The Canadian government is offering to continue high-level NAFTA talks before the next scheduled negotiating round – even proposing to send Foreign Affairs Minister Chrystia Freeland to Washington – as part of an effort to keep North American free-trade discussions moving forward after a temporary reprieve from hefty U.S. steel and aluminum tariffs.
The Canadians made this offer prior to Thursday's announcement that Canada would be spared for now from 25-per-cent steel tariffs and 10-per-cent aluminum levies engineered by U.S. President Donald Trump to curb foreign imports.
But the proposal represents the heart of the Trudeau government's strategy in these difficult and often strained NAFTA talks: keep talking. Ottawa's NAFTA strategy remains unchanged as Ms. Freeland herself said this week. It's a variation on the decades-old "bicycle theory" of trade liberalization: Keep pedalling or fall over.
The reprieve granted Canada is contingent on not only a satisfactory NAFTA renegotiation for Mr. Trump, but also on the condition that Canada put measures in place to prevent becoming a back-door conduit for foreign steel to enter the United States. Trade experts expect the protectionist American tariffs to generate a flood of diverted product that will be looking for new buyers, including in Canada.
Toronto trade lawyer Mark Warner said he believes the United States will be looking for Canada to make a strengthened commitment to prevent foreign steel – such as from China – from transiting through Canadian channels to the United States.
One Canadian government source said that, despite the temporary reprieve, Canada would keep lobbying for a permanent exemption on tariffs, in parallel to the NAFTA talks.
Another Canadian government source said steel and aluminum would not be rolled into the NAFTA talks, but that Ottawa is willing to take action to make sure other countries do not dodge American tariffs by funnelling through Canada.
The second source said Canada will not allow itself to become a back door for foreign steel. Erecting a wall to block a surplus of foreign steel is fairly straightforward. International trade lawyer Larry Herman says the federal cabinet has the authority to apply a surtax to imports as a "safeguard" measure. It then must refer the matter to the Canadian International Trade Tribunal (CITT) and the surtax remains in place while the regulator investigates the issue.
He said Canada can set this up even before a wave of diverted steel hits Canadian shores.
"If circumstances require, Canada can take safeguard measures under the WTO Agreement if faced with diverted steel or aluminum following Trump's unilateral action. The Customs Tariff Act gives the federal cabinet pretty broad powers in this respect. The government could announce those measures now but keep them in readiness to put into effect if and when necessary," Mr. Herman said.
He said Canada could be selective in which countries it targets.
This carries the potential to anger China, which, under President Xi Jinping, has become more outspoken about defending its economic interests and will likely be seeking new markets for steel.
"China may not like it, but if there's evidence Chinese goods are being diverted here and threatening harm, the government can deal with that much the same way we deal with dumped or subsidized Chinese goods," Mr. Herman said.
Prime Minister Justin Trudeau plans to visit Canadian steel and aluminum facilities next week in a show of solidarity with domestic producers, in the Saguenay–Lac-St-Jean region of Quebec, Hamilton and Sault Ste. Marie, Ont., and Regina.
The Canadian Steel Producers Association is urging Ottawa to take action to ensure Canada doesn't become a conduit into the United States for cheap offshore steel.
"We should be fully expecting that a surge of imports is coming," association president Joseph Galimberti said on Friday.
Providing the Canada Border Services Agency (CBSA) with more resources would help as it investigates the matter, Mr. Galimberti said.
"If you should decide to initiate a trade case, CBSA needs to have the appropriate investigative capacity to do their job quickly [to] turn that around and turn it into a case at the CITT," he said.
As an example of how to skirt the tariff, a steel service centre or some other steel importer could bring in cold-rolled or corrosion-resistant steel from offshore, process it and sell it into the auto-industry supply chain, he said.
Robert Holleyman, a former deputy U.S. trade representative in the Obama administration, said tying the tariffs to NAFTA actually hurts the United States' case for the levies and strengthens the argument of any country that wants to challenge them at the World Trade Organization.
The United States is trying to argue tariffs are necessary for national-security reasons, but making them contingent on a completely different negotiation – and threatening Canada, a close U.S. ally that is considered part of America's defence industrial base – undercuts that argument, he said.
U.S. Trade Representative Robert Lighthizer said in Mexico City earlier this week that he wanted a deal that could be voted on by the current Congress; for this to be possible, he estimated the three countries had to reach an agreement in principle within the next six weeks.
He said he viewed Mr. Trump's ultimatum on steel and aluminum as an "incentive" to reach a deal.