Canada and Mexico Face Uncertainty of NAFTA Renegotiation

By Daniela Stevens*

Two men stand at podiums with Mexican and Canadian flags behind them

Canadian Prime Minister Justin Trudeau gives a presentation with Mexican President Enrique Peña Nieto during an official visit to Mexico in October 2017. / Presidencia de la República Mexicana / Flickr / Creative Commons

Facing the growing possibility that the Trump Administration is walking away from the North America Free Trade Agreement (NAFTA), Mexico and Canada are beginning to look for trading partners beyond the United States.  The interdependencies binding the three are strong.  Both Mexico and Canada have deep commercial ties with the United States, which imports about 80 percent of Mexico’s exports and about 70 percent of Canada’s.  Both have significant leverage vis-à-vis the United States as well.  U.S. auto and agriculture industries have a major stake in free trade with Mexico, which also provides important cooperation on security issues and controlling Central American migration.  Liberalization measures within the energy sector by the current Mexican administration make Mexico a strategic partner in terms of energy security.  Canada buys about 19 percent of U.S. exports.

But these ties are fraying as conversations drag on.  Trump Administration proposals are hurting the talks; especially contentious are changes in the “rules of origin” (since the United States proposed increasing the U.S. content of autos to 85 percent from the current 62.5 percent) as well as the inclusion of a “sunset clause” that would make NAFTA expire unless it is renegotiated every five years.  NAFTA’s Article 2205 lets either of the three member countries announce its withdrawal from the accord with six months’ notice.  Canadian and Mexican trade officials have not given such notice yet, but they show signs of heading in that direction.  Both have held high-level meetings with counterparts from South America and Europe, according to official and non-government sources.

  • Mexican President Peña Nieto’s administration has expressed a preference for leaving the negotiations over accepting “a free trade agreement that ceases to promote free trade.” President Trump has said that his administration would be willing to negotiate a free trade agreement with Canada alone if the NAFTA talks fail.  However, Canadian Prime Minister Trudeau’s government has stated a preference for keeping the trilateral alive rather than resorting to bilateral agreement, since the terms of the U.S.-Canada deal were more outdated than the NAFTA’s.  The two presidents have been reluctant to take these actions because they apparently believe, as do many experts, that dismantling NAFTA would inevitably create uncertainty and inefficiencies for the three economies.  For example, the auto sector relies on three-way product flows that move several times across borders to be assembled into finished products.  Canadian and Mexican auto parts makers have a direct stake in each other’s dealings with the United States.  Even small duties would add up.
  • Nonetheless, some increased trade and a bilateral free trade agreement between just Mexico and Canada is possible. The two countries originally joined NAFTA to protect their access to the U.S. market, not to obtain access to each other’s.  Canadian public opinion and media reflect continued disinterest in Mexico, which is viewed as unstable due to drug-related criminality and corruption.  However, as the completion of a satisfactory NAFTA renegotiation is unlikely, Canadians are exploring deepening the bilateral link.  Mexican interest in Canada is also growing, according to some specialists.  Beyond North America, moreover, Canadians and Mexicans are exploring trade and investment diversification.  Canada is looking for increased cooperation with Latin America, in particular within the Pacific Alliance, a free trade partnership that includes Mexico, Chile, Peru and Colombia, and of which Canada is already Associate Member.  Mexico started a renegotiation last January of its free trade agreement with the European Union, which parties hope to finalize in the next few days.  It has begun warming up neglected ties with the Southern Cone and has already pledged to deepen ties with China.

Trade experts convened recently within the framework of American University’s Robert A. Pastor North America Research Initiative (NARI) were unanimous that that a trilateral agreement that protects the interests of all three partners would be the optimal outcome, but few observers of the NAFTA talks are confident that the Trump Administration will soften its position.  Canada’s commitment to a trilateral renegotiation should exert more pressure on the U.S. to compromise while strengthening both Canada and Mexico’s negotiating positions.  In the event of U.S. withdrawal from NAFTA, however, the two can expand their trade and investment relationship by lowering barriers further through modernization and e-commerce.  In addition, trade can potentially expand between the two since they have similar approaches to achieving various commitments of the Paris Accord involving energy projects and greenhouse gas emissions reductions.  Pastor Scholars concluded that both countries will have to carry out public campaigns to explain to their constituencies the benefits of continued cooperation, either trilateral or bilateral, if the United States significantly alters or abandons NAFTA.  Mexico and Canada have options outside North America in the quest for trade and investment diversification – even though their preferred scenario is a stronger NAFTA.  China, South America, and the European Union arise as the most readily available partners.

December 21, 2017

*Daniela Stevens is a Ph.D. Candidate in the American University School of Public Affairs and a Pastor Scholar.  Her research focuses on national and subnational policies that put a price on carbon emissions.

Canada-Cuba Relations Poised for Progress under Prime Minister Justin Trudeau

By John M. Kirk*

Cuba Canada

Photo Credits: Wisegie/ Flickr / Creative Commons, Pixabay / Creative Commons

After a decade of ignoring Cuba under the government led by Stephen Harper, Canada is on the cusp of an era of a significant improvement in bilateral relations with the island.  Many constants supporting this longstanding relationship remain: Canada, along with Mexico, was the only country in the Western Hemisphere not to break relations with revolutionary Cuba in 1962; Pierre Trudeau was the first leader of a NATO country to visit Cuba (1976) and developed a strong friendship with Fidel Castro (who was an honorary pall-bearer at his funeral); Canadians make up the largest tourist group (1.3 million a year) there; and the largest single foreign investor in Cuba is the Canadian firm Sherritt International.

Justin Trudeau, elected prime minister in October 2015, has undertaken several significant foreign policy initiatives, mainly in Asia and Europe.  Steps to improve relations with Cuba have been taken slowly, but are noticeable.  In May Cuban Foreign Minister Bruno Rodríguez visited Ottawa and Quebec City, while Canada’s Minister of Tourism Bardish Chagger attended the International Tourist Fair in Havana, at which Canada was the “invited country of honor,” reciprocating an earlier visit by her counterpart.  In December the Canadian Senate held a special session to celebrate the 70th anniversary of diplomatic relations.  Canada has been invited as the country of honor to the International Book Fair in Havana, in March 2017, and it is rumored that Trudeau will shortly visit Cuba.  Significantly, the gradual improvement of bilateral relations is due mainly to Canadian initiatives, and not to developments in the U.S.-Cuba relationship.

  • Investment and trade, however, have not kept up with diplomatic initiatives. Annual bilateral trade remains about $1 billion, mainly because of uncertainty over Cuba’s economy.  Canadian business has yet to take advantage of its privileged relationship, concerned with existing U.S. legislation and the looming wave of U.S. investment once the embargo is lifted.

After a decade of neglect, Canada and Cuba have the potential to rediscover their deep-rooted ties.  Trudeau’s willingness to work with Cuba and his diplomatic initiatives were unthinkable under the Harper government.  A complicating factor for business has been the arrest and imprisonment of two Armenian-Canadian entrepreneurs, found guilty of corruption.  Canadian civil society ties remain strong, with Canada making up 43 percent of tourists to Cuba.  Again, however, concern exists at how Canadian tourists face skyrocketing prices when Americans are allowed to visit the island.  In sum, Canada-Cuba relations are at this point characterized by political commitment to improve ties, largely untapped commercial potential, and anxiety about the ramifications of closer U.S. ties with Cuba.  The big question is whether Canadian trade and investment will provide the energy to propel relations beyond their special past status into a new era of collaboration.

August 8, 2016

*John M. Kirk is Professor of Latin American Studies at Dalhousie University in Canada.  He is the author/co-editor of 16 books on Cuba, and also works as a consultant on investment and trade in Cuba.