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Ambassador says Canada is willing to discuss NAFTA with Trump

U.S. President-elect Donald Trump smiles as he arrives to speak at an election night rally, early Wednesday, Nov. 9, 2016, in New York.

Evan Vucci/AP Photo

Reopening the North American free-trade agreement would put Canada in the crosshairs of a U.S. president bent on "making America great again" at the expense of its trading partners.

But it's also a chance for Canada to put some long-standing grievances of its own on the table.

Republican Donald Trump won an upset victory in Tuesday's U.S. presidential race after promising to take a much more muscular stand on trade and to repatriate millions of U.S. manufacturing jobs. Among other things, Mr. Trump said he'll walk away from NAFTA unless he can get a better deal for U.S. workers.

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Now, a top Canadian official says Ottawa is ready to talk about the 1994 agreement, which created common rules in a largely tariff-free zone stretching from the Beaufort Sea to the Mexico-Guatemala border.

"Any agreement can be improved," David MacNaughton, Canada's ambassador to Washington, told reporters Wednesday. "If they want to have a discussion about reopening NAFTA, we're ready to come to the table."

He declined to elaborate on what Canada might want in any negotiation. But he suggested one of the first things Canada would seek is "free trade in lumber" - a source of recurring tension between the two countries going back decades.

A spokesman for Trade Minister Chrystia Freeland declined to comment on the trade implications of the U.S. election.

Trade experts said reopening NAFTA could put Canada at risk because the United States would seek concessions on everything from the protected dairy industry to autos and intellectual property.

The Trudeau government should prepare for that now by figuring out what it's willing to give up, and what it might want if NAFTA is reopened, argued Matthew Kronby, a former Canadian trade negotiator and partner at law firm Bennett Jones in Toronto "You have to start preparing for a NAFTA renegotiation and look at what Canada might want to get out of that renegotiation."

The main focus of Mr. Trump's ire during the campaign were low-cost producers such as Mexico.

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If NAFTA is reopened, Canada must be at the table, said Lawrence Herman, a Toronto trade lawyer. "You can't start rejigging NAFTA without engaging Canada," he said. "I don't see how Canada could refuse to sit down and talk. And then you're really into a renegotiation."

Given Mr. Trump's strong showing in faded auto-making states, such as Michigan and Ohio, his administration might look for ways to force U.S. vehicle manufacturers to repatriate jobs and investments from both Mexico and Canada, Mr. Herman said.

"It's about bringing jobs back to America," he said.

Ottawa should brace for the U.S. to dust off its traditional list of complaints about Canadian policies, including the sheltered dairy and poultry industries, the treatment of intellectual property and its poor record of cracking down on pirated consumer products, including movies and clothes.

"They'll look at their bitch list - what they want from Canada, and they'll go after things that they think are good for the United States," said Dan Ciuriak, a former deputy chief economist at Global Affairs Canada.

Canada, on the other hand, might look to a NAFTA renegotiation to find a permanent solution to the softwood-lumber dispute, which is poised to flare up again after the expiry of a long-negotiated truce.

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A key problem for Canada is that Mr. Trump's anti-trade rhetoric is "intellectually incoherent" and risks hurting U.S. companies, workers and consumers as much as it helps, Mr. Ciuriak said. U.S. manufacturers often source their parts and components all over the world.

"Attacks on imports are actually attacks on exports," he explained. "So all they'll get is disruptive change to all these manufacturing value chains."

Facing the prospect of a more overtly protectionist United States, Canada should accelerate efforts to diversify its trade away from the U.S., the destination for three quarters of its exports. Mr. Kronby said Ottawa should work to get its free-trade deal with Europe implemented quickly, pursue trade deals in Asia and restart bilateral negotiations with Japan, put on hold during the Trans-Pacific Partnership negotiations. "Canada should be ramping up further its efforts to reduce its export dependency on the U.S."

The worst-case scenario for Ottawa would be the demise of preferential market access and common rules that have bound Canada and the United States since 1994 (and since 1989 under the Canada-U.S. free-trade agreement). That would raise tariffs within the region to the higher ones applied to imports from the rest of the world. It could also trigger a gradual unwinding of vast international supply networks, established over the decades.

Speaking to reporters, Mr. MacNaughton pointed out that Canadian and U.S. manufacturers depend heavily on those supply chains, and that it's in neither countries' best interests to break them up.

He also said that Canada could insist on a reinstatement of the original Canada-U.S. FTA if the U.S. abandons NAFTA.

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