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Prime Minister Brian Mulroney during a Globe and Mail interview at the Royal York hotel in Toronto on Feb. 21, 2017.Fred Lum/The Globe and Mail

Former prime minister Brian Mulroney will testify before the influential U.S. Senate foreign relations committee next Tuesday about the benefits of the troubled North American free-trade agreement, sources say.

Mr. Mulroney negotiated NAFTA and is expected to give a powerful defence of the 24-year-old treaty that U.S. President Donald Trump continues to threaten to abrogate.

As the sixth round of NAFTA talks get under way Tuesday in Montreal, Canada is hoping to hammer out a compromise with the United States and Mexico on a key provision that allows corporations to sue governments in front of special tribunals, The Globe and Mail has learned.

Ottawa's willingness to play ball with Washington on that aspect is part of a strategic shift for Canada.

Prime Minister Justin Trudeau is at the Swiss ski resort of Davos this week for the annual gathering of the World Economic Forum where he will be making the case for NAFTA with U.S. chief executives.

Where the Trudeau government previously took a hard line against every protectionist demand the Trump administration made – leading to deadlock over Washington's key proposals at the bargaining table – Canada is now prepared to make concessions as pressure mounts to show progress in the negotiations.

Along with tightening the rules around auto manufacturing to ensure more North American content is used in vehicles built in the three NAFTA countries, Canada is also targeting Chapter 11 to break the negotiating logjam, officials with knowledge of Ottawa's game plan said.

Under Chapter 11, investors who accuse governments of making unfair policy decisions that hurt their business interests can have the dispute adjudicated by a trade tribunal.

There's a renewed sense of engagement on the issue, one official said. The sources spoke on condition of anonymity to discuss confidential negotiating strategy.

With mixed signals from the White House on whether it will enforce its March deadline for talks to conclude – and Mr. Trump's State of the Union speech at the end of January presenting a potential forum to announce a withdrawal from NAFTA – the heat is on negotiators to show a path to a deal.

Canadian and Mexican offers to compromise will also test whether the United States wants to seriously negotiate, or whether its demands are poison pills meant to sink the talks.

The Trump administration wants the right for countries to opt out of the Chapter 11 process, arguing it infringes on national sovereignty. Ottawa, meanwhile, has proposed that the tribunals be made more efficient along the lines of the dispute-settlement mechanisms in Canada's free-trade deal with the European Union. That process includes a dedicated roster of judges and an appeals process.

Now, Canada is hoping to revisit the matter to see whether it can find some middle ground with the United States, said sources briefed on Canada's game plan for the talks.

Mexico favours Chapter 11 because it offers reassurance to U.S. corporations that they can safely make investments south of the border. Mexican Economy Minister Ildefonso Guajardo has previously said he is open to either rewriting Chapter 11 to make it look more like the EU process or making it optional.

But Mr. Guajardo has warned that, in the event of an optional system, Mexico would want the right to craft the rules for its Chapter 11 process. Mexico fears that, if the Trump administration were allowed to write the rules, it would weaken them to discourage American corporations from investing in Mexico.

"We believe that if we [Mexico] are going to do an 'opt in' … we should do it as we please, that is, be able to develop a forceful agreement as Mexicans want," the Mexican newspaper Reforma quoted Mr. Guajardo as saying last fall.

One source said talks over NAFTA's other dispute-settlement mechanisms – Chapters 19 and 20, which deal with trade spats between governments – remain at an impasse, with the United States wanting to abolish Chapter 19 and gut Chapter 20, and Canada fighting to defend both.

Chapter 11 is a natural area to compromise on because weakening its provisions would not necessarily be a bad deal for Canada, some observers said. Ottawa favours an investor-state dispute mechanism because it helps protect Canadian companies that make foreign investments, but Canada has been the most frequent target of Chapter 11 cases.

A tally by the Canadian Centre for Policy Alternatives found that Canada has paid out nearly $315-million in damages and legal fees after facing 41 Chapter 11 cases since 1994; by comparison, Mexico has been sued 23 times under the system and the United States has been sued 21 times.

"This is an issue where Canada can say 'Okay, we'll give it up,' when it wasn't really a big deal," said Dunniela Kaufman, a Washington-based trade lawyer who specializes in U.S.-Canada business. Unlike Chapter 20, which effectively contains the mechanisms for enforcing NAFTA, she contended Chapter 11 isn't essential to having a free-trade deal.

Christopher Wilson, deputy director of the Mexico Institute at the Woodrow Wilson Center think tank in Washington, said Canada and Mexico have an opportunity to cut a deal by playing ball with the United States.

"I think the Trump administration and the President himself need help from outside parties to envision what a win looks like, that is both economically beneficial for region and politically beneficial for the Trump administration," he said.

Mr. Mulroney's mission is to make the case that NAFTA can be improved and its cancellation would harm the fast-growing U.S. economy. It will be the first time a former Canadian prime minister has testified before a congressional committee.

The former Progressive Conservative prime minister, who has served as a key adviser to Mr. Trudeau, will talk up the millions of jobs that have been created on both sides of the Canadian and U.S. border since NAFTA went into effect in 1993.

Republican Senator Bob Corker, who chairs the committee, invited Mr. Mulroney, who accepted after getting the go-ahead from Mr. Trudeau and Foreign Affairs Minister Chrystia Freeland.

One high-level source says Mr. Mulroney will have a stage to "get the story out" about the benefits – including a tripling of trade – and counter the negative story from Mr. Trump and his administration's trade team.

Mr. Trump insists the United States has a trade deficit with Canada when in fact the United States has about a $17-billion surplus.

The Senate foreign relations committee would have an integral role in keeping NAFTA alive should the President give six months notice to kill the treaty. However, legislation to undo NAFTA requires congressional approval.

The Mulroney testimony comes as Canadian ministers have intensified a campaign to win support for NAFTA with travels to key states. Mr. Trudeau will go on pro-NAFTA road trip Feb. 7-11 to Chicago, Los Angeles and San Francisco.

Mr. Mulroney is highly regarded by Republican politicians for his friendship with former presidents Ronald Reagan and George H.W. Bush. He spoke at Mr. Reagan's funeral.

Mr. Mulroney was unable to be reached for comment.

Finance Minister Bill Morneau and his Mexican counterpart, Jose Antonio Gonzalez Anaya, are presenting a united “positive” front toward ongoing NAFTA negotiations. The two held a bilateral meeting Thursday in Toronto.

The Canadian Press

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