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Amid NAFTA uncertainty, TPP is next best thing for Canada

Ottawa's juggling of various free-trade talks is like bewildering games of simultaneous chess.

Canada is now involved in multiple and sometimes overlapping negotiations with more than a dozen trading partners, who are themselves enmeshed in talks with various other countries. There is the continuing renegotiation of the North American free-trade agreement, early talks on possible deals with China and India, plus a massive deal with 10 Pacific Rim countries, recently rebranded as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

To the surprise of many, the CPTPP has jumped to the top of Ottawa's to-do list. On Tuesday, Ottawa agreed in Tokyo to sign the sweeping deal by March with Japan, Mexico, Australia, New Zealand, Vietnam, Chile and four other countries.

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(U.S. President Donald Trump pulled his country out of the deal's previous incarnation, the Trans-Pacific Partnership, last year.)

This is a bit of a surprise because Canada balked at doing roughly the same deal just two months ago – in part because it was worried it would mess up sensitive NAFTA negotiations with the United States over issues such as autos, dairy, cultural industries and intellectual property. Canadian officials insist they have secured important changes to allay some of their earlier concerns, most notably on autos and intellectual property.

More importantly, the government is calculating that a bird in the hand is worth two in the bush. The certainty of a deal that opens up opportunities in the massive Japanese market supersedes the messy uncertainty of the NAFTA talks, which continue in Montreal this week. (On the other hand, Japan, Australia and the other Pacific Rim countries made it clear they would do the deal with or without Canada.)

That's a remarkable shift, given the importance of the U.S. market to Canada's economy. Ottawa's embrace of the Asia trade deal – along with its inherent risks – strongly suggests Canadian officials don't expect a successful renegotiation of NAFTA any time soon.

In fact, a deal on NAFTA in the near term is "probably the least likely" outcome, said Steve Verheul, Canada's chief NAFTA negotiator, last week. Speaking at a meeting of dairy industry officials in Ottawa, Mr. Verheul said the more probable outcome is either a U.S. pullout from the deal or negotiations that drag on indefinitely, according to an account of his speech by the publication Ontario Farmer.

"We'll keep riding this horse and see where it's headed," Mr. Verheul added.

Unfortunately, negotiating with Mr. Trump is more like riding a bucking bronco. In recent days, the President tweeted that NAFTA is a "bad joke" and repeated threats to walk away from the deal. But he has also acknowledged he's facing intense pressure from U.S. industry groups to stay in NAFTA and floated the idea of extending the deadline for reaching a deal until after the Mexican elections on July 1.

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Pushback from Congress and the looming midterm elections in November further complicate the negotiations.

The United States has put a series of demands on the table that Canada considers non-starters, including the end of binding state-to-state dispute resolution, a five-year sunset clause, dismantling Canada's supply management regime for dairy and poultry and minimum U.S. content in North American cars.

The long game for Canada means resisting these demands. As Mr. Verheul put it, the goal is "to make trading easier than it is now, and at the worst doing no harm."

Canada is already laying the groundwork for life without NAFTA should it come to that. Ottawa recently launched a sweeping trade case that accuses the United States of flagrantly violating World Trade Organization (WTO) rules in its handling of almost 200 trade investigations going back decades. Among other things, Ottawa argues that the United States is breaking WTO rules in the way it handles anti-dumping and subsidy cases, including continuing disputes involving Canadian lumber, newsprint and Bombardier jets. It's also a veiled warning that Ottawa intends to make the United States live by WTO rules, regardless of what happens to NAFTA.

Saying yes to the CPTPP similarly sends the message that Canada isn't going to put its global trade ambitions on hold as NAFTA lurches toward an uncertain future.

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