How a Mexico-U.S. trade deal could set the terms for Canada

WASHINGTON, D.C. — Washington is gearing up for next year’s review of the Canada-U.S.-Mexico Agreement, but signs of negotiating progress have come mainly from the U.S.-Mexico trade teams in recent weeks, while formal talks between the U.S. and Canada remain stalled.

U.S. Trade Representative Jamieson Greer says he speaks frequently with Canada-U.S. Trade Minister Dominic LeBlanc, but there have been no formal meetings between the U.S. and Canadian sides since talks collapsed in August.

The Mexican and U.S. teams met for a round of formal talks in July and were supposed to meet again in September, but that has been postponed, likely until sometime this month.

Mexico’s Economy Minister Marcelo Ebrard recently expressed optimism that new agreements are coming soon. “We are getting closer on many issues, resolving problems, and we are making progress,” he said at last week’s G-20 meeting in Milwaukee, Wisc., after meeting with Greer. “Every day we are closer to reaching new agreements.”

Washington has opened public consultations for next year’s CUSMA review while maintaining bilateral engagement with Mexico — and not with Canada, which raises concerns about Ottawa’s ability to influence the process. Experts say there is no reason for Canada to panic, but they also warn that a Mexican agreement could set terms that Washington later expects Ottawa to accept.

Mexico was seemingly on the back burner while Canada made progress in late summer, said Diego Marroquín Bitar, a fellow with the Americas Program at Washington’s CSIS.

“The Canadians made a lot of progress before negotiations collapsed,” he said. “So they could jump back … to the negotiation table at any moment and be very close to where the Mexicans are actually.”

The arrangement the U.S. and Mexico are working toward centres on tariff relief and policy concessions, rather than a comprehensive rewrite of CUSMA.

Marroquín Bitar referred to it as a “skinny deal,” or a preliminary bilateral deal, that would give Mexico tariff relief in exchange for domestic-policy concessions and closer alignment with U.S. trade policy toward non-market economies.

This could help prepare the ground for the 2027 CUSMA review, he said, but it’s not a final settlement or replacement for the trilateral agreement.

Carlo Dade, director of international policy and the New North America Initiative at the School of Public Policy at the University of Calgary, agrees.

“Mexico can sign an agreement on reciprocal trade with the U.S. to set a new tariff regime and to set a new economic security regime,” he said, noting that USTR calls them agreements on reciprocal trade.

Dade also rejects the notion that Canada is being left out, noting that not every communication is shared with the public.

“I wouldn’t read this as necessarily being sidelined,” he said.

As for what Mexico and the U.S. could hash out bilaterally, there are a number of issues, but trade experts believe it will largely focus on immediate issues while laying a path for continued talks on tougher debates.

“I think there’s a lot that bilaterally can be addressed without Canada,” said Inu Manak, senior fellow at the Peterson Institute for International Economics, pointing to energy investments and reform in Mexico, labour reform and enforcement, including collective bargaining rights, Mexico’s external trade policies, and some agricultural disputes over seasonal produce.

Still, the bilateral bargains are closely tied to CUSMA’s future, as Washington is using the prospect of renewal to press for settlements on other trade disputes, according to Christopher Sands, director of the Center for Canadian Studies at the Johns Hopkins School of Advanced International Studies in Washington.

“The way that the Trump administration has taken this, the review, as you know from last year, is to hold the renewal of the agreement hostage until other trade issues are resolved,” he said.

One possible development that could really impact Canada, trade watchers say, is an agreement on sectoral tariffs. Any settlement by Mexico on the Section 232 tariffs, Marroquín Bitar warned, could become Canada’s benchmark.

“Whatever Mexico accepts in this interim deal will very likely become the floor rather than the ceiling for whatever Canada negotiates when it eventually returns to the table,” he said. “Every Mexican concession becomes the opening term of Canada’s negotiations.”

Manak largely agreed and pointed to the automotive industry.

“So let’s say Mexico can negotiate down … from the 25 per cent … auto or auto parts tariff, a tariff at 15 per cent or lower, for example … that would be something that would create … a baseline even for Canada,” she said.

Alfredo Carrillo Obregon, a trade policy analyst at the Cato Institute in Washington, also expressed concern over this, noting that the U.S. is unlikely to agree to a better deal for Canada later.

“If Mexico agrees to it, I find it difficult to believe that the Trump administration would … be open to being flexible when it comes to Canada specifically,” he said.

Even if Canada’s formal talks remain on hold, Sands says closer Canada–Mexico ties could help Ottawa stay informed about Washington’s demands.

“What we will have now that we didn’t have reliably before is … a Mexico-Canada dialogue where I’m sure they’ll pick up the phone and say, ‘Hey, this is what the Americans are asking us to … sign, and here’s where we’re trying to modify it,’” Sands said.

And while this approach may not stop Washington from using a “divide and conquer” approach, Sands said he thinks the “Mexicans are … trying anyway to be much better partners.”

“They may be forced to do a bilateral on security, or just a U.S.-Mexico agreement on some aspect, but I think they want to keep the band together.”

Changes to CUSMA itself, however, require agreement among all three countries.

“Any changes to the agreement would need the concurrence of all three parties,” said Dade.

Marroquín Bitar said any deal the U.S. and Mexico might strike this autumn would leave broader trilateral issues — including rules of origin — for the next phase.

He referred to this as merely the beginning of a “15-round fight.”

“It’s going to be a very long and painful process, but I think USMCA will survive it,” he added.

“It’s not going to be the same agreement that we have now, but it’s still going to be a framework that’s going to give Mexico and Canada, I think, better market access compared to any other country or any other trading block in the world.”

National Post

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