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Canada braves Trump’s threats and insults in hopes of closing NAFTA deal

President Trump talks with Canadian Prime Minister Justin Trudeau during a G-7 Summit welcome ceremony in Charlevoix, Canada. Canadians are stunned by the repeated broadsides from what had long been their closest ally. (Evan Vucci/AP)

Negotiations over a new North American trade deal resumed Wednesday in Washington, clouded by uncertainty over Canadian reaction to President Trump’s hardball negotiating style.

Few analysts expect a quick resolution to the talks, which have blown through a series of self-imposed deadlines over the past year. The Trump administration on Friday notified Congress that it intended by the end of November to sign a new trade deal “with Mexico — and with Canada if it is willing. ”

U.S. and Canadian diplomats now are trying to resolve a host of issues that have bedeviled their efforts to overhaul the 1994 North American Free Trade Agreement. The talks face an apparent deadline of the end of this month, when the administration must send the official text of any proposed deal to Capitol Hill.

At the White House, Trump told reporters the two sides were locked in "intense negotiations" and he vowed to stop Canada from "taking advantage" of the U.S.

"We've come a long way toward them treating us fairly, but we're meeting right now with Canada and over the next day or two we'll see what happens," the president said.

As U.S. Trade Representative Robert Lighthizer and Canadian Foreign Minister Chrystia Freeland met in Washington, fresh data showed that Trump is failing to close the gap between what the U.S. buys from other countries and what it sells to them. The president blames the trade deficit for the loss of millions of American factory jobs, a claim that many economists dispute.

The goods and services deficit in July rose to $50.1 billion from $45.7 billion in June, the Commerce Department reported. So far this year, the deficit has grown by 7 percent from last year's level. On a quarterly basis, the trade balance with Canada moved to a small $1.2 billion deficit from a surplus of $4.5 billion in in the previous three months, as the fast-growing U.S. economy sucked in more Canadian products.

Trump's latest remarks came after he had used Canada as a punching bag for much of the past week. In off-the-record comments in a Bloomberg interview that subsequently became public, the president boasted last week that any new deal would be “totally on our terms.”

The president then threatened to go ahead with a Mexico-only arrangement if Canada did not bow to American demands.

“There is no political necessity to keep Canada in the new NAFTA deal. If we don’t make a fair deal for the U.S. after decades of abuse, Canada will be out. Congress should not interfere w/ these negotiations or I will simply terminate NAFTA entirely & we will be far better off,” he tweeted on Saturday.

Whether Trump could make good on that threat remains doubtful. Top Republicans in Congress, the business community and organized labor insist that Canada must be included in any new deal. “It’s pretty hard to see how that would work without having Canada in the deal,” AFL-CIO President Richard Trumka said Sunday.

There are also legal questions over whether the president can use his existing trade negotiating authority to secure congressional of a deal that does not include all three countries. As a result, some Canadian experts insist that the administration does not have the leverage the president's tough talk suggests.

"The real question now is, is the United States prepared to negotiate and compromise or is it take-it-or-leave-it?" said Eddie Goldenberg, a former chief of staff to the Canadian prime minister. "If it's take-it-or-leave-it, it'll be leave it."

William Reinsch, a former Commerce Department trade official, said the Canadians are enduring Trump’s verbal abuse to secure a deal that preserves a lucrative continental trading bloc. Last year, two-way trade between the U.S. and Canada topped $582 billion.

“They've figured Trump out,” he said. “He only escalates. He only ups that ante. You figure that out and get used to it.”

Mexico, likewise, endured Trump's repeated taunts about paying for a wall along the U.S. border while managing to secure some important concessions in its head-to-head bargaining with the Americans, he said.

Canadian and U.S. officials also face tough bargaining in any NAFTA end game.

As has long been the case, Canada has major concerns with at least three elements of the U.S.-Mexican deal that it is being asked to join, according to people briefed on the matter who asked for anonymity because they were not authorized to speak publicly.

Canada’s right to limit dairy imports, exempt cultural industries such as print and broadcast media, complain to an independent dispute settlement panel about U.S. trade barriers and the life span of any new North American trade deal are key issues, the analysts said.

But Canada also will raise concerns about intellectual property rights, language governing financial services and the value of goods shipped via e-commerce sellers that can cross the border duty-free, they said. Some of the disputes have budgetary implications for the Canadian government. Extending patent protections for new drugs would cost the state health system through higher prescription costs while raising the e-commerce limit could reduce sales tax revenue, said Eric Miller, president of Rideau Potomac Strategy Group.

Canada is insisting on preserving a dispute-review procedure that the United States and Mexico have agreed to eliminate. Under NAFTA’s Chapter 19, any of the three trading partners can complain to an independent panel of experts about another country’s anti-dumping or anti-subsidy duties.

On Wednesday, Trudeau took a clear shot at Trump in defending the existing system.

"We need to keep the Chapter 19 dispute resolution because that ensures that the rules are actually followed. And we know we have a president who doesn’t always follow the rules as they’re laid out,” Trudeau said in an interview with Edmonton radio station CHED.

The process, which focuses on whether duties were imposed in a manner consistent with law, has been used to adjudicate Canadian complaints about duties that the United States imposed on imports of Canadian softwood lumber, a chronic irritant in trade relations between the neighbors.

Trump also has repeatedly complained about Canada’s dairy management program, which uses 270 percent tariffs to impede imports, threatening to impose tariffs on Canadian auto exports unless Ottawa grants the United States unfettered market access.

Canada had agreed to grant U.S. and other foreign dairy producers greater access to its market during negotiations over the ill-fated Trans-Pacific Partnership, which Trump withdrew the United States from during his first days in office. So there is precedent for the sort of concessions that could grease an agreement.

But if Trump seeks the dismantlement of Canada’s entire dairy management program, there is little chance of a quick accord, according to Miller.