Mexico bracing for possible demise of Nafta, while Canada is 'cautiously optimistic'

US President Donald Trump has threatened to withdraw from Nafta if the deal that he blames for destroying American manufacturing jobs is not renegotiated.
US President Donald Trump has threatened to withdraw from Nafta if the deal that he blames for destroying American manufacturing jobs is not renegotiated.PHOTO: REUTERS

WASHINGTON (WASHINGTON POST, REUTERS) - Mexico’s government is preparing for the potential demise of the North American Free Trade Agreement (Nafta) as it looks to increase ties with Asia, according to a top diplomat.

“We are preparing for the scenario where we do not have a Nafta,” Kenneth Smith Ramos, director of the Nafta office at the Mexican Embassy in Washington, said at a trade conference on Thursday (Feb 16).

Mexico still holds out hope that it can protect and modernise the agreement, though officials oppose the idea of raising tariffs, he added.  

The comments come as Mexico prepares to hold talks with US President Donald Trump, who has threatened to withdraw from Nafta if his partners aren’t willing to renegotiate a deal that he blames for destroying American manufacturing jobs.

Relations between the two countries soured last month when Mexican President Enrique Pena Nieto canceled a trip to Washington after Trump doubled down on demands that his southern neighbor pay to build a border wall.  

Gilles Gauthier, economic affairs minister at the Canadian embassy in Washington, said at the same forum on Thursday that it makes sense to renegotiate some details of  
Nafta bilaterally. He added that his country supports a progressive deal with labour and environmental safeguards.

Canadian ties with Trump have remained more positive, especially after Prime Minister Justin Trudeau visited the White House earlier this week. 

Trump pledged publicly to only “tweak” Canada’s side of the two-decade old trade deal and ease the flow of goods along the northern border, while saying he’d focus instead on the “unfair” U.S. commercial relationship with Mexico to the south.  

Canada’s government is confident that Trump’s intent to “tweak” the agreement won’t result in any major negative changes, the country’s envoy to Washington said on Wednesday.  

Ambassador David MacNaughton spoke to reporters, two days after joining Prime Minister Trudeau in meetings with Trump at the White House on Monday. While it’s still unclear what Trump will do on trade, the diplomat said Canada is “cautiously optimistic.”

“Tweaking is not a fundamental change,” MacNaughton said in Toronto. “You never know in these things, but I’m quite optimistic that it’s going to be good for us.”

Canada has identified “half a dozen things within Nafta” that it would like to see changed, MacNaughton said, without specifying.

Conversations with the US have so far been “good,” he added, while cautioning that there won’t be total certainty for businesses until Trump’s full cabinet is in place.

“It’s a bit of shadow boxing right now, we don’t know exactly what they want to do or where they’re going to go,” MacNaughton said. “One of the things we talked to the White House about over the past month and a half was that we needed to be in a position to establish confidence in the business community in Canada and the United States that things won’t change dramatically.”

The country’s confidence stems in part from its belief that any major changes that hurt Canada would also hurt the US. The two countries’ steel industries, for instance, have closely integrated supply chains.

“To disrupt all of that would be very bad not just for us, but for the Americans,” he said.  

Canada hadn’t done enough to keep the US informed about the benefits of their trade relationship, MacNaughton said.

However, that is changing with a widespread lobbying campaign in Washington involving federal politicians from different parties, as well as provinces and cities.

“I think we’ve fallen down a bit on the job in terms of convincing them about how their prosperity and our prosperity are so linked,” he said. “I have never seen in my numerous years being in and around public policy the degree of cooperation and sense of purpose we have in Canada at the moment.”

However, some officials and trade experts said Canada will not emerge unscathed.  

“I can’t see how it’s possible at all. It would be very complicated to do and I don’t think Mexico would ... ever go along with it,” said Mark Warner, a trade lawyer and principal at MAAW Law in Toronto on Tuesday.  

Canada and Mexico send the bulk of their exports to the United States under Nafta.  One senior Canadian government official, asked how the agreement could be tweaked for one partner and changed in a major way for another, admitted frankly, “I don’t know.”

Trump spoke after his first meeting with Trudeau, who is trying to sell the merits of Nafta while opposing a border tariff, an idea circulating in US political circles that could badly hit Canadian industries.  

Warner said that if the US government decided to impose the tariff, “the consequences of that could be described as a tweak but the significance of it would be major.”

Matthew Kronby, an international trade lawyer at Bennett Jones in Toronto, said “it is very hard to tease apart the elements of the deal that I suppose Trump might think are a disaster with Mexico while leaving it intact with Canada.”

Officials say that while Trump did not reveal any details about his intentions on Nafta, Canada would suffer collateral damage, whatever the administration pushes for.

“We cannot be untouched or unscathed by this,” said one person familiar with the matter.  

Separately, another official working on the bilateral trade file said that once talks started, the US dairy industry was set to demand Canada dismantle its supply management system of tariffs and taxes that keep out most dairy imports, including those from the US.

“That could be a very unpleasant conversation,” said the official, who asked to remain anonymous because of the sensitivity of the situation.  

Trudeau’s ability to make concessions is limited since all of Canada’s major political parties have vowed to protect supply management. Holding out too firmly though could irritate the American side, which might demand concessions elsewhere.