will raise interest rates next week dropped to 57 percent immediately after news that Trump may withdraw, from 84 percent just before, according to data compiled by Bloomberg. The odds later rebounded to about 80 percent.

Trump withdrawing from Nafta “was always a risk, but that risk is clearly more elevated now,” said Brian DePratto, senior economist at Toronto-Dominion Bank. “It’s hard to gauge how much credibility Poloz will assign to the types of reports we’re seeing today, but it does make it easier for him to maintain a holding pattern.”

Shares of companies considered most at risk <https://www.bloomberg.com/news/articles/2018-01-10/railroad-auto-stocks-sink-after-canada-sees-nafta-risks-rising> declined. Kansas City Southern <https://www.bloomberg.com/quote/KSU:US> fell as much as 4.6 percent after the report, its biggest loss in more than eight months. Canadian Pacific Railway Ltd. <https://www.bloomberg.com/quote/CP:CN> sank 3.3 percent in Toronto and CSX Corp. <https://www.bloomberg.com/quote/CSX:US> slipped 1.7 percent. General Motors Co. <https://www.bloomberg.com/quote/GM:US> slid as much as 3.3 percent while auto-parts stocks also fell, paced by Lear Corp. <https://www.bloomberg.com/quote/LEA:US> Canada’s S&P/TSX Composite Index extended declines after the news, dropping as much as 0.6 percent.

The Canadian dollar fell 0.9 percent to C$1.2574 against the greenback at 3:05 p.m. in Toronto. The peso fell 0.8 percent to 19.3963 per dollar. The rate on Canada’s two-year government bonds declined 8 basis points to 1.71 percent. The yield on 10-year debt was down six basis points to 2.14 percent, with the rate on similar-maturity U.S. Treasuries little changed.

“The market’s been too complacent regarding Nafta termination risk for too long,” said Bipan Rai, a Toronto-based foreign-exchange and macro strategist at Canadian Imperial Bank of Commerce. “Outside of the Bank of Canada meeting next week, there should be upward pressure on USD/CAD as that premium increases into the next round.”

‘Cold Shoulder’
Talks to overhaul Nafta began in August. They have so far yielded little firm indication of whether a deal can be reached to update the pact, the Canadian officials said. 

Canada, along with Mexico, has so far rejected some of the Trump administration’s hardline demands and refused to offer counter-proposals -- and warned there won’t be a deal unless the U.S. puts water in its wine. The U.S. is insisting on a five-year automatic termination clause, stricter rules on autos, government procurement and dairy, and the overhaul or elimination of dispute panels.

Mexican Economy Minister Ildefonso Guajardo has said Mexico won’t negotiate under duress and will leave the table if the U.S. initiates the withdrawal process. The Canadian officials said Wednesday they weren’t sure how Mexico would react to any withdrawal notice but that Canada would keep negotiating after one was given. A withdrawal notice doesn’t mean Nafta would be killed -- a country can give notice and then not actually leave.

“What’s surprising to me is that everybody is so surprised. We knew the last round of talks ended with a very cold shoulder being given by the Americans to Canada and Mexico’s positions, and we heard from Trump saying we’ll probably have to pull out,” CIBC Chief Economist Avery Shenfeld said..

Shenfeld sees the loonie falling to 75 cents and Poloz slowing the pace of hikes if Trump ultimately quits. “What isn’t clear is whether six months down the road this means the end of Nafta, or does Congress stall, does Canada play for time? It certainly throws enough doubt on Nafta that it could affect capital spending plans this year.”

— With assistance by Maciej Onoszko, Eric Martin, Erik Hertzberg, Greg Quinn, Andrew Mayeda, and Justin Sink

http://www.cbc.ca/news/politics/canada-nafta-trump-talks-pull-out-1.4481499 <http://www.cbc.ca/news/politics/canada-nafta-trump-talks-pull-out-1.4481499>

CBC

Canada preparing for possibility Trump will pull out of NAFTA: sources
Canada will remain at the negotiation table even if U.S. gives notice, sources say
CBC News <http://www.cbc.ca/news/cbc-news-online-news-staff-list-1.1294364> Posted: Jan 10, 2018 5:11 PM ET Last Updated: Jan 10, 2018 5:50 PM ET

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."

With files from the CBC's Hannah Thibedeau, Katie Simpson and John Paul Tasker

https://news.vice.com/en_ca/article/zmqwqe/trump-might-pull-out-of-nafta-by-the-end-of-this-month <https://news.vice.com/en_ca/article/zmqwqe/trump-might-pull-out-of-nafta-by-the-end-of-this-month>

VICE

Trump might pull out of NAFTA by the end of this month
By Vanmala Subramaniam <https://news.vice.com/en_ca/contributor/vanmala-subramaniam> Jan 10, 2018

There is a chance that U.S. President Donald Trump will pull out of the North American Free Trade Agreement (NAFTA), Canadian government sources told both Bloomberg  <https://www.bloomberg.com/news/articles/2018-01-10/canada-officials-said-to-see-odds-rising-of-trump-leaving-nafta-jc9gua48>and Reuters <https://www.reuters.com/article/us-trade-nafta-canada-exclusive/exclusive-canada-convinced-trump-will-soon-pull-plug-on-nafta-sources-idUSKBN1EZ2K4> on Wednesday.

Canada, the United States, and Mexico are due to meet in late January in Montreal for the sixth and final round of NAFTA negotiations. And sources say that’s likely when Trump will pull the plug.
According to Bloomberg, repeated threats to exit from NAFTA now exceed 50 percent.

Trump’s threats to pull out of NAFTA have been a consistent part of his campaign, and indeed his presidency. “This is exactly the sort of negotiating tactic that we would anticipate from the White House,” Brett House, Deputy Chief Economist at Scotiabank, told VICE Money.

“There is a possibility government sources have additional information, but from everything I’ve seen so far, we don’t really know what’s going to happen at the next round of talks.”

The Canadian dollar fell slightly against the U.S dollar just after 3pm today after the news reports.

“It’s possible the White House is just ratcheting up pressure and inducing panic in the markets ahead of January 23,” said House.

Although Canada is indeed the most important trading partner for 35 U.S. states, there are only two U.S. states — Michigan and Vermont — where trade with Canada exceeds 10 percent of their economic output. In contrast, almost 50 percent of Ontario’s gross domestic product depends on trade with the U.S.; for Quebec it’s 23 percent, for Alberta, 31 percent according to data from the U.S. Census Bureau.

If the U.S. announces its withdrawal from NAFTA, that does not automatically imply that the deal is dead. Under Article 2205 of NAFTA, any of the three countries can pull out with six months notice — the said country can then decide to rejoin NAFTA after the six months.

“Canada has done a good job of cultivating a relationship with Trump,” House said. “We’ve responded well so far to any attempts to bait us into saying something extreme.”

https://www.reuters.com/article/us-canada-funds-rates/caisse-boss-says-u-s-nafta-pullout-would-lead-to-more-talks-idUSKBN1EZ2VV <https://www.reuters.com/article/us-canada-funds-rates/caisse-boss-says-u-s-nafta-pullout-would-lead-to-more-talks-idUSKBN1EZ2VV>

REUTERS

Caisse boss says U.S. NAFTA pullout would lead to more talks
Reporting by Matt Scuffham; Editing by Peter Cooney and Lisa Shumaker
JANUARY 10, 2018 / 5:21 PM / UPDATED 7 MINUTES AGO

TORONTO (Reuters) - Caisse de Depot et Placement du Quebec’s [CDPDA.UL] chief executive said he believes that if U.S. President Donald Trump abandons the North American Free Trade Agreement with Canada and Mexico, the United States would then negotiate a new deal with Canada.

Canada is increasingly convinced that Trump will soon announce the United States intends to pull out of NAFTA, Reuters reported on Wednesday, sending the Canadian and Mexican currencies lower and hurting stocks.

“If that happens, my view is that is just a prelude to another negotiation,” Michael Sabia told a Reuters Breakingviews event in Toronto. “We need to think about that in the context of making sure that we handle things in a way that we are well positioned for the subsequent negotiation because it’s hard to imagine that there is never another trade agreement.”

Sabia urged the Bank of Canada on Wednesday to take a cautious approach to interest rate rises, saying the country’s economy faced future headwinds.

“The Bank of Canada needs to be very careful about being too aggressive (in relation to rate hikes). I think there are longer-term structural headwinds in the Canadian economy,” he said.

Reporting by Matt Scuffham; Editing by Peter Cooney and Lisa Shumaker

https://www.wsj.com/articles/canada-files-wto-complaint-over-u-s-use-of-tariffs-1515620277 <https://www.wsj.com/articles/canada-files-wto-complaint-over-u-s-use-of-tariffs-1515620277>

WALL STREET JOURNAL

Canada Files WTO Complaint Over U.S. Use of Tariffs
Move comes just weeks before talks on revamping Nafta begin in Montreal
By Paul Vieira
Jan. 10, 2018 4:37 p.m. ET

OTTAWA—Canada is challenging the Trump administration’s use of tariffs in a complaint filed with the World Trade Organization, just weeks before crucial talks on revamping the North American Free Trade Agreement get under way in Montreal.

Canada says the complaint, made public Wednesday, is part of “broader litigation” to defend the country’s softwood-lumber producers, which were hit last year with U.S. tariffs of 20% or more. The complaint alleges the U.S. application of tariffs, and their calculation, are “inconsistent” with WTO obligations.

Trade-law experts say Canada’s WTO filing is among the broadest challenges to date against the U.S. practice of imposing countervailing and anti-dumping tariffs against imports it deems to be hurting U.S. industries. U.S. Trade Representative Robert Lighthizer criticized Canada’s complaint as “ill-advised” and “unfounded,” adding the move “could only lower U.S. confidence that Canada is committed to mutually beneficial trade.”

While softwood is not a subject being addressed in the Nafta talks, some trade watchers said the complaint nonetheless will add tension around discussions when they resume later this month in Montreal.

“This to me is putting an extra finger in the eye” of the Trump administration, said Mark Warner, a trade lawyer who practices in Toronto and New York. “This is a very aggressive move…and I don’t know whether this is the right time to file this particular case.”

Canada has adopted a more pugnacious approach <https://www.wsj.com/articles/canada-emerges-as-a-tough-negotiator-in-nafta-talks-1504559935> toward President Donald Trump’s administration on trade as Nafta talks have evolved. Canadian officials have said some of the changes the Trump administration wants in Nafta are “wholly unworkable,” most notably on the auto-production side and how disputes are resolved among the Nafta partners.

At the same time, Canadian officials have worked behind the scenes <https://www.wsj.com/articles/canada-takes-hug-an-american-approach-to-saving-nafta-1515585601> to press their agenda in meetings with members of Congress, state lawmakers and business groups in hopes that influential allies across the U.S. will support keeping Nafta in place.

A report published Wednesday from the Reuters News Agency said Canadian officials are “increasingly convinced” Mr. Trump will withdraw from the continental trade pact after the conclusion of the Montreal round, though the White House later said there has been no change in Mr. Trump’s position. The report weighed on the Mexican peso, and led to a drop in the share prices of General Motors <http://quotes.wsj.com/GM> Co. and Fiat Chrysler Automobiles <http://quotes.wsj.com/FCAU> NV.

A senior Canadian official said the government has no information suggesting Mr. Trump will imminently follow through on his oft-repeated threat to withdraw from Nafta and said Canada continues to work toward finding common ground with the U.S. and Mexico.

Besides softwood lumber, the U.S. has targeted Canada with tariffs on jetliners made by Montreal-based Bombardier <http://quotes.wsj.com/BDRBF> Inc., following a complaint from Boeing <http://quotes.wsj.com/BA> Co. ; and on Canadian-made newsprint, in a decision issued Tuesday. The Trump administration has vowed to impose tariffs and take other steps to protect U.S. industry from what it believes are unfairly traded imports.

“Canada is taking a run against the entire U.S. trade regime, and it’s sort of carrying the flag for other countries that are getting nailed for these measures,” said John Boscariol, a Toronto-based trade lawyer with McCarthy Tetrault.

Chad Bown, a senior fellow at the Peterson Institute for International Economics in Washington, said Canada’s complaint could be viewed as laying the groundwork for trade with the U.S. should Nafta be terminated.

“It is making the point that if Canada will be treated as an outsider, then this is one way it will have recourse, but it is also hedging against the real risk that Trump may end Nafta as we know it.”

Write to Paul Vieira at paul.vieira at wsj.com <mailto:paul.vieira at wsj.com>
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