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Trump’s NAFTA energy gripe confuses everyone

Finance Minister Bill Morneau says Ottawa had not prepared for any American moves on oil because it’s unclear what Mr. Trump is concerned about.

Adrian Wyld/THE CANADIAN PRESS

Neither Canada's government nor oil industry have any idea what U.S. President Donald Trump was talking about when he warned that the U.S. will target Canada's energy sector in renegotiations of the North American free-trade agreement.

Finance Minister Bill Morneau, in Washington at the International Monetary Fund and World Bank spring meetings, said he could not think of any energy-related trade disputes between the two countries.

"We're the most secure and reliable source of energy for the United States, and provide 43 per cent of imported oil," he told a roundtable with journalists on Friday morning. "I don't see any source of friction there."

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Both Mr. Morneau and Prime Minister Justin Trudeau tried to turn the temperature down after Mr. Trump trained his fire on Ottawa in recent days. Mr. Morneau said the White House was "positively inclined towards Canada" behind the scenes – suggesting Mr. Trump's spicy language is more posturing than an actual negotiating position – while Mr. Trudeau insisted the two countries would hash out changes to NAFTA in a "respectful fashion."

Officials in the Canadian energy industry, meanwhile, dismissed Mr. Trump's comments as mere chest-thumping.

The President on Thursday described NAFTA as a "disaster" that has allowed Canada to "take advantage" of the United States He said he was particularly concerned by Ottawa's trade practices on lumber, dairy and energy. It was a sharp change in tone from earlier this year, when he said the Canadian-U.S. trade relationship was "very outstanding" and required only minor "tweaks."

While dairy and lumber are the subject of continuing trade disputes between the two countries, his comments on energy are a mystery. Mr. Trump did not specify what he was aiming to do. He has previously presented himself as a friend to Canada's oil and gas sector, restarting the Keystone XL pipeline project blocked by Barack Obama.

The President is planning to unveil his tax plan next week, which some economists have speculated could include a tax on foreign oil imports. But Mr. Trump has so far released no details, saying on Friday only that he would make a "big announcement" next Wednesday.

Mr. Morneau said the President's officials have been much milder in private than their boss has been publicly, suggesting the President's warnings may only be amped-up rhetoric.

"The people we are talking with behind the scenes … they're open to the discussions, they're positively inclined to Canada," he said. "There's a disconnect between what we read in the paper every morning and how people are feeling in terms of their discussions with their counterparts."

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Mr. Trudeau vowed to "defend Canada's interests" – and to push back on attempts to open the country's protected dairy sector – but took a conciliatory tone Friday despite Mr. Trump's salvos.

"In any relationship as deep and complex as the economic and cultural relationships we have with the United States, there are always going to be issues that come up," he told reporters on Parliament Hill.

The United States is heavily dependent on Canada for oil and gas because it does not produce enough to meet demand. A more likely target for NAFTA negotiations is Mexico's energy sector, which has historically been the subject of government monopolies but has been opened up to private investment since 2013. One Canadian official, speaking on condition of anonymity, said bringing Mexican oil and gas under NAFTA would be an attractive prospect in trade talks.

Eurasia Group, a New York-based political-risk firm that has done work for the Canadian Association of Petroleum Producers, played down the President's warnings.

"We don't yet read anything into the energy comments – whereas his lumber and dairy comments actually reflect the view of U.S. farmers, the U.S. energy industry is pretty content with NAFTA," U.S. director Jon Lieber said.

"The strong language against Canada/NAFTA could also be more political posturing from Trump ahead of a likely more limited renegotiation agenda," analyst Hilary Novik added.

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Canadian Electricity Association chief executive Sergio Marchi said the President's shot at Canada runs counter to everything he's heard to date. He led a delegation to Washington earlier this month, and no one was suggesting energy trade was a problem, other than the possibility of a border adjustment tax.

A former federal trade minister, Mr. Marchi said he suspects Mr. Trump was being tactical, keeping Canadians off balance by targeting an area of perceived strength.

"It's very much how the President operates – it's very much on gut, very intuitive," Mr. Marchi said. "If there's a strategy in this, then I think it's more tactical where he's engaging in prenegotiations, trying to move the ground onto his ground and putting his counterparts on the defensive."

Even as the Trudeau government has been building relationships with U.S. counterparts, it is also courting Mexico, whose interests are largely aligned with Canada's in the NAFTA talks. Both countries want to keep intact as much of the trade deal as possible.

In a speech at Washington's Center for Strategic and International Studies, Mexican Finance Secretary Jose Antonio Meade Kuribrena took a similar tack to Canadian politicians, emphasizing the heavily integrated NAFTA zone.

"What you are looking at is really a North American region. You're looking at pipelines, you're looking at highways, you're looking at rail stations, you're looking at electricity grids," he said.

Mr. Morneau said he planned to take Mr. Meade Kuribrena to the Maple Leaf Stanley Cup playoff game against the Washington Capitals Friday for some informal bilateral bonding.

"I figured this would be a perfect front-page picture if we wanted to go viral in Mexico," he said. "We didn't bring jerseys. I figured that might be pushing it a little far to ask him to wear a [Leaf] jersey in Washington. We brought scarves."

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