Trudeau Reached Out to Mexico’s President to Help Save Nafta

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Workers load blue agave hearts into an oven for distillation to make tequila at a factory in Mexico. The Mexican government will release text of a bilateral trade deal with the United States on Friday.CreditCreditCarlos Jasso/Reuters

By Alan Rappeport, Catherine Porter and Elisabeth Malkin

Sept. 28, 2018

WASHINGTON — Prime Minister Justin Trudeau of Canada made a last-ditch appeal to President-elect Andrés Manuel López Obrador of Mexico this week to help salvage a three-country North American Free Trade Agreement as the White House prepared to send Congress a bilateral trade deal with Mexico.

The telephone conversation between the two leaders, which took place on Thursday, came as the United States and Mexico were poised to release text of the trade pact reached last month that excludes Canada. The White House had set a Sunday deadline for delivering text of the agreement to Congress and was expected to release the details sometime this weekend. Those close to the discussions said the situation remained fluid and that discussions between the three countries were expected to continue over the weekend.

The overture by Mr. Trudeau comes at a rocky moment between the United States and Canada, as President Trump threatens to leave Canada out of the 25-year-old Nafta and tax its cars as punishment for not agreeing to the United States’ trade demands.

Mr. López Obrador, speaking to reporters on Friday, said that Mr. Trudeau had asked him “to intervene to bring the United States to an understanding” and that he had agreed to help.

“We want to maintain a good relationship with Canada of course and a good relationship with the United States,” Mr. López Obrador said.

According to a person close the negotiations, Luis Videgaray Caso, Mexico’s foreign minister, has been working to bring the United States and Canada closer together. The conversations were described as intense.

It is unclear whether the United States and Canada can bridge the differences that have so far stymied an agreement. And Mr. López Obrador said he had no plans to reopen the trade pact that Mexico, under the leadership of Enrique Peña Nieto, had reached last month.

“We don’t want to put our economic future, our financial stability at risk. We want there to be investment in Mexico so that there are jobs,” he said. “That is why we are not going to reopen the deal, the agreement with the United States. We have already concluded this matter.”

He added: “I told him that we would insist that the treaty would be trilateral.”

In a statement on Friday, Mr. Trudeau’s office said that the prime minister and the president-elect “agreed to work closely together to further strengthen the dynamic partnership between Canada and Mexico,” and that “they discussed Nafta and the mutually beneficial economic and trading relationship between our two countries.”

A spokesman for the office of the United States trade representative declined to comment. At a United Nations summit meeting in New York this week, Mr. Trump said that he rejected a meeting with Mr. Trudeau, which the prime minister said he never requested.

The Sept. 30 deadline is being fueled by political considerations in both the United States and Mexico. Mr. Trump and Mr. Peña Nieto want to sign the pact by Nov. 30, before the new Mexican administration takes over and before a potential change in control of the United States Congress.

But the agreement faces an uncertain fate without Canada. Lawmakers have urged the White House to continue working to retain a trilateral pact that has become critical to automakers, farmers and other businesses across North America.

The release of the text does not preclude Canada from joining the agreement but, for that to happen, the United States and Canada must resolve some the remaining issues that have so far prevented a deal.

Many of the most significant changes to Nafta involve the rules governing car manufacturing, which are being altered in an effort to bring more car production back to the United States from Mexico.

The preliminary agreement unveiled in August required that at least 75 percent of a car’s value be produced in North America for a company to import it into the United States duty free. That is up from 62.5 percent under the original Nafta.

Carmakers also would be required to use more local steel, aluminum, glass and other parts. And 40 to 45 percent of vehicles would have to be made by workers earning at least $16 an hour. That increase is intended to increase jobs in the United States and Canada, where wages are higher.

Those changes are generally acceptable to Canada, but it remains resistant to broadening access to the Canadian dairy market and to abandoning an independent tariff dispute settlement system. Mexico has agreed to put off discussions over removing tariffs that Mr. Trump has imposed on steel and aluminum imports, but Canadian negotiators have argued that these should be lifted as part of a new Nafta deal.

Robert E. Lighthizer, the Trump administration’s chief negotiator, told lawmakers this week that talks with Canada would continue even after the release of the agreement with Mexico. Administration officials are hopeful that Canada will be more willing to make concessions after provincial elections take place in October. Modest changes to the text can be made after it has been released and even after it has been signed.

“Going forward, Ways and Means and Finance Republicans and Democrats will be analyzing this carefully and looking for ways to advance a three-country agreement,” Representative Kevin Brady of Texas, the Republican chairman of the House Ways and Means Committee, said on Friday.

He added: "I’m hopeful Canada steps it up and steps to the table in a big way.”

Business groups have also been expressing their trepidation about moving forward with a free-trade agreement that does not include Canada.

“If Canada doesn’t come into the deal, there is no deal,” Thomas Donohue, the president of the U.S. Chamber of Commerce, warned last week. Those concerns were echoed on Friday by the Business Roundtable, a lobbying group that represents the leaders of major American companies. “Our northern ally is critical to allow trade to strengthen the U.S. economy,” the group said.

Relations between the governments of the United States and Canada have fallen to their lowest point in recent memory, leaving open the possibility that no deal will be reached anytime soon. Mr. Trump said this week that he was frustrated with how Canada had been behaving during negotiations and vowed that he would be just as happy to levy tariffs on imports of Canadian cars — a move that would likely spur backlash from carmakers and consumers in the United States.

After imposing tariffs on steel and aluminum imports against the wishes of businesses, Mr. Trump does not appear to put much stock in those concerns.

“You have to believe when he threatens to do it on automobiles that he might, even though this would be incredibly painful for Americans as well,” said Chad Bown, a senior fellow at the Peterson Institute for International Economics.

Preserving a healthy trade relationship with the United States is pivotal to Canada’s economy, but many in the country have been supportive of Mr. Trudeau’s firm stance in the face of threats from Mr. Trump.

“Had Trudeau caved in to the demands on a whole range of issues, it would have been politically indefensible in Canada,” said Lawrence Herman, an international trade lawyer in Ottawa.

For months now, Canadians have followed the Nafta negotiations with the rapt attention normally reserved for hockey playoffs. Almost three-quarters of Canada’s exports flow south across the border. But more worrisome to the Canadian economy than an end of Nafta is the prospect of a 25 percent tariff on automobile and auto part exports heading into the United States that Mr. Trump has threatened.

That would cripple Canada’s largest manufacturing sector, putting an estimated 250,000 people out of work, according to one forecast. It would also cast a shadow over the government of Mr. Trudeau, who faces his own re-election in a year’s time.

“That can only hurt the prime minister,” said Janice Stein, founding director of the University of Toronto’s Munk School of Global Affairs. “Were that to happen, once you unroll tariffs, it’s not easy to roll them back.”

Ms. Stein, however, remained optimistic that negotiators come out with deal in the next 10 days. “Everyone knows what’s at stake,” she said.

Catherine Porter contributed reporting from Toronto and Elisabeth Malkin from Mexico City.