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Justin Trudeau, Canada's prime minister, speaks during a news conference in Brussels, Belgium, on Thursday, July 12, 2018. MUST CREDIT: Bloomberg photo by Marlene Awaad

Trump's path to a new NAFTA deal runs through Canada, lawmakers say

WASHINGTON - President Donald Trump's attempt to secure a landmark trade deal entered a critical stage on Tuesday, as his advisers began high-level talks with Canadian officials and GOP lawmakers said that they would insist on including Canada in any agreement.

Canadian Foreign Minister Chrystia Freeland arrived in Washington, D.C., on Tuesday afternoon to begin reviewing the trade outline Trump had inked the day before with Mexican leaders.

Trump has said the Mexico agreement, which largely focuses on manufacturing, would replace the North American Free Trade Agreement, and that he is prepared to formalize this new deal even if Canada refuses to join.

But there were mixed signals Tuesday whether the Mexican government would go along with such an arrangement, and a number of GOP lawmakers signaled that this approach was unwise and may not satisfy congressional procedures for approving trade agreements.

The lawmakers' views are crucial because Congress must sign off on any trade deal before it can take effect.

Trump's ultimatums and the White House demand that progress be made by Friday have moved discussions about a new North American trade agreement into a rapid phase after months of mixed results.

"We have been encouraged by the progress made by our NAFTA partners over the past weeks. This is an important step to moving forward on renegotiating and improving NAFTA," Canadian Prime Minister Justin Trudeau told reporters Tuesday.

Most GOP senators strongly support the existing NAFTA agreement, which was brokered in 1994, saying it has brought jobs to their states. Although they have reluctantly gone along with the Trump administration's attempts to renegotiate the three-party deal, the idea of leaving Canada out was met with near universal condemnation Tuesday.

"Obviously, Canada's got to be willing to reach an agreement but it would be really shortsighted for us to have an agreement only with Mexico," said Sen. Jerry Moran, R-Kan.

Several lawmakers argued that a bilateral U.S.-Mexico deal could not even be brought before Congress because the fast-track rules governing the NAFTA renegotiations pertained specifically to a three-party deal.

Sen. John Cornyn, Texas, the No. 2 Senate Republican, told reporters Tuesday there would be "technical problems" with Congress voting on a bilateral U.S.-Mexico trade deal.

Special fast-track provisions for trade allow bills to pass the Senate with a simple majority instead of the 60 votes often required for major legislation.

"My hope is that Canada comes on board rather quickly," Cornyn said. "I hope we can get this done, and I hope Canada's on board. Because that would eliminate some of the technical, procedural problems . . . that might otherwise arise."

Sen. Pat Toomey, R-Pa., whose views often reflect those of many of the free-trade Republicans in Congress, expressed similar views about Senate passage of a deal excluding Canada. "NAFTA was enacted with legislation. . . . Similarly, a change to NAFTA requires legislation," he said.

There was also skepticism generally about the Trump administration's announcement of a deal with Mexico, given the scant details available and GOP lawmakers' wariness about the president's impulsive and scattershot approach on trade - the issue that, more than any other, has divided him from his allies on Capitol Hill.

"Trump can't just pull out of NAFTA on his own. It took an act of Congress to get into NAFTA, and it will take an act of Congress to get out of it," said Jennifer Hillman, a former general counsel for the United States Trade Representative under President Bill Clinton.

After top advisers talked optimistically about working with Canada to reach a deal, other White House officials took a harder line - seemingly echoing Trump's statement on Monday that "we'll see" if Canada can join the deal later.

"This deal is pretty well put together with Mexico," Commerce Secretary Wilbur Ross told Fox Business Network on Tuesday. "So the president, as he's indicated, is fully prepared to go ahead with or without Canada. We hope that Canada will come in. I think it's a good idea if they do. There's really not much they should object to. But if not, they will then have to be treated as a real outsider."

Treasury Secretary Steven Mnuchin, speaking on CNBC, offered a similar assessment, saying it might be necessary for the United States to cut one deal with Mexico and then work on a separate arrangement with Canada.

Other Trump advisers - particularly U.S. Trade Representative Robert Lighthizer - have indicated that they fully intend to try to bring Canada back into the deal.

If ratified, the "preliminary agreement with Mexico," as the White House termed it, would update the NAFTA rules governing trade between the two countries. The full text has not been made available, and many details remain unresolved. But excerpts released Monday include new rules aimed at bolstering the North American auto industry against foreign competition. The pact also included intellectual-property protections and labor rights rules.

The stock market rallied sharply after the partial deal was announced, with many investors seeing it as offering a first sign that Trump was shifting away from the protectionist trade approach he adopted earlier this year.

Bringing Canada into the deal would require resolving a host of thorny disputes between the United States and one of its largest trading partners. The United States wants Canada to agree to change its dairy and intellectual-property-protection policies, among other things, while Canada wants Washington to drop tariffs on steel and aluminum imports. Some provisions - including new rules requiring more high-wage North American auto manufacturing - would be favorable for Canada.

"If they really want to have a deal, we can probably work through the issues," said an official close to the negotiations who spoke on the condition of anonymity to discuss confidential deliberations.

One major sticking point might have already been addressed, however. Trudeau had repeatedly rejected a White House demand that the trade deal expire after five years. As part of the agreement with Mexico, the White House agreed to a 16-year term for the trade agreement, with the potential for consistent renewal. Parties would have the opportunity to raise objections to the deal after six years. It could not immediately be learned whether Canada would accept this U.S. concession.

The trade dispute has heightened the personal tension between Trump and Trudeau, driving an extraordinary public feud between allies and neighbors. At a July meeting of the Group of Seven industrial nations, Trudeau criticized Trump's metals tariffs and called it "insulting" that the administration would impose tariffs on Canadian goods in the name of national security.

Trump reacted by calling Trudeau "dishonest" and "weak" in a Twitter post and by threatening tariffs on the Canadian automobile industry, as well as by withdrawing the United States from the meeting's joint statement.

The warnings from Toomey and other Republican lawmakers appeared to make Trump defiantly defend his approach Tuesday.

"I smile at Senators and others talking about how good free trade is for the U.S.," Trump wrote on Twitter. "What they don't say is that we lose Jobs and over 800 Billion Dollars a year on really dumb Trade Deals . . . and these same countries Tariff us to death. These lawmakers are just fine with this!"

Trump referred to the $811 billion gap between how much the United States imports and how much it sells to other countries. Trump has said the trade deficit is evidence the country is losing jobs to foreign competitors. Many economists say it promotes economic growth, as it allows U.S. consumers to buy lower-cost goods from overseas.

Washington's brusque treatment of its northern neighbor over the past weeks of negotiations with Mexico reflects Trump officials' irritation with Canadian negotiators who dismissed as unserious several hard-line U.S. demands in the early months of the talks.

"Canada is seen as not negotiating fairly or in good faith while Canada sees itself as being punished for having the temerity to be standing up for Canadian interests," said Eric Miller, president of Rideau Potomac Strategy Group.

Canada is surprised to find itself in this lonely position. Mexican officials privately had dismissed the idea of joining Trump to celebrate any deal that did not include Canada. Yet Mexican Foreign Minister Luis Videgaray and his team appeared in the Oval Office for Trump's stage-managed phone call with Mexican President Enrique Peña Nieto.

Instead of working alongside Mexican negotiators to improve the partial deal, Canada will be battling against the odds to defend some of its core commercial interests, analysts said.

The sheer number of issues requiring decisions make it unlikely that a three-way deal will be agreed by Friday, the day U.S. officials plan to formally notify Congress of the pact with Mexico.

"It isn't impossible to get a deal. But in all likelihood, we're going to move well past the Friday deadline," said Dan Ujczo, a trade attorney at the law firm Dickinson Wright. "There's both political and practical reasons why it extends beyond Friday."

The White House is hoping to use a complex legal arrangement to have Mexico ratify the new trade arrangement. This would require the White House to send a letter to Congress on Friday, stating that it has entered into a trade agreement with Mexico. That letter could stipulate that Canada may enter the trade deal in the future, though congressional aides cautioned that such a two-step approach may not meet congressional procedures.

Within 30 days, the White House will have to send the formal trade agreement to Congress, and at that point it will have to resolve all differences with Canada. Congress would then have an additional 60 days to review the completed deal before the Mexican government approves it in late November, before its new president takes office Dec. 1.

And a number of factors could potentially derail talks during that period. Trump, for example, insisted again Tuesday that Mexico would pay for a wall along the U.S. border. Mexican officials immediately rejected that notion, saying they would never agree to it.

This article was written by Erica Werner, David J. Lynch and Damian Paletta, reporters for The Washington Post. The Washington Post's Heather Long and Felicia Sonmez contributed to this report.

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