US-Mexico deal muddies waters for Canada in continental trade talks

US President Donald Trump's breakthrough deal with Mexico has left analysts split on Canada's position in continental trade negotiations.
US President Donald Trump's breakthrough deal with Mexico has left analysts split on Canada's position in continental trade negotiations. PHOTO: REUTERS

MONTREAL (AFP) - Back against the wall or holding all the cards: Analysts were split on Canada's position in continental trade negotiations after US President Donald Trump announced a breakthrough deal with Mexico on Monday (Aug 27).

Canadian Foreign Minister Chrystia Freeland immediately interrupted a trip to France, Germany and Ukraine and headed to Washington to resume trilateral negotiations to rewrite the North American Free Trade Agreement (NAFTA).

Prime Minister Justin Trudeau had a "constructive conversation" with Trump on the progress with Mexico, the prime minister's office said.

The leaders now "look forward to having their teams engage this week with a view to a successful conclusion of negotiations".

But in the announcement with Mexican officials, Trump took a hard line and said Ottawa would be left on the sidelines.

Trilateral talks started a year ago at the behest of Trump, who railed against the original 1994 pact calling it a "ripoff" and a "disaster", but now seems eager to close a new deal before the US midterm elections in November.

Mexico's outgoing government also is keen to have a deal in place before handing off to incoming President-elect Andres Manuel Lopez Obrador on Dec 1.

Lopez Obrador called for a three-way trade deal, saying "it's important that Canada also be included." US and Mexican officials met separately over the past five weeks to hammer out key bilateral issues before announcing the agreement that updates provisions on financial services, labour and e-commerce, and importantly the auto trade.


"Canada is (now) going to be presented with more of a take-it-or-leave-it offer," CIBC Economics analyst Avery Shenfeld said.

Although the Mexicans have insisted on a deal that includes Canada, "by saying Canada could be left out, the US is threatening to take a tough line in those talks," he noted.

University of Ottawa professor Patrick Leblond told AFP, "President Trump wanted to get a win quickly, at least publicly. And he thinks this will put pressure on Canada to get a deal.

"The big question is what do the Americans want from Canada to reach a trilateral deal," he said.

Trump said he would not stand for continue high tariffs on US dairy products, and threatened to simply keep Canada out and impose tariffs on autos.

Leblond said it would be political suicide for Trudeau's Liberal administration, with one year before a general election, to give in to US demands for significantly greater access to Canada's protected dairy market.

"If they want Canada to ditch (dairy) supply management, I don't see how the Liberals could sell that to Canadians in an election year," he said.

"It's too much of a risk politically." The opposition Conservatives also sounded alarms.

"I am troubled that despite the fact that NAFTA grew out of the Canada-US free trade agreement, Mexico appears to have usurped our role as the key US trade partner," lawmaker and trade critic Erin O'Toole said.

Conservative leader Andrew Scheer tweeted that "Canada is on the outside looking in while Canadian jobs hang in the balance."

He blamed Trudeau, saying "his economic failures have ruined Canada's bargaining position and jeopardised thousands of jobs." .

'Good start' or 'catastrophic'

But Jerry Dias of the Canadian auto workers union said what's on the table "is a good start" and "significant." He pointed to labour and rules of origin provisions broadly outlined in the Mexico-US deal that he said Trudeau's negotiators are seeking.

"A lot of people are viewing this as a negative but I don't see that at all," he told AFP.

"Canada has been leading the charge for raising Mexican workers' standard of living."

The US-Mexico agreement has tougher new protections for collective bargaining, and requires 40 per cent of autos receiving duty-free treatment to come from factories where workers make at least US$16 an hour.

"Mexico made a quantum shift from where they were thanks, I think, to their new president who argued that NAFTA was terrible for Mexican workers who got the jobs but not the pay," he said.

University of Laval professor Louis Belanger agreed, explaining that the US-Mexico issues were obstacles to reaching an accord and needed to be resolved separately before trilateral negotiations could continue.

But he said a quick conclusion to trilateral negotiations appears unlikely.

"What has happened is not that the Americans or the Mexicans have decided to go faster between them, it's just that over the last few months, the Americans have arrived at the negotiating table with requests that specifically targeted Mexico, especially with respect to their proposals in the auto sector," Belanger said.

He added that Canada must "try to take advantage of the situation and the time that is running out to pull even more concessions or hope that the Americans will abandon a number of their demands."

"The catastrophic scenario" for Canada, Belanger said, would be for the Trump administration "to quit NAFTA and sign a partial agreement with Mexico."