Let's bring Canada and Mexico into the Pacific Trade Pact

Gobierno de Chile

Trans-Pacific Partnership leaders at the APEC Summit in Japan, 2010.

Article Highlights

  • The economic, political and strategic reasons to support Canada and Mexico #TPP

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  • Both #Canada and #Mexico consume more US goods than #Japan and #China combined.

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  • 2 obstacles to near term #TPP membership for Canada & Mexico: the pace/timing of negotiations & their national protection.

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It is time for the United States to stop dragging its heels and allow Canada and Mexico to enter the negotiations for a Trans-Pacific Partnership Trade Agreement (TPP). Both nations have now signaled that they want to join before the end of 2012 and are actively lobbying TPP national capitals. While it is true that decisions to bring in new partners to the negotiations require a consensus among all of the nine current members - and that New Zealand and Australia have important parochial reservations about Canadian participation - a positive signal by the Obama administration would certainly seal the deal.

The TPP, if the negotiations are successful, will become the single most important regional trade agreement in the world trading system. Though it consists of only nine nations at this point, the goal is to provide stepping stones to the conclusion of a regionwide Free Trade of the Asia-Pacific Agreement (FTAAP) over the next decade. For the United States, there are strong economic, political and strategic reasons to support both Canada and Mexico.

On the economic front, Canada and Mexico are already the first and third most important U.S. trade partners (China is number two), and the top two export markets for American goods. Individually, U.S. exports to these two markets are almost three times greater than all of the current TPP members combined. As another comparison, both Canada and Mexico also consume more U.S. goods than China and Japan combined. Similarly, the two nations rank as the second and third largest sources of U.S. imports (China, number one).

Behind these statistics is the larger reality that as a result of the North American Free Trade Agreement (NAFTA), the three countries are combined in a truly North American single market. Burgeoning investment flows over the two decades since the passage of NAFTA have spawned vital supply chains as parts and components pass back and forth across national boundaries will little impediment. This is particularly true in the key automobile, electronics, chemical, and textiles and apparel sectors. As Mexican officials have pointed out, as a result of joint production, U.S. value added in Mexico's global exports is 37 percent.

Within the global trading system, both Canada and Mexico have demonstrated the will and ability to forge liberalizing trade agreements with both developed and developing countries. Canada has ratified nine agreements since 2006, and currently is actively pursuing pacts with the EU and Japan. After NAFTA, in order to diversify and expand market opportunities, Mexico became a champion bilateral and regional negotiator, and now has established a network of 12 FTAs with more than 40 countries. For its part, the U.S. has negotiated FTAs with 18 nations (exclusive of the ongoing TPP negotiations).

The above statistics for the U.S., Canada, and Mexico highlight one overwhelmingly important fact: the 18-year old NAFTA agreement is badly in need of updating, and the TPP negotiations that aim for a much proclaimed "21st Century" agreement are the obvious vehicle to craft new rules to meet the novel challenges of the evolving trading system. At the same time, the political reality is that NAFTA has always been, and remains, a highly controversial pact - remember candidate Obama's vow to trash NAFTA provisions and start over. President Obama, to his credit, has moved beyond such demagoguery, but even today an effort to revise NAFTA standing alone risks a political firestorm, certainly in the U.S. but also possibly in Mexico and Canada. Achieving a 21st Century NAFTA update through the TPP process, however, is likely to reduce such political risks. In this instance, the U.S., Mexico and Canada would be part of a regionwide negotiation that thus far has produced no political or social turmoil-and in the United States has attained substantial bipartisan political support.

Moving beyond the economic and trade rationales, there are also larger political and strategic imperatives. Both countries are mature and robust democracies, and it is hard to defend putting off their bids for membership when authoritarian states such as Viet Nam and Brunei have been welcomed to the negotiating table. Further, after 9/11 Canada became a key NATO ally in the war against Al-Khaeda in Afghanistan, and both Canada and Mexico are central allies in the war against terrorism, transnational criminal organizations, and drug trafficking. It should be noted that Mexico, despite increasing gang-induced violence spurred on by the insatiable U.S. appetite for illegal drugs, still has achieved a commendable economic record even in the face of the worldwide financial crisis: 5.4 percent in 2010 and nearly 4 percent in 2011

There are two important obstacles to near term TPP membership for Canada and Mexico: one relates to the pace and timing of the negotiations and the second to national protection in each country. With regard to the first, there is widespread fear that bringing in new TPP negotiating partners will slow down the process and force renegotiation of already settled issues. This is a valid concern, but the reality is that the goal to complete negotiations by end of 2012 is now considered unattainable (though the negotiators in order to maintain pressure cannot admit this). The U.S. presidential elections - and the difficulty of sorting through the challenges - means that resolution of the most difficult substantive questions - new rules on intellectual property, market access, rules of origin, investor-state dispute settlement, as examples - have been put off. It will almost certainly be well into 2013 before difficult compromises in these areas can be crafted.

Under these circumstances - where there are no texts yet written and disagreements still exist among current partners - Canada and Mexico should become part of the process. They should not, however, be given a free pass. Particularly in regard to Canada, the top political leaders must give a signal that the most important barriers - the protectionist supply management system for dairy and poultry products - will be on the table and open to change. Further, Mexico must live up to its promise to review services regulations, as well as continue to revise intellectual property laws.

But beyond a certain point neither country should be forced to "pre-negotiate" final terms. Just as the United States, New Zealand, Australia and the other current TPP members negotiate on the basis of offsetting deals (the much decried but necessary mercantilist tradeoff of "conceding" the lowering of barrier in return for an equivalent lowering by trading partners), Canada and Mexico should be allowed into the tent to makes their own deals on the basis of their perceived national interest.

The bottom line is that the Obama administration, following current precedents, should be prepared to notify Congress by September that Canada and Mexico will join the TPP negotiations - leading to a formal entrance under congressional rules by December 2012. In sensibly pursuing larger economic gains through new Pacific partnerships, the United States should not jeopardize long-standing economic and strategic alliances with our nearest neighbors.

Claude Barfield is a resident scholar at the American Enterprise Institute. 

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