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Exclusive - Canada increasingly convinced Trump will pull out of NAFTA

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.

Officials are due to hold a sixth and penultimate round of negotiations in from Jan. 23-28 as time runs out to bridge major differences.

It is not certain the would quit even if Trump gave the required six months' notice, since he is not obliged to act once the deadline runs out. Notice of withdrawal could also raise opposition in

One of the Canadian sources also said later it was not certain that Trump would move against the treaty and that was prepared for many scenarios.

But even the prospect of potential damage to the three nations' integrated economies sparked market concerns.

Wall Street's major stock indexes ended lower on Wednesday, partly due to those worries. [.N]

The Canadian dollar weakened to its lowest this year against the greenback on Wednesday as the concerns tempered bets that the Bank of will raise interest rates next week.

Mike Archibald, at in Toronto, cited "a tremendous amount of uncertainty on the horizon".

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 and stocks extended losses. The S&P/BM stock index <.MXX> fell about 1.8 percent.

"There's been chatter in the market going into this week that it was coming up," Quincy Krosby, at in Newark,

Royal Bank of Canada's said on Tuesday he believed there was now a greater chance that could be scrapped.

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

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 NAFTA".


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 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

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.

Scott Minerd, at Guggenheim Partners, said "if Trump were to announce a exit, the stock market would probably pull back by 5 percent or so before advancing to new highs. Most likely the Canadians are reacting to the President's negotiating posture."

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. has previously said it would walk away if Trump formally announced intended to quit.

Canadian officials say if Trump does announce a U.S. withdrawal, it could be a negotiating tactic designed to win concessions. The talks are scheduled to wrap up by the end of March.

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.

Separately, 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, Caroline Valetkevitch and Jennifer Ablan in New York, Fergal Smith and Alastair Sharp in 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. 04:55 IST