Canada offers to engage on Trump’s toughest demands in effort to spur NAFTA talks

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Canada formally opened a crucial home-turf round of the deadlocked NAFTA renegotiation with a challenge to the United States, offering to make deals on the Trump administration's toughest demands – but only if the U.S. is willing to compromise.

"We've come to Montreal with a lot of new ideas, a lot of creative strategies to bridge some of the gaps in the negotiations," Ottawa's chief negotiator, Steve Verheul, told reporters Tuesday at the brutalist Hotel Bonaventure in Canada's snow-blanketed second-largest city. "We have high hopes for making progress this week, but of course it depends on the other partners as well."

Asked whether the U.S. was open to playing ball on its most contentious proposals, Mr. Verheul replied: "We're hoping to see that this week. We haven't seen it quite yet, but we've just started. We're hoping that when we're bringing flexibility to the table, we'll see that reciprocated on the other side."

The three countries are at loggerheads, with the U.S. demanding the North American free-trade agreement be tilted in its favour in several key areas – including auto manufacturing, government contracting and dispute resolution – and Canada and Mexico fighting back against such changes.

Now Ottawa is looking for middle ground. As The Globe has previously reported, Mr. Verheul's team plans to present suggestions this week on autos and Chapter 11, a system that allows corporations to sue governments in front of special NAFTA tribunals, in hopes of getting the logjammed talks moving.

Mr. Verheul said he was not planning formal counter-proposals on the U.S.'s harshest demands, but rather to "talk about ideas" and "generate some traction" to see what the three countries might agree on.

U.S. President Donald Trump, at whose behest NAFTA is being renegotiated, has offered mixed signals on whether he is willing to give ground in the talks or will simply pull out of the pact if his demands aren't met.

"NAFTA's moving along pretty well," he said Tuesday at the White House during a ceremony to impose tariffs on washing machines and solar products. "I happen to be of the opinion that if it doesn't work out, we'll terminate it."

Canadian officials are continuing to cultivate relationships with members of Mr. Trump's inner circle in hopes of creating goodwill for a deal and understanding what the President wants. Foreign Minister Chrystia Freeland has built a rapport with White House Chief of Staff John Kelly, said one source. Mr. Trump's economic and security czars, Gary Cohn and H.R. McMaster, are also regular points of contact, as are Mr. Trump's daughter Ivanka Trump and her husband, Jared Kushner, the source said.

Mexican chief negotiator Kenneth Smith Ramos said Tuesday he was hopeful talks would make progress.

"We believe that the process is advancing well enough," Mr. Smith Ramos, speaking in French, told reporters in a hallway outside the negotiations. "We're trying to move forward on the most difficult subjects, but also on the subjects meant to modernize NAFTA."

Canada's pitch on autos will revolve around boosting the amount of required North American content in vehicles made in the free-trade zone, in a bid to get the U.S. to drop its more protectionist demand that vehicles made in Canada and Mexico contain 50-per-cent U.S. content.

Ottawa will also look to bridge the gap on Chapter 11, which the U.S. wants to turn into an opt-out part of the trade pact – allowing Washington to choose not to be covered by it – and which Canada wants to professionalize with a more efficient system for hearing disputes.

In addition to the tougher matters on the table, Mr. Smith Ramos said the three sides were close to reaching deals on several less contentious files, including telecommunications, food safety, technical barriers to trade and an anti-corruption section.

Trade consultant Peter Clark said Mr. Verheul is trying to signal to the U.S. that Canada is ready to engage on the U.S.'s tough demands if Washington backs off its "take, take, take" attitude. He said Mr. Verheul's decision to raise potential compromises as "new ideas" rather than formal counter-offers is key, as it allows Canada to suss out the U.S.'s willingness to negotiate without officially conceding anything.

Ottawa's imperative is to figure out how to offer Washington something it can claim as a victory that won't hurt Canada, Mr. Clark said in an interview. "From our perspective as Canadians, what we have to do is try to find a way to make Trump look good without killing ourselves."