Canada, Mexico and NAFTA

Should Canada ditch Mexico and go it alone with U.S. on new trade agreement?

NAFTA was designed to help Mexico, but now it’s hurting Canada, argues journalist

As NAFTA talks become ever more fractious, some commentators are asking whether it’s time to disband the three-way agreement and form bilateral pacts between the countries. (Judi Bottoni/Associated Press)

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Canada should recognize Mexico as a “toxic” trading partner, and pull out of NAFTA in favour of a bilateral trade agreement with the U.S., says Diane Francis, editor at large with the National Post.

“Canada should look after Canada,” Francis told The Current’s Anna Maria Tremonti. “We have nothing to be sorry about.”

The U.S. announced Thursday that Canada, Mexico and the E.U. would be subject to tariffs of 25 per cent on imported steel and 10 per cent on aluminum. Ottawa responded with a promise of dollar-for-dollar tariffs on a variety of goods.

Industry insiders said the U.S. tariffs are intended as leverage over NAFTA negotiations, which stalled last month. In a tweet earlier today, U.S. President Donald Trump condemned Canadian “trade barriers.”

Donald J. Trump

@realDonaldTrump

Farmers have not been doing well for 15 years. Mexico, Canada, China and others have treated them unfairly. By the time I finish trade talks, that will change. Big trade barriers against U.S. farmers, and other businesses, will finally be broken. Massive trade deficits no longer!

Francis told Tremonti that signing the trade deal with Mexico in 1994 “was a bootstrapping exercise to help the neighbour to the south get better living standards, higher wages and get their act together.”

But more than two decades later, Francis said that Mexico is worse off now than it was back then.

Those low wages are bad for Mexican workers, Francis said, but low costs also draw investors south, hurting Canada’s industrial base.

Former U.S. president Bill Clinton signs the North American Free Trade Agreement Dec. 8, 1993. (Paul J. Richards/AFP/Getty Images)

By contrast, Francis points to the strong, “harmonious” trading relationship between Canada and the U.S.

“Bilaterally, we have so few irritants between each other,” she said.

She argued that adding Mexico to the mix and trying to “cling to a trilateral agreement” isn’t in Canada’s best interest.

Mexico is a ‘hidden success story’

Turning away from Mexico would be a strategic blunder, according to Colin Robertson, a former Canadian diplomat who helped to negotiate the Canada-U.S. Free Trade Agreement in the late ’80s, and then later NAFTA.

“[It] would put us at a disadvantage with both the United States and any effort we wanted to have to expand trading ties, especially within the Americas,” he told Tremonti.

“I think there’d be a certain temptation on the part of Latinos: If we were to throw Mexico under the bus, then they would think, ‘How reliable is this further gringo to the north?'”

Prime Minister Justin Trudeau and Mexican President Enrique Peña Nieto in Mexico city on Oct. 12, 2017. Former diplomat Colin Robertson said that the countries had formed a strong alliance through NAFTA. (Alfredo Estrella/AFP/Getty Images)

Mexico has been a “hidden success story” of NAFTA, he said, with improvements in the democratic process and a growing middle class.

“When we went into the North American Free Trade Agreement it was about number 13 or 14 in the list of our trading partners,” said Robertson, who is now vice-president and fellow at the Canadian Global Affairs Institute.

“It’s now our third largest trading partner, we’ve got big investments in mining and banking and manufacturing.”

Robertson pointed to the country-of-origin labelling dispute over meat products in the late 2000s as an example of Canada and Mexico working together to win a dispute with the U.S.

“[Donald Trump’s book] The Art of the Deal is all about divide and conquer,” Robertson said, “and it would make no sense for us to separate from Mexico when together we have a much better chance of getting a good agreement.”

Prime Minister Justin Trudeau with U.S. President Donald Trump in Washington, where they discussed NAFTA on Oct. 11, 2017. (Jonathan Ernst/Reuters)

The elephant and the mouse

Seeing Mexico as an ally against the U.S. is a mistake, Francis argued, because Mexico and Canada represent only 7 per cent of the three countries’ combined GDP.

Comparing the U.S. and Canadian economies is like comparing an elephant and a mouse, she added — referencing Pierre Trudeau’s famous analogy from 1969.

“Now we’re aligned with another mouse, who’s toxic, and is actually kind of toxic to us.”

Ending the deal and pursuing separate agreements is the solution, she believes.

“I really think that we need to reorient ourselves, and get in the same space to a certain extent, as the Americans are, vis-a-vis Mexico,” she said.

Listen to the full conversation near the top of this page.


This segment was produced by The Current’s Idella Sturino and Pacinthe Mattar.

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Trade Retaliation

Maple syrup from Vermont and perhaps California wine may be on Ottawa’s hit list in response to U.S. President Donald Trump’s proposed tariffs on steel and aluminum.

Lisa Rathke/The Associated Press

Canada will need to either bend or break international trade rules to take quick retaliatory action should the United States slap hefty tariffs on Canadian-made steel and aluminum, but experts say Ottawa has been forced into this position by an exceptionally protectionist White House.

Canadians should expect to pay more for iconic U.S.-produced goods if a trade war breaks out. Ottawa could slap import charges on goods from California wine to Vermont maple syrup – the sort of items that Canada has targeted in previous trade conflicts with Washington.

Canada has not released any lists of products – and the Trudeau government is staying mum on possible retaliation while it continues to seek an exemption from the Trump action. But experts suggest looking back at past trade spats with the United States – such as a 2014 dispute over meat labelling – to see what Canada has been prepared to hit.

Canada will be in good company in this trade fight, however, because more than 20 other countries or trading blocs will be taking similar countermeasures.

The European Union has already outlined a list of U.S. exports it would target after President Donald Trump said he will levy a tax of 25 per cent on imported steel and 10 per cent on aluminum.

U.S. President Donald Trump told a joint news conference that he still backs the idea of adding tariffs to steel and aluminum imports, linking them to a new NAFTA deal. Trump said he will straighten out trade in a “loving, loving” way.

Normally, Canada is supposed to seek retaliatory authority from the World Trade Organization to impose countermeasures on foreign countries but this process can take years. But, unlike past quarrels with the United States, Canada will be hard-pressed to act immediately – regardless of what the rules say.

“I don’t believe any countries affected by these tariffs will wait for WTO procedures to be completed before acting,” international trade lawyer Lawrence Herman said.

“Politics will drive this. Governments, including Canada, will be forced to respond immediately. That’s the dangerous precipice we’re facing, thanks to Mr. Trump.”

Colin Robertson, a former Canadian diplomat, writing in The Globe and Mail, says Canada and other countries threatened by the Trump tariffs should be drawing up a common list of U.S. exports that they could target with retaliatory action.

The EU has already warned it plans to target key Republican leaders with import taxes on items such as Kentucky bourbon – a product from the home state of Senate Majority Leader Mitch McConnell – as well as cranberries and dairy products from Wisconsin, home to House Speaker Paul Ryan.

Mr. Trump threw cold water on hopes for a Canadian exemption this week when he warned Canada would not be spared unless it agrees to U.S. demands for changes to the North American free-trade agreement – a series of protectionist U.S. requests that both Ottawa and Mexico City have characterized as unreasonable.

He said Tuesday that the tariffs will be applied in a “loving way.”

Mr. Ryan, the most powerful member of the U.S. House of Representatives, said the proposed tariffs are too broad and open the country to possible retaliation. Mr. Ryan named China, rather than Canada, as a problem.

The steel tariffs will be raised Wednesday at a meeting between auto industry leaders and officials in Prime Minister Justin Trudeau’s office, said Jerry Dias, president of Unifor, who will attend the meeting.

Auto industry executives sought the meeting to urge Mr. Trudeau to halt Canada’s participation in the Trans-Pacific Partnership trade agreement, which will eliminate Canada’s 6.1 per cent tariff on vehicles imported from Japan.

One U.S. trade expert estimates the annual cost to Canada of the steel and aluminum tariffs could be US$3.2-billion. Chad Bown, a trade adviser to former president Barack Obama, wrote in an article for the Peterson Insitute for International Economics that this amount would be roughly what Canada could justifiably expect to seek compensation for in retaliatory action against the United States.

Former Canadian government officials have said it’s very difficult to pick retaliatory targets. In 2005, when Canada was angry at a U.S. law that funnelled cash collected from tariffs on foreign goods to U.S. companies, Ottawa drew up a list that targeted the states where U.S. politicians voted for the legislation. In that case, Ottawa was forced to abandon some retaliatory targets – such as U.S. motorboats – because of push-back from Canadian industry. Its final list was narrowed down to a few items, such as tropical fish.

Laura Dawson, director of the Canada Institute at the Wilson Center in Washington, said Canada’s best bet to head off the tariffs may be to wait for the U.S. system of checks and balances to run its course, including a likely court challenge of steel tariffs by companies that buy steel.

“People are already talking about how court challenges will be launched, what would the courts be asked to adjudicate; would they be asked to adjudicate what constitutes a national security threat?” Ms. Dawson said.

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