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Despite progress, threat of 232 tariffs dominates NAFTA negotiations

Despite progress, threat of 232 tariffs dominates NAFTA negotiations

WASHINGTON — Despite the eye-popping figures thrown around in the NAFTA conversation — $2 billion in daily trade, 18 million autos built each year, hundreds of thousands of jobs in the U.S. — one number in particular seems to be giving fits to Canada’s negotiating team: 232.

That's the section of U.S. trade law that lets President Donald Trump use national security as justification to impose crippling tariffs on foreign imports, a sword of Damocles the federal Liberal government desperately wants to blunt.

Sources say Thursday's talks between Foreign Affairs Minister Chrystia Freeland and U.S. trade ambassador Robert Lighthizer were dominated by efforts to secure a commitment from the Americans that a new NAFTA deal would mitigate the risk of such tariffs.

"232 is emerging as the major problem," said one source close to the talks, speaking freely on condition of anonymity.

Rather than demanding absolute immunity, Canada is working hard to try to make the president's favourite trade cudgel "more difficult to reach for," the source said.

For her part, Freeland offered little evidence of momentum Thursday when she emerged from the talks, sticking to her strategy of keeping mum on substantive details and offering only that the two sides were focused on "some tough issues."

"The atmosphere continues to be constructive, and we continue to work towards a deal, which has always been Canada's objective," Freeland said.

"Canada has, from the very beginning, been guided by a single metric, and we continue to be guided by that single metric, and that metric is getting a deal that is good for Canada and good for Canadians. That is our target."

Talks, as well as the ensuing public narrative, have been dominated by some familiar stumbling blocks, including the dispute-resolution mechanism known as Chapter 19, stronger protection for Canadian workers and more U.S. access to Canada's dairy market, among others.

There have been signs of progress, including word Wednesday that the U.S. had backed off in recent weeks on its desire to limit Canadian and Mexican firms from bidding on lucrative American procurement projects. Talk of all-night marathon negotiating sessions is also seen as a good sign.

But as some of the more fundamental differences fall away, Sec. 232 has indeed emerged as a major issue, trade watchers say.

"I think the Section 232 issue is very big. Chapter 19 dispute resolution is less important," said trade lawyer Darrel Pearson, head of the international trade and investment practice at Bennett Jones in Toronto.

That's because, as Canada's experience with softwood lumber would suggest, a means of resolving disputes doesn't make disputes go away — and Trump's demonstrated proclivity for shooting first and asking questions later would seem to amplify that issue even more.

Section 232 of the decades-old U.S. Trade Expansion Act allows the president, under certain circumstances, to impose duties recommended by his commerce secretary under the notion that the goods being imported are a threat to national security.

It was on that basis that the U.S. imposed hefty tariffs on steel and aluminum imports from Canada and other nations, and has threatened to do the same on auto imports. The Trudeau government has said it would respond to auto tariffs with its own countermeasures.

Critics warn the potential tariffs of up to 25 per cent, plus retaliatory measures, could add thousands of dollars to the price of a vehicle, kill jobs and cause significant harm to the global auto industry.

"I think it is clear that without Section 232 usage being resolved, Canada remains at significant risk," said Pearson. Canadian negotiators didn't make the tariffs a major issue at the outset of the talks in order to avoid giving the U.S. too much leverage, he added.

"It may have been a better strategic move to negotiate Section 232 separately, eliminating a Canadian 'ask' from the negotiations so as not to add to the U.S. leverage, but the risks of continued threats of 10 or 25 per cent are too large," Pearson said.

Unifor president Jerry Dias, the head of Canada's largest private-sector union, also had his sights set Thursday on Section 232, calling it a "deal-breaker" that "doesn't make a stitch of sense." 

"We're not going to sit there and let Trump put an economic gun to our head anymore," Dias said. 

"Here we're talking about a trade agreement between two countries, but then one of the parties reserves the right to jerk around your economy at any given time? Not a chance."

Pressure has been mounting on the federal government to get a deal done, including from influential Republican members of Congress keen to spur an agreement before the November midterm elections and before a new, less NAFTA-friendly government takes office in Mexico.

Then there's the U.S.-Mexico agreement in principle that Trump and outgoing Mexican counterpart Enrique Pena Nieto announced last month, to the surprise of the Canadian team. While many observers, including the federal government itself, are skeptical Congress would approve that deal without Canada, others warn the ticking political clock could change that dynamic.

Any deal is widely seen to require congressional approval before Dec. 1 in order to survive the arrival of an incoming Mexican government whose supporters have mixed feelings about the agreement.

James McCarten, The Canadian Press