Canada concerned about protectionism if NAFTA dies

(Adds Liberal and Conservative comments)

OTTAWA, Feb 27 (Reuters) - Canada voiced concern on Wednesday about "protectionist outbursts" from the United States if that country were to pull out of the NAFTA trade agreement as Barack Obama and Hillary Clinton are threatening.

The two Democratic presidential candidates said in a debate on Tuesday that they would opt out of NAFTA, the North American Free Trade Agreement, unless certain environmental and labor standards were renegotiated.

"I've been very concerned for a couple of years now. The rhetoric of protectionism has been creeping, it's been getting more strident, it's permeating Congress, protectionist groups are flexing their muscle," Canadian International Trade Minister David Emerson told a crush of reporters.

"And it's not just the heat of the election campaign that's causing concern."

Emerson said that if the United States left NAFTA, which also includes Mexico, he did not envisage it suddenly erecting large tariff barriers.

But he did see the possibility of long-standing disputes erupting again and not being easily settled.

"The biggest risk is that there will be periodic outbursts of protectionist sentiment. It may be softwood lumber one day, it may be beef another day. The real risk is that you lose the ability to resolve these disputes in a relatively neutral and objective way," he said.

Canada has run substantial trade surpluses with the United States under NAFTA -- for 2007 it was C$85.2 billion ($86.9 billion at current exchange rates) -- but Emerson dismissed this as "simply an accounting outcome".

He said inputs and outputs from manufacturing plants go both ways, and he pointed out that Canada is the largest supplier of energy to the United States "and NAFTA has been the foundation of integrating the North American energy market."

The Conservative minister, a former lumber company executive, predicted the United States will not pull out of NAFTA.

"I think sound, wise judgment will prevail at the end of the day," he said.

Liberal Member of Parliament John McCallum, a former bank economist, said he was concerned about protectionist sentiment among some Democrats. "If the U.S. were to pull out of NAFTA it would be a catastrophe for Canada," he said.

However, he dismissed the idea that this would actually happen.

"That's the political rhetoric you get in a political race where the stakes are high and it's close. You have to remember that while it would be disastrous to Canada it would also be disastrous to many millions of Americans who trade with Canada," he said.

"So at the end of the day I don't think it will happen." (Additional reporting by David Ljunggren; Editing by Peter Galloway)