Canadian delegates at a Group of Seven meeting in Italy said meetings with U.S. Treasury secretary Steven Mnuchin left them cautiously optimistic that a new North American free-trade agreement deal with the United States will not inflict extensive trade damage on Canada.
The view taken by Finance Minister Bill Morneau, and Stephen Poloz, governor of the Bank of Canada, came even though Mr. Mnuchin, a former Goldman Sachs banker, warned that any new trade deal would have to take American interests at heart.
"We don't want to be protectionist, but we reserve our right to be protectionist to the extent that we believe trade is not free and fair," he told reporters on Saturday, shortly after the wind-up of the two-day meeting of G7 finance ministers and central bankers in the southern Italian city of Bari.
Mr. Mnuchin, 54, held bilateral meetings with Mr. Morneau and Mr. Poloz, where trade was a hot topic, even though global trade and protectionism were not on the official G7 agenda in Bari – the Italian hosts had promoted an "inclusive growth" theme.
Mr. Mnuchin said that Senate approval Thursday of President Donald Trump's choice for the new U.S. trade representative, lawyer Robert Lighthizer, would allow NAFTA negotiations to start in earnest. The Americans can now officially open the NAFTA file with 90-days notice. Assuming they do so this month, negotiations would likely start after the summer holidays.
"We obviously have to wait to start the formal negotiations," Mr. Mnuchin said. "I think, as you know, there were discussions about the President potentially terminating NAFTA. He decided not to do that. He wants to renegotiate it and I think that there's going to be something that's going to be a win-win for all three countries."
He added that NAFTA "is an old agreement, it needs to be looked at. There are things that need to be changed, but Mexico and Canada are two very important trading partners, and I am hopeful that we can fix the agreement in a way that is good for us and we can move forward. I know both of them are looking to that as well."
In an interview on Friday, Mr. Morneau said his meeting with Mr. Mnuchin left him with a "positive sense" of what can be achieved in the fresh trade talks. "We'll be looking on ways to improve on what has been successful," he said. [The Americans are] very constructive with us on those discussions. You'll see, of course, flash points in the media. But behind the scenes, it's a constructive discussion on how we can make improvements."
Mr. Poloz had a similar view. "My limited visibility leaves with me a sense of constructive optimism," he told The Globe and Mail on Saturday. "There's a strong undercurrent of reality that we do business together, and we do so within a trade architecture."
Mr. Trump rattled the trading world shortly after he took office in January by pulling the United States out of the Trans-Pacific Partnership with Japan, Australia, Singapore and other Pacific Rim countries. He threatened to scrap NAFTA, calling it "the worst trade deal," and made it clear that the United States would not negotiate a trans-Atlantic deal similar to CETA, the trade deal recently negotiated between the Canada and the European Union.
In March, however, Mr. Trump backed down on his threat to pull out of NAFTA, vowing instead to renegotiate it. Since then, Mr. Trump seems to have opened up to the prospect of creating new trade deals. Evidence of an apparent pro-trade stance came on Friday, when the United States and China agreed to open the vast Chinese market to U.S. credit ratings agencies, credit card companies, and shipments of American beef and liquefied natural gas. In return, China will get the right to open Chinese banks in the United States.
Mr. Morneau said the NAFTA talks' potential flash points would include trade in softwood lumber and diafiltered (unfiltered) milk along with labour mobility and trading rules governing the digital economy. "All these things will be important," he said.
Mr. Poloz said that uncertainty about NAFTA's future has damaged capital investment in Canada, since export-oriented companies do not know what access they will have to the U.S. market. "Looking at the non-energy sector, there is definitely an undercurrent of caution," he said. " I wouldn't say that investment has stopped, but it's definitely very slow. It's less than it would be if there were certainty [on trade]."
In Bari, the G7 finance ministers signed a watered-down pledge on global trade, saying only that they are "working to strengthen the contribution of trade to our economies."
Essentially the same language was used in March, at the Group of 20 meeting in Germany, where there was no explicit vow to avoid protectionism.