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Canada's CEOs Warn Government on Trade Policy -- Update

By Paul Vieira Published December 14, 2017

OTTAWA –  Canada's most prominent business leaders are "deeply concerned" by setbacks to diversify trade in Asia in the face of uncertainty over the North American Free Trade Agreement, according to a letter their lobbyist sent to Finance Minister Bill Morneau.

The Business Council of Canada, which represents chief executives from 150 of the country's largest corporations, said in a letter dated Dec. 13 the economy is due to underperform after a strong 2017. It attributes the anticipated slowdown to a decline in business investment, as companies fret over the outcome of Nafta talks, and "fears that trade disruptions will damage regional value chains."

The Wall Street Journal reviewed the contents of the letter, which are meant to offer a wish list of what CEOs would like the government to address when crafting the 2018 budget plan. The business council is led by John Manley, Canada's former foreign and finance minister under Liberal prime minister Jean Chretien.

The letter's most pointed language deals with trade, as the council expressed concern about recent events in Asia.

Eleven Pacific-Rim countries failed to come to an agreement in principle on a revised version of the Trans-Pacific Partnership without the U.S., due to disagreements from Canada, especially on the auto-sector front. This month, Canadian Prime Minister Justin Trudeau went to Beijing, but didn't, as widely expected, announce the formal launch of negotiations toward a free-trade pact with China. China watchers say the Chinese leadership weren't keen on Mr. Trudeau's push for a "progressive" trade deal that incorporated the environment and labor rights.

"We are deeply concerned by the government's recent failure to reach an agreement in principle on" the TPP, the letter said. "Canada should be a leader in opening markets around the world."

A representative for Mr. Morneau wasn't immediately available to comment on the letter.

Mr. Trudeau defended his government's approach to trade this week. "It's not about signing any deal, it's about signing a good deal for Canadians, " Mr. Trudeau told lawmakers during a spirited question-period session. "We know that no deal is better than a bad deal."

Researchers from the Peterson Institute for International Economics, a Washington-based think tank that favors free trade, said the TPP pact, even without U.S. participation, could generate income gains of $157 billion annually for its members by 2030, "mainly by increasing trade in machinery and agricultural products as well as through higher levels of investment."

On China, the CEO group called on Canada to "redouble efforts" to forge a closer economic relationship with the world's second-biggest economy.

As for Nafta, the business council said it is "essential to safeguard Canada's longstanding preferential trade and investment relationships with the U.S. and Mexico." The letter doesn't offer advice on how to deal with the most contentious issues so far in Nafta negotiations, such as rules governing U.S. content in motor vehicles and the dispute-resolution process.

Uncertainty over Nafta is one reason the Bank of Canada has cited in adopting a more cautious approach on rate-policy making after two rate rises earlier in 2017. Talks to revamp Nafta have hit a stalemate, with U.S. Trade Representative decrying a "lack of headway" from Canada and Mexico on addressing the Trump administration's main concerns.

The next round of Nafta talks are scheduled in January in Montreal, and trade observers believe they could be a make-or-break moment for the continental trade pact.

Meanwhile, the letter also warned Mr. Morneau that Canada's attractiveness as an investment destination has deteriorated over the last half decade, due to a series of tax and regulatory changes. It added that weakness could be exacerbated once the Trump administration's tax-reform measures kick in. House and Senate Republicans agreed to a final bill Wednesday that envisages $1.4 trillion in tax relief over a decade.

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