Three top Canadian cabinet ministers are heading to Mexico City in a bid to ensure Canada and Mexico maintain a united front in fractious NAFTA negotiations with the United States.
Mexico is preparing for a change of power after a July 1 election and Foreign Affairs Minister Chrystia Freeland, Finance Minister Bill Morneau and new International Trade Minister Jim Carr will try to take the measure of newly elected leftist leader Andres Manuel Lopez Obrador and plot strategy.
Mexico and the United States are scheduled to hold one-on-one talks Thursday in Washington. U.S. trade representative Robert Lighthizer is hosting Mexican Economy Minister Ildefonso Guajardo as well as Jesus Seade, who will represent the incoming Lopez Obrador administration.
Ms. Freeland as of Tuesday was not scheduled to join Mr. Lighthizer and Mr. Guajardo. Canadian officials played down the fact they will be absent from the meeting, saying it’s not unheard of for two of three NAFTA partners to discuss sticking points without the third present.
Formal North American free-trade agreement discussions stalled in May over including auto manufacturing rules and Washington’s demand for an expiry clause in the deal. Last week, U.S. President Donald Trump mused publicly – not for the first time – about striking a deal with Mexico separately from Canada.
This carries the threat of replacing the trilateral trade deal with two bilateral accords in a spoke-and-hub arrangement that gives an advantage to the United States over its two neighbours and which Canada sought to avoid by pursuing the original NAFTA deal in the 1990s.
Ms. Freeland, Mr. Morneau and Mr. Carr will meet departing president Enrique Pena Nieto as well as Mr. Lopez Obrador, the president-elect, who doesn’t take office until Dec. 1. Ms. Freeland will also meet with Mr. Guajardo and Foreign Minister Luis Videgaray Caso.
Former Canadian government trade official Matthew Kronby, now a partner with Borden Ladner Gervais, said he expects the Canadians will be seeking to ensure Canada and Mexico work effectively together and “resist the Trump administration’s divide and conquer efforts.”
Tension over NAFTA has been further exacerbated by hefty protectionist tariffs the Trump administration imposed on Canadian and Mexican steel and aluminum and threats the U.S. President has made to hit Canadian- and Mexican-made autos with duties.
Mr. Trump escalated his protectionist rhetoric on Tuesday. The U.S. President, who has sparked trade wars with many major allies as well as rivals such as China by imposing tariffs, or punitive levies on foreign imports, tweeted that “tariffs are the greatest” for forcing other countries to renegotiate terms of commerce with Washington. “We are the ‘piggy bank’ that’s being robbed,” he said.
His administration also announced up to US$12-billion in emergency aid for American farmers hurt by his trade wars – money to ease the pain of retaliatory tariffs imposed by jurisdictions from China to Canada to the European Union.
Mexico and the United States appear to be hopeful they can at least cut a deal in trade talks. Mr. Seade, the Lopez Obrador trade adviser, told Mexican radio that he believes it’s almost inevitable a deal can be reached within months.
In a speech at the White House about U.S. manufacturing Monday, Mr. Trump also spoke optimistically about terms with Mexico. “We’re talking to Mexico on NAFTA, and I think we’re going to have something worked out.”
He added that "the new president,” referring to Mr. Lopez Obrador, is a “terrific person,” adding the United States is talking to Mexico “about something very dramatic, very positive for both countries,” but gave no details.
U.S. trade lawyer Daniel Ujczo said he believes the Trump administration wants to negotiate with Mexico alone right now – and then Canada separately – in a two-stream approach. This doesn’t herald the beginning of a split into separate bilateral deals, but an effort by the Americans to take a different tack in negotiations. “This is tactical not transformative,” said Mr. Ujczo, who has worked on trade files for both the American and Canadian governments.
He said he thinks the United States and Mexico will try to reach an agreement on principle in the coming weeks, at least on autos.
A senior Canadian official with knowledge of the talks said a major logjam in NAFTA talks is the wage requirements the U.S. is seeking, along with a requirement for 70 per cent North American content in cars manufactured on the continent to qualify for duty-free entry to the U.S. market.
If the wage floor was enacted immediately, the Canadian official said, four major Mexican auto plants would immediately go out of business. Mexico is demanding some sort of structure to grandfather, or exempt, existing plants at least for the short- to medium-term, he said. The United States refused to grant this during talks this spring and this greatly contributed to stalling talks, the official said.
Canada, however, is willing to agree to everything Mr. Trump wants on autos, now that Washington has dropped its demand for 50 per cent U.S. content on vehicles manufactured in NAFTA countries and sold in the United States, the official said.
Canada and the United States remain deadlocked, however, on the Trump demand for a “sunset clause” that would terminate the deal in five years unless all three countries ratified an extension, the official said. Mexico is also adamant about rejecting this expiration date on NAFTA. Both Canada and Mexico are willing to agree to a review of NAFTA however.
The Canadian official revealed that the Trump administration has previously tried to put pressure on Canada over NAFTA by claiming to have reached a deal with Mexico. Shortly after Mr. Trump’s inauguration, the Americans presented the Canadians with what the official described as a back-of-the-napkin agreement that Jared Kushner, the President’s son-in-law and presidential adviser, had purportedly reached with Mexico’s Mr. Videgaray. The Americans presented this as an agreement with Mexico on subjects such as auto content rules and challenged the Canadian government to respond before Ottawa learned there in fact was no deal and that Mr. Videgaray had only been speaking hypothetically to the new U.S. administration.