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Exclusive: Canada increasingly convinced of Trump NAFTA pullout - sources

Reuters  |  LONDON, Ontario 

By David Ljunggren

LONDON, (Reuters) - is increasingly convinced that will soon announce the intends to pull out of NAFTA, two sources said on Wednesday, sending the Canadian and Mexican currencies lower and hurting stocks.

The comments cast further doubt on prospects for talks to modernize the trilateral North American Free Agreement (NAFTA), which Trump has repeatedly threatened to abandon unless major changes are made.

Negotiators are due to meet in this month for the sixth of seven planned rounds of talks with major differences remaining between the on one side and and on the other. The talks are scheduled to wrap up by the end of March.

"The is increasingly sure about this ... it is now planning for Trump to announce a withdrawal," said one of the sources, who asked to remain anonymous because of the sensitivity of the situation.

Trump has long called the 1994 treaty a bad deal that hurts American workers. His negotiating team has set proposals that have alarmed their Canadian and Mexican counterparts.

Among the most divisive are plans to establish rules of origin for goods that would set minimum levels of U.S. content for autos, a sunset clause that would terminate the deal if it is not renegotiated every five years, and ending the so-called Chapter 19 dispute mechanism.

The source said Canadian ministers felt a withdrawal could be designed to show Trump's base that he was keeping his promises and also to put pressure on the negotiators.

Separately, a U.S. source close to the quoted Trump as saying "I want out" as the talks drag on with little sign of progress.

A said "there has been no change in the president's position on "

The Canadian dollar fell to its lowest this year against the greenback as worries about the outlook for tempered bets for a Canadian interest rate hike next week. Canadian bond prices rose across the yield curve and railway, pipeline and other trade-sensitive stocks weighed on the country's main index.

Mexico's currency also weakened, before trimming losses, while the S&P/BM stock index <.MXX> was down about 1.85 percent.

Canadian officials say if Trump does announce a U.S. withdrawal, it could be a negotiating tactic designed to win concessions. They also express doubt whether the would approve such a move.

Given the highly integrated nature of the North American economy, NAFTA's collapse would have major economic implications for all three countries.

The of the said that economic gains made through tax cuts and the lifting of business regulations would be undone if the U.S. cancelled deals, including

"Withdrawing from would be a grave mistake," said in his annual address on the state of American business. "The American has taken several big steps forward with regulatory relief and tax reform, and the administration deserves lots of credit. But a wrong move on would send us five steps back."

Wall Street's major stock indexes ended lower on Wednesday, partly due to worries about the U.S. exiting [.N]

shares fell 2.4 percent. The automaker has 14 in Mexico, including one that builds large pickup trucks, among the automaker's most profitable vehicles. Trucks built there could be subject to a 25 percent tariff if the U.S. exits

"We have always said that this is a possibility," a Mexican source with knowledge of the talks told Reuters, referring to the prospect of a U.S. withdrawal.

Mexico's Ministry declined to comment on the report, a said.

The Canadian sources said that if Trump did announce the was pulling out, would stay at the table, since the talks would continue at a lower level.

The broke as the cabinet of began gathering in the town of ahead of a scheduled two-day meeting where is one of the items on the agenda.

A for - in overall charge of U.S.-relations and the file - was not immediately available for comment.

launched a wide-ranging complaint against the United States, the World Organization said on Wednesday, in a dispute that said would damage Canada's own interests and play into China's hands.

(Additional reporting by in Washington, in Detroit, Fergal Smith in Toronto and Ana Isabel Martinez and Dave Graham in City; Editing by Susan Thomas)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Thu, January 11 2018. 02:55 IST