As the North American leaders Stephen Harper, Barack Obama and Enrique Peña Nieto meet in Mexico City this week, we can expect smiles and all the rhetoric about intensifying the relationship between the North American Free Trade Agreement (NAFTA) partners. While the trade numbers justify applauding and celebrating the NAFTA agreement 20 years after its inauguration (January 1994), there remains a lot of “behind the scenes” tension, conflict and unresolved issues.
For Canada, NAFTA has been a positive development. In 2010, trilateral trade represented $878 billion, which is a threefold expansion of trade since 1993. Mexico now represents Canada’s first Latin American partner in trade, and we are Mexico’s second most important trade partner in the world. Bilateral trade has expanded at a rate of 12.5% yearly to attain $30 billion in 2010. Canadian investment in Mexico is now estimated at over $10 billion. In short, both countries have benefitted from the deal.
This being said, it is generally acknowledged that both Canada and Mexico invest more time, energy, and resources in pursuing bilateral relations with the world’s number one economy, the United States. As a result, some outstanding issues such as Canada’s imposition of visas on Mexican tourists continue to be a major irritant for the Mexican government. The continuing disputes on respective beef import bans also continue to create tension between the two countries.
Just this past weekend, Canada’s highly respected Globe and Mail had the following headlines: “Mexico has stern messages for Harper” and “Canada-Mexico relations merit more than forced smiles”. Clearly, the relationship is strained.
Meanwhile, the U.S. government also encourages bilateral talks as opposed to a trilateral approach. The U.S.-Mexican border and its security concerns in a post 9/11 world remains a fundamental issue. The border and its status are also key factors in Obama’s wish to have comprehensive immigration reform passed in Congress as early as this year.
As for Canada-US relations, the delay by the Obama administration in the approval of the Keystone Pipeline, with its potential for a reinforced North American energy zone, continues to dominate the nature of the relationship. The Harper government recently intensified efforts in the U.S. after a State Department report indicated that Keystone would have a minimal effect on carbon emissions.
Changing political and economic realities in all three countries are emerging and hope is that the policy makers in each country will act accordingly. President Peña Nieto has just embarked on a widespread energy reform that will likely attract greater private investment in refining, petrochemicals, and service from both the Canadian and U.S. energy sectors. There are estimates that this reform could positively affect Mexico’s GDP by 2% and create over 2.5 million Mexican jobs by the middle of the next decade. With an expanding middle class in Mexico, both Canada and the U.S. will likely want to profit from a more prosperous trading market in terms of market and investment.
The U.S. is also changing as it moves towards becoming the world’s largest oil producer by mid-decade, and a net exporter of gas (2020) and oil (2030) by the end of the next decade. This “energy revolution” will have a direct impact on the U.S. manufacturing sector and U.S. foreign policy.
Canada, with its oil sands, is aware that its status as the number one exporter of oil and gas to the U.S. will surely change and is now actively developing new avenues and potential markets for exporting its resource beyond the border of the Alberta oil sands.
Despite NAFTA, all three countries are also engaged in Trans Pacific trade talks. The question, therefore, surfaces—is it not time for the Three Amigos (Obama, Peña Nieto, and Harper) to do more than smile every 3 or 4 years, and start actively engaging in a trilateral approach? With the potential expansion of their respective energy resource sectors, enhanced trade possibilities and the opportunity to exploit and expand the Pacific character of these three large economies of NAFTA, it is time to temper the pull of bilateralism, reduce existing bilateral irritants, and embark on an era of more intense trilateral relations.