Exclusive: Canada PM raps possible U.S. auto tariffs, says linked to NAFTA

By Andrea Hopkins and David Ljunggren

LA MALBAIE, Quebec (Reuters) - A move by the United States to explore tariffs on auto imports is based on flimsy logic and is part of the pressure from Washington to renegotiate the NAFTA trade pact, Canadian Prime Minister Justin Trudeau said on Wednesday.

In an interview with Reuters, Trudeau said that while U.S. President Donald Trump had raised the idea of punitive measures, there was no guarantee they will happen.

Trudeau also predicted talk of tariffs would likely disappear if slow-moving negotiations to update the North American Free Trade Agreement - currently stuck on autos issues - are successful.

The Trump administration said on Wednesday it had launched a national security investigation into car and truck imports that could lead to new tariffs similar to those imposed on imported steel and aluminium recently. Canada rejects any idea it could be a threat to the United States.

"I am - even more than I was with steel and aluminium - trying to figure out where a possible national security connection is," Trudeau said at the luxurious riverside hotel that will be the site of a Group of Seven summit in June.

"Taking that a step further into autos seems to me to be on even flimsier logical grounds," Trudeau said. "But we know that this is very much linked to ongoing negotiations around moving forward on NAFTA."

Imposing tariffs could cause chaos for a Canadian auto industry that is heavily integrated into the North American economy. Canada is home to major plants operated by General Motors, Ford, Fiat Chrysler, Honda and Toyota.

In Ottawa, Foreign Minister Chrystia Freeland told reporters the idea that Canadian-made autos posed a security threat was "frankly absurd and that is a point we are making very clearly to our U.S. partners and allies."

Talk of tariffs and potential trade wars will be on the agenda when Trump comes to La Malbaie for the G7 summit on June 8-9. Prominent G7 members such as Germany and France are also unhappy about what they see as Trump's protectionist rhetoric.

Trudeau says Canada needs to diversify its trade flows away from the United States, which takes 75 percent of all Canadian goods exports, and has identified China as a prime target.

Talks between NAFTA partners the United States, Canada and Mexico have been stalled over a series of U.S. demands to rework the 24-year-old accord, in particular proposals to impose tougher regional content requirements on the auto industry in a bid to create more jobs in the United States.

AECON DEAL

Yet despite his criticism of the United States for arguing that auto imports might be a national security issue, Trudeau defended Canada's decision to block a proposed C$1.51 billion ($1.18 billion) takeover of construction company Aecon by a Chinese state builder, also on national security grounds.

"Our intelligence and security agencies came back with a very clear recommendation that they didn't feel the transaction should proceed for national security reasons," Trudeau said, declining to elaborate on the reasoning.

Trudeau, who visited Beijing last December and raised the prospect of exploratory talks on a free trade deal, said Canada did not "want trade with China any which way at any cost".

Trudeau has said his government had concerns about the Aecon deal's implications for intellectual property protections.

Trudeau reiterated his government's commitment to ensure a hotly contested Kinder Morgan Canada pipeline expansion project would be built, but said little about how that could be achieved if the firm walked away as it is threatening to do unless Ottawa deals with opposition to the plan.

"We are going to make sure the pipeline gets built and we are going to do it responsibly and in a way that upholds the national interest and we’re working very hard to do just that and when we have more to say, we will say more," he said.

The prime minister also defended his government's efforts to cope with a swell of irregular arrivals by asylum seekers at the U.S.- Canada border, saying those who are not genuine refugees will be sent back.

More than 27,000 asylum seekers have walked across the frontier since Trump took office and some say they left the United States because of his policies and rhetoric toward immigrants.

"There is a very high likelihood that if they are not actually fleeing the kinds of things that make you a refugee -- which is war, persecution, terror, violence ... then they are going to be sent back home," Trudeau said.

(Reporting by David Ljunggren and Andrea Hopkins; Editing by Amran Abocar and Alistair Bell)

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