US and Mexico throw Canada under NAFTA bus

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US and Mexico throw Canada under NAFTA bus

North American Free Trade Agreement renegotiations resumed on Wednesday with pressure growing on Canada to cut into the bilateral deal agreed last week between the US and Mexico. September will, therefore, be a crunch month for Washington’s relationship with Ottawa and the future of multilateralism, with both already at very low ebbs.

A key reason why the stakes are now so high for Canada is that, last Friday, Donald Trump informed Congress of his intention to sign the Mexican trade agreement after a proposed deadline for widening the deal to Ottawa lapsed. The president tweeted on Saturday: “There is no political necessity to keep Canada in the new NAFTA deal... If we don’t make a fair deal for the US after decades of abuse, Canada will be out.”

The US-Mexico deal underlines how Trump’s “America first” agenda is reshaping the international political economy, especially in combination with the president’s earlier decisions to withdraw the US from deals like the Trans-Pacific Partnership, launch new trade sanctions against world powers from the EU to China, and also threaten to withdraw from the World Trade Organization.

To be sure, Trump has kept open the option of Canada remaining in a new NAFTA pact if it proves willing to accept US terms from the US-Mexico deal. The US president confirmed media reports on Friday that he made controversial off-the-record comments last week, stating that any deal with Canada would have to be “totally on our (US) terms.”

The dilemma could not be starker for the administration of Prime Minister Justin Trudeau, given that NAFTA underpins three-quarters of the exports Canada sends across the US border, with 2.5 million jobs in the country depending on this trade. With tough choices to make, given the threat of new punitive tariffs if talks collapse, many in Ottawa think the country has been thrown under the NAFTA bus after renegotiations had proceeded on a trilateral basis for almost a year.

The reason why timeframes are so tight, and why Trump gave the notification to Congress last week, triggering 90 days of legislative scrutiny, is that he and outgoing Mexican President Enrique Pena Nieto want to sign a deal before the latter is replaced on Dec. 1 by populist Andres Manuel Lopez Obrador. It is feared in Washington that, unless a deal can be signed before Lopez Obrador comes into office, he may throw a spanner in the works.

To be sure, Trump has kept open the option of Canada remaining in a new NAFTA pact if it proves willing to accept US terms from the US-Mexico deal

Andrew Hammond

Lopez Obrador said in June, for instance, that, if NAFTA collapsed, it “cannot be fatal for Mexicans; our country has a lot of natural resources, a lot of wealth.” He also asserted that, in this scenario, he would seek to redirect the country’s economy toward internal markets and reviving the rural economy.

However, it is not just Mexican political risk driving this tight approval timetable. With US midterm ballots in November, and the more protectionist-leaning Democrats having the potential to win back the House of Representatives and/or Senate, the White House intends to try to get the trade legislation approved in the so-called “lame-duck” session of Congress after the Nov. 6 elections but before new legislators are sworn in on Jan. 6.

With Trump turning the screws, one ray of light for Trudeau is that some Republicans in Congress have warned the White House that a purely bilateral deal with Mexico, without Canada, could struggle to win approval. In the face of these concerns, Trump tweeted that: “Congress should not interfere with these negotiations or I will simply terminate NAFTA entirely and we will be far better off.”

The stakes in play in the coming days are high not just for Canada, but also multilateralism, with the trilateral accord between Ottawa, Washington and New Mexico on the brink of collapse. The reason why the end of NAFTA, which today accounts for more than $1 trillion in annual trade, would be so significant is that, on its establishment in 1994, it was the most comprehensive trade agreement outside the EU. It was also the first major trilateral trade accord negotiated between a developing country (Mexico) and developed counterparts (US and Canada).

Yet, despite having significant business support, NAFTA’s standing has been eroded by criticism from both the US political left and right. Both, for instance, have blamed it for contributing to a hollowing out of the US manufacturing industry, partly because of increased trade deficits with Mexico and Canada, while Trump has called it “the worst trade deal maybe ever signed anywhere, but certainly ever signed in this country.”

Taken overall, with NAFTA’s future hanging in the balance, Trudeau is facing a last-gasp bid to wring concessions from Trump. Should he fail, he faces the unenviable choice of either capitulating or potentially walking away from a key driver of Canada’s prosperity over the last quarter of a century.

  • Andrew Hammond is an Associate at LSE IDEAS at the London School of Economics
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