NAFTA: Canada and Mexico's prisoners' dilemma

By Yves Faguy Web Only

NAFTA: Canada and Mexico's prisoners' dilemma

 

In recent days, we heard Canadian and Mexican officials say that NAFTA should be re-negotiated trilaterally.  Foreign Minister Chrystia Freeland has stated that NAFTA talks must involve Mexico. And former PM Brian Mulroney has warned, “throwing friends and neighbours and allies under the bus is a position for a weak leader.”

That may be easier said than done, given that economic ties between Mexico and Canada, while not negligible, pale in comparison to ties between Canada and the U.S. on the one hand, and the U.S. and Mexico on the other. That can make standing united in the face of U.S. pressure to re-negotiate a little awkward.

In a recent post, Eric Miller hints at this issue when addressing the implications reformulating the pact could have on the auto sector.  He points to some possible scenarios, among them “trifurcation”, where the Trump Administration would succeed in converting the trilateral trade into “three separate bilateral agreements – U.S.-Canada; U.S.-Mexico; and Canada-Mexico.”

The implications would be far reaching. Miller cites rules of origin, which help determine whether goods are entitled to preferential tariff treatment.  If NAFTA were to split into three different bilateral agreements, he wonders whether “each agreement would have separate value content requirements, raising the risk of necessitating companies to shift production in order to continue to qualify.”

So you can see where cracks in a “united front” can suddenly appear. Ultimately, if there is a common interest between Canada and Mexico, it is in the recognition that smaller partners can pool common negotiating positions, in the knowledge that bilateral trade deals rarely favour the smaller partner.

 

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