Despite Trump talk of 'tweaking' NAFTA, Canada could still be hurt

By David Ljunggren and Andrea Hopkins

OTTAWA (Reuters) - Although U.S. President Donald Trump says he only wants to tweak trade ties with Canada, his pledge to renegotiate NAFTA to focus on Mexico is almost impossible and Canada will not emerge unscathed, Canadian officials and trade experts said on Tuesday.

Trump had warm words for Canadian trade following a meeting with Prime Minister Justin Trudeau on Monday, but his call for major changes to the North American Free Trade Agreement to target Mexico stymied experts.

"I can't see how it's possible at all. It would be very complicated to do and I don't think Mexico would ... ever go along with it," said Mark Warner, a trade lawyer and principal at MAAW Law in Toronto.

Canada and Mexico send the bulk of their exports to the United States under NAFTA.

One senior Canadian government official, asked how the agreement could be tweaked for one partner and changed in a major way for another, admitted frankly, "I don't know."

Trump spoke after his first meeting with Trudeau, who is trying to sell the merits of NAFTA while opposing a border tariff, an idea circulating in U.S. political circles that could badly hit Canadian industries.

Warner said that if the U.S. government decided to impose the tariff, "the consequences of that could be described as a tweak but the significance of it would be major."

Matthew Kronby, an international trade lawyer at Bennett Jones in Toronto, said "it is very hard to tease apart the elements of the deal that I suppose Trump might think are a disaster with Mexico while leaving it intact with Canada."

Officials say that while Trump did not reveal any details about his intentions on NAFTA, Canada would suffer collateral damage, whatever the administration pushes for.

"We cannot be untouched or unscathed by this," said one person familiar with the matter.

Separately, another official working on the bilateral trade file said that once talks started, the U.S. dairy industry was set to demand Canada dismantle its supply management system of tariffs and taxes that keep out most dairy imports, including those from the United States.

"That could be a very unpleasant conversation," said the official, who asked to remain anonymous because of the sensitivity of the situation.

Trudeau's ability to make concessions is limited since all of Canada's major political parties have vowed to protect supply management. Holding out too firmly though could irritate the American side, which might demand concessions elsewhere.

(Writing by David Ljunggren; Editing by Jeffrey Benkoe)