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Robert Lighthizer (pictured), who is a more experienced trade negotiator and more comfortable with Washington politics, has persuaded the White House to let him run the NAFTA file without having to answer to Wilbur Ross.

Kevin Lamarque/REUTERS

U.S. Commerce Secretary Wilbur Ross appears to have lost a power struggle to U.S. Trade Representative Robert Lighthizer for overall management of free-trade negotiations with Canada and Mexico.

The battle over control of U.S. trade policy involving two of President Donald Trump's top cabinet secretaries comes as Canada prepares for tough negotiations to rewrite the North American free-trade agreement.

In a sign that difficult talks lie ahead, Prime Minister Justin Trudeau laid down his first marker on Tuesday, saying Canada considers it "absolutely essential" that NAFTA retain a dispute-resolution mechanism, something the Trump administration wants to scrap.

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Read more: Ottawa draws line on U.S. plan to remove NAFTA dispute mechanism

Read more: What is Chapter 19? Canada's 'red line' and other NAFTA issues

Opinion: What Canada should fight for at NAFTA talks

Mr. Ross, a billionaire investor and close friend of Mr. Trump, had originally been given the authority to reshape NAFTA and other trade deals to protect U.S. industries and jobs.

But Mr. Lighthizer, who is a more experienced trade negotiator and more comfortable with Washington politics, has persuaded the White House to let him run the NAFTA file without having to answer to Mr. Ross.

Sources say the White House has told Canadian and Mexican officials to deal only with Mr. Lighthizer, a veteran trade lawyer and negotiator who worked in the Reagan administration.

Mr. Lighthizer has also made it clear to Foreign Affairs Minister Chrystia Freeland that he only answers to the President and Congress, sources say.

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The Canadians have also been told to direct any bilateral issues involving NAFTA to Mr. Lighthizer or Stephen Vaughn, the general counsel to the U.S. Trade Representative. Both men worked together at a U.S. law firm representing steel manufacturers before they joined the Trump administration.

Canadian officials declined to say whether the government preferred dealing with Mr. Lighthizer over Mr. Ross.

A senior government official, who was not authorized to speak on the record, said Mr. Ross, 79, remains a powerful figure in the Trump administration with day-to-day responsibility for the softwood lumber dispute and other bilateral trade issues such as steel and aerospace.

Mr. Ross, for instance, was key to getting the Keystone XL pipeline exempted from Mr. Trump's edict that all pipelines had to be built with U.S.-made steel. He has also spoken privately about using the NAFTA talks to eliminate trade barriers.

Mr. Ross, a former Wall Street investment banker, and Mr. Lighthizer, a veteran trade litigator, are both protectionist at heart, but the U.S. Trade Representative is expected to be an easier negotiating counterpart for Canada.

"My sense is that Lighthizer would have a more balanced view, because as a lawyer with experience in trade files, he knows the balance that can be achieved in trade agreements and the fact that compromises have to be made to achieve a negotiated outcome," Toronto-based international-trade lawyer Lawrence Herman said. "My sense is he would be more attuned to the subtleties and nuances of trade negotiations than Mr. Ross.

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"That being said, I think Mr. Lighthizer is still a hawk when it comes to protectionist policy," Mr. Herman added.

Ottawa-based trade consultant Peter Clark said he expects Mr. Lighthizer's background as a trade negotiator has likely conditioned him to be better at the give-and-take necessary at the NAFTA table.

"They're both pretty much America-firsters, but I think at the end of the day, Lighthizer will be more pragmatic," Mr. Clark said.

A U.S. source said that, despite Mr. Lighthizer's protectionist views, he can be a pragmatist, drawing on his long experience on trade – going back to his work for the Office of the U.S. Trade Representative during the Reagan administration – to make sure the United States lands a deal.

Mr. Ross, who often sides publicly with the nationalist wing of the Trump administration, had been front and centre on NAFTA. He and Ms. Freeland were in frequent contact, sometimes speaking by telephone multiple times a week.

One of Mr. Lighthizer's initial NAFTA moves was to formally name John Melle, a career civil servant who oversees trade in the Americas, as the chief U.S. negotiator.

According to a former colleague who did not want to be identified, Mr. Melle will be focused on reaching a deal on which everyone can agree – which could be good news for Canada and Mexico.

Canadian, U.S. and Mexican negotiators will meet in Washington on Aug. 16 for the first round of NAFTA talks.

Mr. Trudeau warned Washington on Tuesday that Canada considers a dispute-resolution panel a deal breaker to a revised NAFTA.

When Mr. Lighthizer tabled the Trump administration's goals for NAFTA to Congress earlier this month, he called for the elimination of the dispute-settlement mechanism that was established in the deal's Chapter 19. Both Mr. Lighthizer and Mr. Ross say that section hinders the United States from pursuing anti-dumping and anti-subsidy cases against Mexican and Canadian firms.

"A fair dispute-resolution system is absolutely essential for Canada," Mr. Trudeau said at a joint news conference with the new premier of British Columbia, John Horgan. "We expect that will continue to be the case in any renegotiated NAFTA – that we will continue to have a fair dispute-resolution system."

A senior Canadian official told The Globe and Mail on Monday that Mr. Trudeau was prepared to walk away from the trilateral talks if the United States insists on the elimination of the dispute panels.

Chapter 19 provides for independent, bi-national panels to decide trade disputes that would otherwise be subject to potentially less friendly domestic courts. The panels are made up of trade experts from the two countries involved in a dispute.

"In order to resolve disagreements, you have to have a dispute mechanism," Mr. Horgan told reporters.

Mexico's Economy Minister Ildefonso Guajardo has also warned that the dispute-resolution panels should not be eliminated, telling that Wall Street Journal that "we need to take care to preserve something that has been positive."

U.S. critics have charged that the tribunals are biased against U.S. interests, but data compiled by Canadian international-trade lawyer Riyaz Dattu suggest otherwise.

Of the 47 cases either Canada or Mexico brought against the United States under Chapter 19, 36 were decided by unanimous decision of the five panelists appointed to hear the dispute. That means arbitrators appointed by both countries to rule on the matter were of the same mind in nearly 77 per cent of the cases. In each case, a panel was composed of lawyers or retired judges from each of the countries involved in the dispute, with the U.S. government picking two or often three of the panelists.

Ms. Freeland is scheduled to appear before a parliamentary committee in Ottawa on Aug. 14 to lay out Canada's negotiating objectives for the NAFTA talks.

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