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The USMCA: Trilateral Revival or Fluctuating Partnership between Mexico and Canada

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Image credit: NewsCenter1

COMMENTARY

by Francisco Suárez Dávila
September 16, 2021


Despite initial skepticism, the North American Free Trade Agreement (NAFTA), which lasted from 1994 to 2018, was a success. Before NAFTA, Canada and Mexico were satisfied with a cosy bilateral relationship with their common neighbour, the U.S., although there were disagreements, as in most marriages of convenience. However, former Mexican president Carlos Salinas de Gortari and then-prime minister Brian Mulroney agreed that a threesome would balance the asymmetry with the U.S. Following the signing of NAFTA, trade increased more than threefold in North America, as did investments. Mexico and Canada discovered that their economies had broad complementarities. They enjoyed a multilateral system as they shared many views and policies regarding Central America, Cuba and Latin America.  

Issues arose during NAFTA’s renegotiation. Former U.S. president Donald Trump was initially very aggressive towards Mexico. He said that Mexicans were drug dealers and rapists. He wanted to build a Berlin-style wall to contain illegal immigration, even though those flows had become negative. Some Canadians might have thought Mexico would be a burden in the negotiations, and that it would be better to have an exclusive Anglo-Saxon club in the agreement.

However, relations improved between Trump and Mexico’s president, Andrés Manuel López Obrador. At times, the U.S.’s relationship with Mexico was even better than it was with Canada. Trump was quite rude to Prime Minister Justin Trudeau when they met at the G7 summit. López Obrador pushed Trump to negotiate a new trilateral trade treaty. During the negotiations, Canada and Mexico shared views that successfully prevailed on key issues.  Canada agreed with the U.S. about improving labour laws in Mexico where cheaper labour had created a competitive edge. Labour laws were a thorny issue for unions, Democrats and Liberals. 

We now have a new trilateral agreement, which has stabilized Canadian relations with President Joe Biden’s administration. However, illegal immigration is still a serious and complex issue, and the countries differ on energy policies and commitments to environmental standards and goals, while COVID-19 has created problems with border closings and vaccine access.   

The USMCA provides North America with a great opportunity to revive trilateralism. Here are some of the advantages:

  • The three countries can deal together with differences on trade with China, including the dynamism of its economy, Chinese exports and technology. The sheer combined size of our economies, common market and populations gives us competitive advantages over other regions. Europe is in disarray and is also now minus Britain, with whom we should sign a trade agreement.
  • The post-pandemic decade could be an era of shared prosperity and transformation for North America. Mexico is often the U.S.’s largest trading partner and at the end of 2020, Mexico had the largest trade surplus with the U.S.
  • The three countries should consider expanding free trade in a broader economic context, along the lines of the European Union. This could be accomplished through complementary agreements without changing the USMCA itself. There must be co-operation in technology, science and education, along with border infrastructure.
  • Existing and new chains of production and services could be expanded and strengthened, perhaps under a regional industrial policy.
  • The U.S. is enjoying exceptional economic growth of approximately seven per cent, which could create labour shortages. The three countries could collaborate on designing a program to tackle those shortages.
  • Some new institutional features are worth considering. A steering committee could have periodic high-level ministerial meetings among the three countries. Mexico already has such a dialogue with the U.S. and this should become trilateral. Post-election in Canada, the three heads of government should hold a summit with an agenda for a North American economic revival, along the lines of the initiative “Building a North American Community in 2005.”
  • The three countries need a shared geopolitical strategy. Latin America has assorted social conflicts and Cuba is an issue, as are the Caribbean and Central America with their humanitarian challenges. An approach like the Marshall Plan would be useful in tackling root causes of the problems in those areas.

It’s time to build on what we have accomplished and to overcome the above obstacles. Canada and the U.S. have new governments with fresh ideas and Mexico will follow suit in 2024. The post-pandemic world offers opportunities we should take on together.


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