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THE BOTTOM LINE

Do Nafta negotiations spell the end of multilateralism?

NAFTA renegotiations resumed on Wednesday with pressure growing on Canada to cut into the bilateral deal agreed last week between the United States and Mexico. September will therefore be a crunch month for Washington's relationship with Ottawa, and the future of multilateralism, with both already at very low ebbs.

The stakes in play are high not just for the United States, Canada and Mexico but also multilateralism, with the trilateral accord on the brink of collapse. The reason why the end of Nafta - which today accounts for more than US$1 trillion in annual trade - would be so significant is that, upon signing in 1994, it was the most comprehensive trade agreement outside the EU. And it was also the first major trilateral trade accord negotiated between a developing country (Mexico) and developed counterparts (United States and Canada).

Yet, despite having significant business support, Nafta's standing has been eroded by criticism from both the US political left and right. Both, for instance, have blamed it for contributing to a hollowing out of the US manufacturing industry, partly because of increased trade deficits with Mexico and Canada, and President Donald Trump has called it "the worst trade deal maybe ever signed anywhere, but certainly ever signed in this country".

A key reason why the stakes are now so high for Canada is that last Friday, Mr Trump informed Congress of his intent to sign the Mexican trade agreement after a proposed deadline lapsed to widen the deal to Ottawa too. The president tweeted Saturday "there is no political necessity to keep Canada in the new Nafta deal. If we don't make a fair deal for the US after decades of abuse, Canada will be out".

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The US-Mexican deal underlines how Mr Trump's "America First" agenda is reshaping the international political economy. Especially in combination with the president's earlier decisions to withdraw US participation from deals such as the Trans-Pacific Partnership, new trade sanctions against world powers from the EU to China, and also threats of US withdrawal from the World Trade Organization.

To be sure, Mr Trump has kept open the option of Canada remaining in a new Nafta pact if it proves "willing" to accept US terms from the US-Mexico deal. Here, the US president confirmed media reports last Friday that he made controversial off-the-record comments last week stating that any deal with Canada would have to be "totally on our terms".

The dilemma could not be starker for the administration of Prime Minister Justin Trudeau, given that Nafta underpins three-quarters of exports Canada sends south of the US border and 2.5 million jobs in the country depend on this trade. With tough choices to make, given the threat of new punitive tariffs if talks collapse, many in Ottawa think it has been thrown under the Nafta bus after renegotiations had proceeded on a trilateral basis for almost a year.

The reason why time frames are so tight, and why Mr Trump gave the notification to Congress last week, triggering 90 days of legislative scrutiny, is that he and outgoing Mexican President Enrique Pena Nieto want to sign a deal before the latter is replaced on Dec 1 by populist Andres Manuel Lopez Obrador. It is feared in Washington that unless a deal can be signed before Mr Lopez Obrador comes into office, he may throw a spanner in the works.

Mr Lopez Obrador said in June, for instance, that if Nafta collapsed, this "cannot be fatal for Mexicans; our country has a lot of natural resources, a lot of wealth". He also asserted that, in this scenario, he would seek to redirect the country's economy towards internal markets and revive the rural economy.

However, it is not just Mexican political risk driving this tight approval timetable. With US mid-term ballots in November, and the more protectionist-leaning Democrats having the potential to win back the House of Representatives and/or the Senate, the White House intends to try to get the trade legislation approved in the so-called "lame-duck" session of Congress after the Nov 6 elections and before new legislators are sworn in on Jan 6.

With Mr Trump turning the screws, one ray of light for Mr Trudeau is that some Republicans in Congress have warned the White House that a purely bilateral deal with Mexico without Canada could struggle to win approval. In the face of these concerns, Mr Trump tweeted Saturday that "Congress should not interfere with these negotiations or I will simply terminate Nafta entirely & we will be far better off".

Taken overall, and with Nafta's future hanging in the balance, Mr Trudeau is facing a last-gasp bid to wring concessions from Mr Trump. Should he fail, he faces the unenviable choice of capitulating, or potentially walking away from a key driver of Canada's prosperity over the last quarter of a century.

  • The writer is an associate at LSE IDEAS at the London School of Economics.