Trudeau stakes Canada's trade policy on NAFTA's resiliency

You couldn't see them on the television feed, but there were some knowing smiles as Prime Minister Justin Trudeau spoke atCentro Universityin Mexico City on Wednesday.

"Like all friends, we'll have our disagreements from time to time," he said, asa few sympathetic laughs rippled across the audienceof about 200 private sector and foreign policy leadersassembled to hear a keynote speech from the Canadian PM.

"Tell me about it," Mexico's businesspeoplemight have been thinking.

For the second time during his three-day visit to Mexico City, Trudeau thanked Mexico's corporatecommunity for standing with his government during therenegotiation of the North American trade agreement on which both their economies rely.

Last fall, Mexicolost its secondeconomy (trade) minister in less than a year.Andrs Manuel Lpez Obradorcontinuesto blow hot and cold on the integration of the North American economy generally and Mexico's future participation in NAFTA specifically.

The Mexican president haspushednationalist energy and agriculture policies, despite being warned thatthey violate the terms of the revised NAFTA. At the same time, he's seizedthe potential for his (relatively) low-wage jurisdiction to become a powerful player asAmericafocuses on competing with China.

U.S. President Joe Biden's administration can't win that competitionwithout the collaboration of its regional partners. But the expansion of NAFTA into new areas with the addition of chapters onlabour, environmentand the digital economy and the decision to stop carving out the contentious dairy sector has racked up 17disputes over the last two years alone.

With Mexico hostingthe tenth edition of the North American Leaders' Summit, the talks could have gone down like a strong margarita: cold, saltyand hangover-inducing. Instead, the sun shone and the partners smiled their way to a regional relationship that's proving resilient.

There's tension in the neighbourhood. And yet, bigger crises Russia's invasion of Ukraine disruptingglobal energy and food supplies, Chinese trade aggressionand pandemic outbreakschokingsupply chains, climate change causing environmental disasters seem to have everyone focused on the urgent need togetalong.

Warming up to another populist

It wasn't easy. Trudeau needed all of his patience for what was only his second in-person encounter with the Mexican president, who hasrarely travelled abroad since taking office in 2018.

Canadian reporters got a taste of what the Mexican presidentapparently is likein private when he took over 27 minutes to answerjust one reporter's question at theclosing news conference.

Meredith Lilly, a professor in international economic policy at Carleton University who worked as former prime ministerStephen Harper'strade adviser andattended the 2014leaders' summitwith him in Mexico, said that while this is normally an economic summit, this year's version seemed to be aboutthings other than trade like climate change mitigation anddiversity.

"The leaders clearly got along very well. There was lots of joking and expressions of warmth that are difficult to fake," she said.

But the leaders were all trying to achieve different things, she added. The format felt toherlike threebilaterals that were"uncomfortably smashed together."

While critical minerals is a shared priority, "I don't know that it required the appearance of leaders there to continue to advance that file," Lilly said.

Lpez Obrador hasbeen compared toDonald Trump. He'sa Latin American strongman whose left-wing nationalism is dominatingMexican domestic politics at the moment.

Still, Justin Trudeau pushed back when CBC News suggested the Mexican president isa trade sceptic who isn't reading the global room.

"The conversations we had over the past few days were very much focused on the opportunity a more integrated North American trading system will have in leveraging our advantages and taking on the world and replacing other sources of manufactured goods or minerals from around the world that are obviously becoming less reliable," Trudeau said.

Neither China nor Russia was called out by name, but it was clearwhat Trudeaumeant.

Energy dispute cooling?

Trudeau saidLpez Obradorwas "extremely positive" and "enthusiastic" about the increase in trade and Canadian investment and said he was "optimistic" about his "commitment to work constructively with Canadian companies."

A senior government official toldCBC News that, following these talks, the three nations'energy dispute Canadian and American investors in the electricity, oil and mining sectorsfacingpolicy discrimination in favour of Mexican state-owned firms likely will be resolved withoutresortingto arbitration under Chapter 31 of the new NAFTA. No details were offered about thesolutions being considered.

"I'm not sure that we could have expected more from Prime Minister Trudeau on this [energy] issue in particular, given his own views on the issue and policies around energy development at home in Canada," said Lilly. "Advocating for energy companies is frankly off-brand for him.

"When foreign leaders come to Canada and raise concerns about Canada's management of its own pipeline capacity and its own LNG capacity, I don't think he enjoys those interventions. So I doubt much political capital was spent on this issue."

Canada has spent more diplomatic capital trying to make sure it doesn't get shut out of the North American car industry, particularly as it shifts to electric vehicle (EV) and battery production.

Because of a leak, everyone knew heading into this summit thatBiden's administration had failed to convince a NAFTA panel that its more strict interpretation of how to calculate North American content fortariff-freevehicles was whatthe three countriesspecifiedwhen NAFTA was revised.

In a "but their emails" moment, Mexico and Canada submitted correspondence to the panel proving that American negotiators agreed to one thing and trade officials argued for something else during implementation.

Whistling past negativepanel findings

In keeping with an agreement between the three countries,the panel's report wasn't releaseduntil after Biden left Mexico and after Trudeau's final press conference with reporters as well.

"I think that can't have been an accident," Lilly said, suggesting it would have beenbetter to leave the auto dispute with a lower profile so that the threeleaders weren't pressured to wear it during their summit.

"An important part of dispute settlement is accepting the rulings even when you lose. That's a lot for the Americans to deal with because they typically don't lose panels and they don't like losing panels."

The automotive industry wanted a more flexible calculation. That's whyMexico and Canada went to bat for them they believed it was in their national interests to enable carmakersto use at least some offshore suppliers in order to remaincost-competitive.

"I think it's actually quite important that the Americans tread carefully," Lillysaid. "Given that the ruling is clear, I think they should just accept this and move on."

Flavio Volpe, the head of Canada's Automotive Parts Manufacturers Association, told CBC News he's confident the U.S. will comply.

"They have a series of other disputes that they are raising and want to raise with Canada and Mexico," he said. "If they were to fight this one,or ignore it, then the other ones which are big priorities for them and other industries would be on softer footing."

Many of the sources of international trade friction under NAFTA aren'tabout tariffs. Recent fights betweenthe U.S. and Mexico are about American effortsto equalizelabour standards a huge political priority for both Democrats and Republicans in Washington.

Migratory trade instincts

Trump also seemed like a trade sceptic at first, said Elizabeth Trujillo, a professor at the University of Houston's law centrewho specializes in global law and Americas policy. And yet, the revised North American deal he insisted on wasn't just about inward-looking protectionism it alsogave the U.S. dispute resolution tools that now help toinfluence and direct the evolution of trade with its regional partners.

Leaders like Trump andLpez Obradorcan be "contradictory," Trujillosaid.

"On the surface, it seems that [Lpez Obrador] is not the most open to free trade and is much more protectionist than other Mexican presidents ...and he's done policies that have proven that," she said, citing restrictions on foreign investments in renewable energy as anexample.

"On the other hand, I think that [he] is very much aware of the need for Mexico to be part of a North American economic powerhouse. You have supply chains that are very much integrated in the region. You can't just undo those," she added, citing Mexico's potential rolein manufacturing moresemi-conductors on this side of the Pacific.

"The mere fact that he hosted this summit shows an openness to having these conversations," Trujillo said, calling this trilateral summit "refreshing" after a period whenbilateral U.S.Mexico issues seemed to dominate.

The pandemic already has shifted the focus away from multilateralism, she said. "These things are like pendulums we've moved away from globalization and we went to nationalism, and now we're inching back toward regionalism. And some of these issues around environment and energy are better dealt with regionally, at least initially."

Canadian Liberals haveshown ideological flexibility in trade policy as well Trudeau included.

When European social democrats threatened not to ratify the Comprehensive Economic and Trade Agreement (CETA), Liberals emphasized Canada's progressive values to win them over. Ottawa kept emphasizing "progressive" trade policy with Pacific Rim partners and even insistedon that word being inserted into the name of the Trans-Pacific Partnership after the U.S. pulled out in 2017.

Faced with the populism of first Trump and nowLpez Obrador, Canada hasrallied advocates in the business community to articulate the stakes in billion-dollar terms and point out how trade agreements can help middle-class workers and protect jobs in the face of other global competitors.

"Trade, by being mutually beneficial, gives each party a stakein the well-being of the other," Trudeau told his university audience Wednesday, quoting former Mexican president Ernesto Zedillo a leader witha more right-wing, globalist bent thanthe current office holder.

Mexican presidents only serve one six-year term. The future of the White House after 2024is equally uncertain.

Canada can't control who moves into itsneighbourhood next, but this summit deliveredthe common ground Trudeauneeds.