Leftist leader says he wants bilateral agreement with Canada if U.S. pulls out

Mexico’s left-wing president-elect is promising to avoid fighting with Donald Trump, stay the course in renegotiating NAFTA – and keep the pact as a bilateral agreement with Canada if the U.S. President pulls out.

Mr. Trump, meanwhile, is again floating the possibility of cutting separate deals with Canada and Mexico, while his administration warns Ottawa that fighting back against his steel and aluminum tariffs will not end the trade war.

After a landslide election victory Sunday, Andres Manuel Lopez Obrador rushed to reassure businesses and his country’s trading partners that he is committed to the trilateral agreement and to trying to get along with Mr. Trump.

“We do not fight. We will always look for an agreement,” he told the Televisa network Monday.

“We are never going to disrespect the U.S. government, because we want them to respect us.”

Jesus Seade Kuri, an Oxford-trained economist tapped as Mr. Lopez Obrador’s NAFTA pointman, told The Globe and Mail that Mr. Lopez Obrador will stick with the current centrist administration’s negotiating positions at the NAFTA table, which mostly consist of trying to preserve as much of the open market as possible in the face of the Trump administration’s protectionist demands.

And if Mr. Trump makes good on his threats to withdraw the United States from the North American free-trade agreement, Mexico will remain in the pact with Canada, Mr. Seade said.

“It will be an agreement from which one party pulls out and the other two stay in place,” he said in an interview. “Canada is an essential [trading partner] – it’s such a big economy, with so much in common with us and we already have the most exemplar treaty around.”

Canadian officials have indicated that, in the event Mr. Trump exercises NAFTA’s Article 2205 and bails on the deal, they would remain in the pact with Mexico, and hope a future U.S. administration would opt to rejoin.

Canada and Mexico have even begun to negotiate at least one bilateral measure: an update to NAFTA’s Chapter 11 provisions that allow corporations to sue governments at special trade panels. The United States has said it wants out of Chapter 11, so Canada and Mexico are working on a new, more professionalized system that would apply only to them.

Mr. Trump said he’d had “a lot of good conversation” during a 30-minute call with Mr. Lopez Obrador on Monday. “We talked about NAFTA, we talked about a separate deal – just Mexico and the United States,” Mr. Trump said.

So far, Canada and Mexico have insisted on keeping NAFTA talks trilateral, but Mr. Trump has repeatedly mused about instead cutting separate trade pacts with each country. The three sides are set to resume negotiations this month. Mr. Trump said over the weekend that he did not expect to conclude a deal until after U.S. congressional elections in November.

Mr. Trump’s spokeswoman, Sarah Huckabee Sanders, scolded Canada for retaliating over the weekend against the United States’ steel and aluminum tariffs. Ottawa imposed equivalent tariffs of its own on $16.6-billion worth of U.S. goods.

“We’ve been very nice to Canada for many years, and they’ve taken advantage of that,” Ms. Sanders told a White House news briefing. “Escalating tariffs against the United States does nothing to help Canada, and it only hurts American workers.”

Mr. Lopez Obrador also spoke with Prime Minister Justin Trudeau on Monday. The Prime Minister’s office said the pair talked about NAFTA and “co-operating on an agenda to create good jobs.”

Mr. Lopez Obrador will not be sworn in as president until Dec. 1, but his party and its allies have won control of the Mexican senate – which takes office Sept. 1, and must ratify the new NAFTA deal – giving him significant sway over the country’s negotiating strategy.

Some U.S. officials believe Mr. Lopez Obrador will be easier to deal with than incumbent Enrique Pena Nieto, said an industry source briefed by the American side, because he is not beholden to multinational corporations and could be more amenable to Trump administration demands such as higher minimum wages in the auto industry.

A veteran politician and former Mexico City mayor, Mr. Lopez Obrador ran something of a dual campaign. To his supporters, he presented as a populist firebrand, vowing to increase spending on social programs and make rich people pay more by cracking down on corruption. To business leaders and the international media, he tried to show a more moderate face, endorsing free trade in his platform and promising not to cancel contracts or nationalize the economy.

Lorenzo Meyer, one of Mexico’s most prominent historians who has known Mr. Lopez Obrador for decades, said the president-elect comes from outside the country’s ruling class. A small-town guy from Tabasco, Mr. Lopez Obrador once spent five years living in Indigenous communities and, unlike many members of the elite, does not speak English.

While Mexico transitioned to a legitimate democracy in 2000, it has struggled to overcome a culture of corruption and corporatism that has seen the benefits of economic growth shared unevenly.

“The Mexican political system has become extractive, in which the political elite is invested in extracting as much as it can and giving as little as possible in return,” Mr. Meyer said. “The institutions to fight corruption already exist − he isn’t going to invent them. He wants them to be used.”

Lawrence Herman, a former Canadian diplomat who practises international trade law, said Canada can be reassured by Mr. Lopez Obrador’s vows not to change his country’s approach to NAFTA. The problem remains with Mr. Trump’s administration, he said.

The President has threatened to escalate his trade war by hitting autos with tariffs. And in NAFTA talks, he has demanded Canada lower trade barriers on dairy products while allowing the United States to erect new barriers on government contracting, do away with the Chapter 19 dispute-resolution mechanism and insert a sunset clause that could kill the deal in five years.

“We don’t quite know how Trump … will respond to Canada’s countermeasures,” Mr. Herman said. “Unless the Trump administration shows some flexibility, I’m not sure how much further those negotiations can go.”