Revised NAFTA agreement between US and Mexico may leave Canada behind

The United States and Mexico have come to a preliminary agreement to revise the North America Free Trade Agreement (NAFTA), 

The agreement, which does not yet include Canada, is expected to be finalized within days, according to U.S. President Donald Trump. It includes modest changes to the trade accord, which was put in place in 1994 as a means to lower tariffs and other trade barriers between the three countries.

"We're very excited about this agreement,” U.S. Trade Representative Robert Lighthizer said in an interview with CNBC. “We think it is going to lead to more trade, not less trade.”

Changes to the accord include modifications to regulations affecting the automobile, energy, and telecommunications industries, as well as a tightening of intellectual property protections. The agreement, which extends NAFTA for 16 years, also includes a sunset clause that requires the U.S., Mexico, and Canada to ratify the deal every six years.

However, an agreement that does not involve Canada is likely to face a legal challenge, according to The New York Times.

“[NAFTA] is a trilateral agreement. It requires legislation and a change to NAFTA requires legislation,” said U.S. Senator Patrick J. Toomey [R-Pennsylvania]. “I’ve told them any change has to go through Congress. There is not necessarily complete agreement about that.”

Trump will also likely face opposition from Congress, which only granted his administration authority to renegotiate NAFTA as a trilateral deal. 

“Modernizing it is a good thing, but I hope the president takes whatever agreement he has with Mexico and gets one properly with Canada and we get back to business,” U.S. Sen. Lamar Alexander [Republican-Tennessee], told the Times.

Matthew Shay, the chief executive of the National Retail Federation said a final agreement must include Canada.

“Coming to terms with Mexico is an encouraging sign, but threatening to pull out of the existing agreement is not,” Shay said. “The administration must bring Canada, an essential trading partner, back to the bargaining table and deliver a trilateral deal.”

In a call with Mexican President Enrique Peña Nieto, Trump said the United States will begin negotiating with Canada “immediately,” but that his preference was to annul NAFTA and formulate two separate and distinct bilateral treaties with Mexico and Canada. Trump said it is his desire to rename the NAFTA treaty the “United States-Mexico Trade Agreement.”

“We'll give [Canada] a chance to probably have a separate deal. We could have a separate deal or we could put it into this deal,” Trump said, according to a RealClearPolitics transcript.

In a response to Trump’s comment, Peña Nieto expressed Mexico’s preference to continue to include Canada in the accord, which has lowered tariffs and other trade barriers between the three countries since it was enacted in 1994.

“And I really hope – and I desire, I wish – that the part with Canada will be materializing in a very concrete fashion, and we can have an agreement the way we proposed it from the initiation of this renegotiating process, a tripartite,” he said.

Being cut out of NAFTA could have serious implications for Canadian seafood companies, which export a vast majority of their products to the United States. Peter Hall, chief economist at Economic Development Canada, told the Financial Post that Canadian seafood companies have been “shaken to their cores” by trade disruptions during Trump’s tenure, he said, causing them to rethink their heavy dependence on the U.S.

Without NAFTA or any other revised agreement in place, trade rules between the U.S. and Canada would be governed by the World Trade Organization. Under those rules, whole haddock, halibut and scallops would not be subjected to any WTO tariff upon entry to the U.S., but all filleted fish and "prepared and preserved" lobster would face tariffs from four to 10 percent, according to the Canadian Broadcasting Corporation.

However, Louisbourg Seafoods Ltd. Vice President Dannie Hansen told the Post his company would find a way forward even if NAFTA was not recertified, adding that the Canadian seafood industry is unlikely to be targeted in a Canada-U.S. trade dispute.

Photo courtesy of CNN