Federal Finance Minister Jim Flaherty said he's concerned over threats by the presidential Democratic candidates to pull the U.S. out of the free trade agreement, suggesting they need to brush up on the benefits of the pact.

'We cannot create demand for product. Demand for product comes from consumers, and there is an economic slowdown in the United States.'—Jim Flaherty, finance minister

During Tuesday night's Democratic debate, Hillary Clinton and Barack Obama said they would pull the United States out of the free trade agreement with Canada and Mexico unless it's renegotiated to include tougher enforcement of labour and environmental standards. During the campaign, both have been critical of NAFTA and what they see as its negative effect on American jobs.

"It is a concern," Flaherty said to reporters on Wednesday when asked about the candidates' comments. "I realize they are in the middle of a presidential nomination race, so they have many things on their mind. But I would think that it's very important that whoever the nominee is enters into a discussion with those who are very knowledgeable about NAFTA."

"NAFTA is of tremendous benefit to Americans. And perhaps the nominees have not had the opportunity to familiarize themselves with the benefit to Americans and the American economy of NAFTA."

Flaherty said there's a tendency in the U.S. to say the agreement favours Mexico and Canada rather than recognizing the mutual benefits that come out of free trade.

Liberal finance critic John McCallum also said he thought the threat was a lot of political rhetoric, and that no U.S. administration would pull out of NAFTA because of the devastating consequences.

"You have to remember that while it would be disastrous for Canada, it would also be disastrous for many millions of Americans who trade with Canada," he said.

"One cannot dismiss it altogether. But I am strongly of the view that it's likely to be political rhetoric, and at the end of the day, if only because there are just as many Americans who would lose from this as there are Canadians, no American government in reality would do this."

$250M to support fuel-efficient cars

Flaherty met with reporters a day after unveiling his third budget. He was asked why the oil and gas industry was getting about the same amount of money as the auto industry when the auto industry was struggling. 

The budget includes $250 million for projects to capture and store carbon dioxide produced by industry so that the gas isn't released into the atmosphere. It also includes $250 million to support the development of fuel-efficient cars.

"The environment is very important," Flaherty said. "CO2 sequestration is vital. That's why we made that huge investment in that project.

"It's absolutely important for the future of our country in terms of a greener Canada and also in terms of our ability to develop the oilsands and so on."

Encourages innovation, research

Flaherty said the government was in fact helping the auto industry with more than $1.5 billion through a number of initiatives, but cautioned that there's only so much the government can do.

"We cannot create demand for product. Demand for product comes from consumers, and there is an economic slowdown in the United States."

He said the best way to encourage a strong auto industry is through innovation and research.

Flaherty also said the Tories' one-time campaign pledge to make capital gains tax free if reinvested within six months was on hold for the time being.

"Never's a big word. I would hope that we could do more in the future on that."

Instead, Flaherty pointed to the new tax-free savings accounts (TFSA) unveiled in the budget, which will debut in 2009. The accounts will allow Canadians 18 and older to invest up to $5,000 annually. Unlike an RRSP, contributions to the new accounts will not be tax deductible, but there will be no tax on investment income, including capital gains.

"This is a major structural change in the Canadian tax system, including capital gains."

But he said he doesn't anticipate "taking any further tax measures in the near term. Certainly we're in a time of economic slowness in the United States that affects the Canadian economy."