Members of Toronto’s business community gathered at the Fairmont Royal York on Tuesday hoping to gain insight into a topic that has been front and centre since the election of United States President Donald Trump: the future of the North American Free Trade Agreement (NAFTA).
The Canadian Council for the Americas hosted the event, which brought together key players on the NAFTA file — Canadian Foreign Minister Chrystia Freeland, Mexican Minister of the Economy Ildefonso Guajardo and Mexican Foreign Minister Luis Videgaray — as well as former Conservative Prime Minister Brian Mulroney, who signed the 1988 Canada-U.S. free trade agreement with President Ronald Reagan.
Little is known about how the new U.S. administration plans to proceed with re-negotiations — aside from Trump’s desire to “tweak” the Canada-U.S. side of NAFTA while focusing on what he called the “unfair” trade relationship between the U.S. and Mexico — nor when negotiations would start, or how long they would take.
But this week’s talk provided a window into how Canada and Mexico intend to approach re-negotiations: as an opportunity, and — at least publicly — with a united front.
Amid the uncertainty, here are four concrete things that emerged from the discussion.
1. There is a consensus that NAFTA does need an update.
“[It’s] a very normal process for us to work with our trading partners on modernizing our trade agreements,” Freeland said, adding that “[Canadian trade minister] François-Philippe Champagne, as we speak, is working on modernizing and updating our FTAs with Chile and Israel.”
By the government’s count, Freeland told the audience, Canada has modified NAFTA significantly 11 times since it entered into force. “That process is familiar and…absolutely essential,” she said. “The economy changes, and so trade agreements have to keep up.”
To illustrate the point, Mulroney recalled that when he was negotiating with Reagan in the 1980s, “cellphones didn’t exist” and “the internet was in its embryonic infancy.”
“The world has changed in those three decades, so obviously there are legitimate reasons to modernize and re-negotiate certain provisions,” he said.
Both Mexico’s economic and foreign ministers agreed. Videgaray acknowledged that “NAFTA is a 23-year-old agreement…certainly [it] can be improved.” He has been asking stakeholders for their opinions on how the Mexican government could “use the NAFTA talks to move towards a better future, for all NAFTA partners.”
“NAFTA is a 23-year-old agreement…certainly [it] can be improved.”
Freeland said she sees the opportunity for even stronger collaboration between Canada, the U.S. and Mexico, in order to make the North American continent more competitive in the global economy, and that later in the day, she and Videgaray would be discussing how to create more jobs and growth for the middle class.
While all three ministers professed to be open to re-negotiation, Guajardo reminded the audience that from Mexico’s point of view, nothing in the new NAFTA “should be a step backward.”
“We will definitely not include any type of trade management measures, like quotas, or open the Pandora’s box of tariffs,” he said. “That would be disastrous in any process looking forward.”
This echoes what Freeland told journalists earlier this month, when she warned Washington that if Trump were to impose tariffs at the border, Canada would be ready to retaliate.
2. NAFTA re-negotiations won’t be speedy.
Trade relations with the U.S. may have dominated Freeland’s time as foreign minister so far, but she stressed that Canada, the U.S. and Mexico are “quite far from any concrete, specific discussions around our trilateral economic relationship.”
“It’s important for us all to recognize that neither the secretary of commerce nor the [U.S. trade representative] are yet confirmed,” she said, adding that under U.S. Trade Promotion Authority rules, the U.S. government is required to give Congress 90 days notice before entering into any kind of formal negotiation.
Videgaray said Freeland was “absolutely right” and that the Mexican government is itself currently undergoing a three-month consultation process, in order to hear from NAFTA stakeholders.
Guajardo said he expected the formal negotiation process to begin “in the summer.”
As for how long the talks might take, Kimberly Breier, who served as director for North America in the National Security Council under President George W. Bush, said the “best case” of a bilateral deal in recent memory was one between the U.S. and Peru, which took roughly five years from start to finish, while deals with Colombia and Panama took seven years.
Breier also highlighted that even though NAFTA re-negotiations wouldn’t be starting from scratch, “whatever the objectives and whatever the course,” any new terms would likely require congressional passage, adding time to any negotiation process — especially given all the other items the U.S. Congress has on its to do list, from healthcare to tax reform to the budget.
3. Both countries insist accusations of Canada “throwing Mexico under the bus” are misplaced.
When asked about recent commentary that insinuates Canada would focus on its bilateral relationship with the U.S. at the expense of Mexico, Videgaray had nothing but positive things to say about Canada, calling its relationship with Mexico “outstanding.”
“Too much was made about a couple of comments that were frankly taken out of context,” he said, giving high marks to the Trudeau government for being “very forthcoming in becoming closer to Mexico” and for eliminating the visa requirement for Mexicans visiting Canada, a long-standing obstacle between the two countries.
Freeland also emphasized that the Canadian government has put a “real priority” on its relationship with Mexico. “We very much recognize that NAFTA is a three-country agreement, and were there to be any negotiations, those would be three-way negotiations.”
Both Freeland and Videgaray expressed desire for even more bilateral trade and increased mutual investment, and also gave examples of areas beyond trade where Canada and Mexico could be “natural partners,” such as climate change, clean energy, protecting the rights of migrants, international student exchanges and reconciliation with each country’s respective Indigenous peoples.
“Canada and Mexico have been ‘very good examples of keeping the light on’ when it comes to free trade.”
Of course, as Barbara Shecter wrote this week in the National Post, once the re-negotiation process starts, it could very well be every country for itself.
But Mulroney, who has known Trump for around 25 years, says his own guess is that the president will “come to the realization that Mexico is not what it was painted out to be on the campaign — that Mexico is a valuable ally that has to be strengthened by commerce and trade and social and political intercourse, not isolated.”
Michael Kergin, Canadian ambassador to the U.S. from 2000 to 2005, agrees: “There’s no substitute for trying to work this thing, as the prime minister was saying, on a trilateral way… We may end up with side deals or side arrangements that are different one from the other, but the core part of NAFTA — the integrated supply chains, the investments that have been made, the rules [for] foreign investors — I think is absolutely critical.”
4. Free trade is still alive and well.
In contrast to the protectionist sentiments of the Trump White House and a rising opposition to trade agreements around the world, the consensus from panelists on Tuesday was that free trade remains the future.
Guajardo cited Chinese President Xi Jinping’s January speech to the World Economic Forum, in which Xi likened protectionism to “locking yourself in a dark room.” Canada and Mexico have been a “very good example of keeping the light on in the world,” Guajardo said, adding that other countries would be watching to see how Mexico, Canada and the U.S. will “define the future of trade relations” through NAFTA talks.
Freeland’s mention of the Canada-European Union Comprehensive
Economic and Trade Agreement (CETA), approved by the European Parliament last
week, drew loud cheers. The minister said that in being able to ratify a trade
deal that is “in many ways deeper than NAFTA,” Canada was able to show that it
can have success “in standing for an open society.”
However, despite extolling the positive effects of NAFTA, many panelists had the same message: if much more isn’t done by politicians and business leaders to both educate the public on these benefits and distribute them more equally, governments attempting to pass free trade deals will be met with rising resistance in the future.
As a candidate, Guajardo said, Trump tapped into a segment of the population that felt they were “left out of the winning story” of globalization. Governments must develop domestic policies — such as re-training — aimed at offsetting any negative effects as countries transition from one economy to another.
“We have to recognize that a trade agreement by itself will not solve every problem in the country,” the minister said.
