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Nafta talks extended as fears of US withdrawal mount ahead of Davos

Anna Isaac
US President Donald Trump is due to attend the World Economic Forum in Davos alongwith senior Nafta negotiators - Abaca Press

Montreal talks on the Nafta trade agreement have been extended by a day as tension mounts between the three treaty members and after Canada's central bank warned of shocks to the economy, should they fail.

Canada, Mexico and the US were due to send officials for renegotiations from January 23 to 28. The schedule is thought to have been extended to January 29 to allow senior negotiators due to join the final day of the talks to travel to Canada from the World Economic Forum in Davos, which ends on January 26.

US president Donald Trump is due to give a speech to global economic chiefs in at the Swiss summit on the last day of the summit, amid mounting speculation that he may give up on a new Nafta deal as part of the administration's increasingly protectionist economic agenda.

Mr Trump told Reuters on Wednesday that abandoning the current trade agreement would be "good"and allow for the “best deal” for the US to be negotiated. This comes a week after telling the Wall Street Journal that he could be "a little bit flexible" on withdrawal from Nafta. 

The president has also reiterated his call for the Mexican government to fund building a wall on the border between the two countries, which the Mexican authorities have dismissed.

The lead negotiators for Nafta, US trade representative Robert Lighthizer, Mexican economic minister Ildefonso Guajardo and Canadian foreign minister Chrystia Freeland are also expected to attend the Swiss summit, raising expectations that there will be side negotiations taking place ahead of their travel to Montreal.

US treasury secretary Steven Mnuchin said Mr Trump’s attendance will allow the country to promote its “America First” agenda. US trade and tax policy has become increasingly protectionist in recent months. It has placed a 20pc “excise tax” on importing activities, as well as imposing high tariffs on Canadian plane maker Bombardier.

The extension to negotiations comes as Canada’s central bank has warned that the nation's economic outlook remains “clouded by uncertainty” as the future of Nafta hangs in the balance.

About | North American Free Trade Agreement (NAFTA)

Bank of Canada’s Central Bank Governor Steven Poloz said that the nation cannot “relax” and assume there will be a “small shock” to the economy from the fallout if Nafta collapses.

Trade uncertainty has led the bank to take a more negative view on business investment and exporting activity into its forward planning. It expects business investment to be 2pc less by 2020 than it might otherwise have been.

The bank also noted concerns that a lower corporation tax rate in the US, now at 21pc, down from 35pc, could cause firms to shift investment towards the US rather than Canada.

Whitehall sources claimed that the UK Prime Minister, Theresa May, had hoped to meet with Mr Trump in Davos. The White House said the president did not have sufficient time for the meeting. But Mr Trump does plan to meet with Emmanuel Macron, the French president.