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OPINION: What to do with NAFTA

Canadian Minister of Foreign Affairs Chrystia Freeland chairs a meeting in Toronto on Sunday, April 22. Trade Justice P.E.I. is calling on Islanders to contact Freeland and all four Island MPs with their concerns about the NAFTA negotiations.
Canadian Minister of Foreign Affairs Chrystia Freeland chairs a meeting in Toronto on Sunday, April 22. Trade Justice P.E.I. is calling on Islanders to contact Freeland and all four Island MPs with their concerns about the NAFTA negotiations. - The Canadian Press

Does Canada go trilateral, bilateral or no deal at all? Trumps seeking more leverage



As the NAFTA renegotiations go sideways, the pressures for Canada to cut another bilateral trade deal with the United States will be substantial. There will be calls to ditch the Mexicans from some industry associations, members of the Official Opposition and perhaps even from some provincial governments.

It is an open secret that U.S. President Donald Trump would like nothing more than to sign a bilateral pact with both Canada and Mexico. As someone who considers himself a master deal-maker, Trump sees a big win in store for America.

Recently, Trump’s senior economic adviser, Larry Kudlow, went on Fox News to explain: “His (Trump’s) preference now, and he asked me to convey this, is to actually negotiate with Mexico and Canada separately. He prefers bilateral negotiations.”

RELATED: to Trump: no deal on NAFTA unless U.S. tariffs are lifted

The response from the Canadian government thus far was swift and to the point: go take a hike! But for how long can Prime Minister Trudeau maintain this position — especially as Canada’s business investment climate continues to suffer?

At the G7 meetings in Quebec, Trump noted once again that, failing a substantially revised NAFTA, “we’re going to make a deal directly with Canada, directly with Mexico.”

Admittedly, there is a certain attractiveness to cutting the Mexicans loose and going head-to-head with American trade negotiators. After all, some of the key obstacles to securing a modernized NAFTA are because the Mexicans have remained steadfast and defiant at the negotiating table (particularly on the North American auto content file).

Is it not true that we initially entered the NAFTA talks in the early 1990s for largely “defensive” reasons — that is, to protect or defend the gains that Canada secured from the 1988 Canada-U.S. free trade agreement?

Does no one remember the old “hub-and-spoke” argument? Indeed, the U.S. would obviously be the “hub” and Canada and Mexico would be reduced to mere “spokes.” The whole idea about getting a seat at the NAFTA table — along with the then reluctant Mexicans — was to craft a trilateral deal and thus stop the U.S. from siphoning off most of the direct foreign investment as it subsequently serviced the economies of both Canada and Mexico.

speaking, there would be little incentive for global firms to set up their operations in either Canada or Mexico if their privileged access to the U.S. was essentially terminated. Furthermore, a return to a hub-and-spoke situation would clearly disrupt long-established supply chains and displace workers in Canada.

Do we really want to go down that path again? Why would we want to reverse course now — only to help the U.S. economy and damage our own? Believe me, there is something to strength in numbers.

Going bilateral, I think, only weakens Canada’s bargaining position vis-à-vis the U.S. Moreover, jettisoning a three-way pact is quintessentially Trump: first divide and then conquer ruthlessly. In other words, it gives Trump what he so desperately wants: namely, that special elixir called leverage.

Significantly, it also separates us from a friend, ally and our third largest trading partner — not to mention a country that shares many of our North American trade priorities and objectives. In fact, the Canada-Mexico united front has effectively kept both countries in the NAFTA game and, more importantly, from being pushed around by the colossal U.S.

In addition, kicking the Mexicans to the curb will severely damage Canada’s important relations with the wider Americas. As a regional heavyweight, Mexico will most assuredly take any split as a personal slight and relations with other countries in the region will cool noticeably. We will no longer be seen as a trusted hemispheric partner and thereby worthy of a UN Security Council seat.

The reality is that if Canada is now unable to achieve its chief trade goals within the current NAFTA trilateral context, there is just no way that Trump would accede to those same aims within a bilateral framework. Indeed, it’s very clear that he would use Mexico as a way of not only denying Canada’s present demands, but would also seek to squeeze more trade concessions from us.

In that type of scenario, the Trudeau Liberals would be well advised to rebuff President Trump’s bilateralism and find a way to live with no trade agreement at all.

- Peter McKenna is professor and chair of political science at the University of Prince Edward Island.

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