North America Brief
Issue 11 | September 14, 2023
The North America Brief is now a permanent feature of the Centre for Trade and Investment. Starting with this issue we are adding more analysis to our compilation of stories and links on the United States’ and Mexico’s relationships with Canada’s prairie provinces focusing on stories and topics not always “on the front page” of Canadian media coverage.
In this issue: Nearshoring news, NAFTA expansion, is corn the new softwood or is softwood the new softwood, and we’re #Three!!! … behind Mexico and China in trade with the U.S.
First, the good news
New softwood path? Canada will stop fishing the empty pond that has been the binational panel process under the NAFTA agreement and its successor and instead try its luck with a case to the U.S. Court of International Trade according to a statement from Trade Minister Ng’s office.
And the not so good, unCOOL, news
Like softwood, COOL is not, perhaps never, going away. Two new bills in the U.S. House propose a World Trade Organization (WTO) compliant and a “WT-Who?” approach that disregards the WTO to restore mandatory country of origin labelling for beef. If either bill passes, mandatory country of origin labelling, MCOOL, is back.
House Agriculture commodity market subcommittee Chair Dusty Johnson (R-SD) introduced the “Beef Origin Labeling Accountability Act,” requiring the U.S. Trade Representative and the Agriculture Department to reinstate a WTO-compliant MCOOL regime and resolve outstanding MCOOL trade disputes the U.S. and Mexico. You can read the congressman’s release here.
Meanwhile, Harriet Hageman (R-WY) and Ro Khanna (D-CA) introduced the “Country of Origin Labeling Enforcement Act of 2023,” which simply ignores the WTO rulings that Canada and Mexico won against the U.S. As Inside Trade quotes from the bill “No ruling by the World Trade Organization or by any other international organization of which the United States is a member that is established before, on, or after the date of enactment of this Act may be construed to limit, alter, or affect the authority of the Secretary of Agriculture to require country of origin labeling in accordance with the amendments made by this section.”
This is not to say that the U.S. has given up on using dispute settlement mechanisms, as the story below shows.
Mexico stays firm on ban of GM corn
US-Mexican face-off on GMOs gets serious and drags in Roundup: This is a big story to which we’re going to devote some digital ink. Reuters among others like Foodtank have good, succinct coverage of the U.S.-Mexico corn issue. For the Canadian angle, see Dan Ciuriak’s piece in the Latin America Advisor.
Mexico is doubling down on its ban of the importation of genetically modified (GM) corn for human consumption. If successful, it will set a precedent under the new NAFTA agreement for allowing GM bans – corn today, canola tomorrow. Given how much effort Canada and the U.S. spend fighting GMO bans elsewhere, having one inside the North American trade tent is troubling to say the least, as a U.S senator recently noted.
The current ban being disputed by the Americans includes minimally processed corn, defined as the tortilla and masa industry, but not more processed items like oils. The ban originally also included restrictions on GM corn for animal feed and industrial uses, for which Mexico imports about US$5 billion annually from the U.S. The Mexican government modified its original ban to exempt corn for feed to appease the U.S. This has not been good enough for the Americans who officially established a dispute settlement panel for the issue on Aug. 17, 2023 under the new North American trade agreement. Canada had joined the original U.S. call for dispute resolution in June, and a week after the new American action announced that Canada will join the U.S. as a third party to the dispute.
The Mexican government has doubled down on its ban since it made a concession on corn for animal feed and also enacted a new, more difficult to repeal, regulation that also includes bans on the use of glyphosate.
Mexico is going to fight and is armed – Mexican president Andres Manuel Lopez Obrador has been as insistent on Mexican food sovereignty as he has been on energy sovereignty going back to his first run for the office. For a glimpse of Mexico’s case, here’s an article from a U.S. researcher and for those who speak Spanish, a seminar by the Mexican government. A good, English language summary of Mexico’s position beyond the science is in Salon. The Salon piece includes details like Mexico being the birthplace of corn.
The Americans, echoing lines used by Canada elsewhere, charge that there is no conclusive, or any science, that shows harm from consumption of these products. Mexico counterclaims that there is no conclusive evidence that these products, especially glyphosate, may not cause harm. Mexico also cites the protection of genetic diversity of its culturally important corn stock.
Bottom line, as AP noted the concession allowing GM corn for animal feed is as far as the Mexican president is willing to go. If the Mexicans do not back down, or follow the U.S. strategy (see above) of just ignoring an unfavourable ruling, a group GOP presidential candidates may add this to their growing list of reasons to take military action against Mexico.
All of this raises a question that if things are this bad in North America, who could possibly want to join?
Well, Costa Rica and Uruguay for starters are asking to join NAFTA and Canada, or at least the opposition, is thinking about how Canada should respond. We, along with our good friends at the Wilson Center and others, are closely following American discussions to expand the Canada-U.S.-Mexico trade agreement to include others in the hemisphere, mentions of which elicit near universal reactions of surprise in Western Canada.
Though apparently not from opposition associate shadow minister for international trade and good Saskie, MP Randy Hoback. In an interview with Inside Trade he had some advanced thinking on the idea.
“And by making a bolt-on to USMCA so a country — let’s say Costa Rica — wants to join, well we can lay out what we think the criteria needs to be in regards to them joining,” Hoback said. “So, whether it’s environmental criteria, regulatory criteria, rule of law, democracy, we can lay that out and say, ‘if you hit this level … you are now part of the agreement and will receive the benefits and investment from companies throughout Canada, U.S. and the rest of the world.”
Given that the Americans are already discussing adding more countries and countries in Latin America are already asking to join, it’s good to see the idea getting some thought in Canada.
Business and analysts may want to start thinking through scenarios if the agreement is expanded.
Nearshoring speedbump
The move to reshore production to North America may literally be running out of juice in Mexico. Bloomberg takes an interesting look at Mexican industrial parks not being able to get enough electricity to meet demand from companies wanting to nearshore to Mexico. While not of immediate impact to the Canadian prairies, the story is worth noting because, as recently reported in this CWF report, western Canada is facing its own challenges trying to produce reliable, affordable and low-GHG electricity to meet increasing demand. To quote from the Bloomberg story “operators of these facilities (sic. industrial parks) want to increase generation of renewable energy amid a surge in demand for electricity, but they’re facing a government still in love with fossil fuels.”
Workforce supply and demand hurdles across North America are another challenge for nearshoring. Canada West Foundation recently partnered with the Bush Institute and the North American Strategic Competitiveness Organization to make the case for North American-wide skilled trade credential recognition in the skilled trades which would help ease barriers to the movement of talent across the three countries.
North America election watch
We’ll be ramping up to look at impacts on the Canadian prairies from the 2024 federal elections in Mexico and the U.S. While threats to bomb Mexico may be the most 🦇💩🤪 item in the brief so far, something that literally hits closer to home for Canada came from former President and current GOP front runner, Donald Trump. As reported by Bloomberg, in a Fox Business interview around the time of the first GOP candidates’ debate, Trump floated an automatic, 10 per cent tariff on all goods imported to the U.S. no matter the source country as part of his new trade platform. So, a return to the Nixon shocks of the 1970s when President Nixon, on a Sunday evening in August, announced an immediate 10 per cent surcharge on all imports to the U.S.?
OTHER NEWS: We’re number three!!!!
There was a rush of stories over the summer about Canada falling to number three behind China and Mexico in the ranking of top U.S. trade partners. The news prompted a lot of handwringing but here at CWF we took it in stride and upon reflection realized it makes perfect sense. With apologies to David Letterman, here is our list of the top 10 reasons, in random order, for why Mexico, not Canada, is the U.S.’ top trade partner.
- You can’t sell what you can’t sell. Canada’s top export to the U.S. has been energy, specifically oil and gas. Depending on the year, the value of exports is close to four times more than Canada’s number two export, autos. But unlike oil, the Americans have not impeded the flow of autos, say by stopping an auto parts pipeline. Mexico doesn’t run into this type of U.S. obstructionism until the bottom of its list of top ten exports to the U.S. – seasonal fruits and vegetables.
- The Inflation Reduction Act (IRA) effect, pt. 1*. Subsidies under the IRA make building projects in the U.S. much more attractive than in Canada especially for projects where Canada competes with the U.S. such as solar, carbon capture, ammonia, etc. As mentioned earlier in this brief, renewable energy is not much of a priority in Mexico. (*Yes, we realize it’s too early for the IRA to impact trade numbers. The point is to use the drop to reflect on Canadian competitiveness in North America.)
- The IRA effect, pt 2. The U.S. is investing massive sums in infrastructure to, at least in part, enable reshoring from China. Moving production means moving supply and production chains, which means investing in trade infrastructure, because if you can’t move it, you can’t sell it. Canada has done relatively very little investing in trade infrastructure and less in making it a policy focus (see call by the premiers asking the federal government to take this seriously). This leads to the next point…
- The IRA effect, pt 3. In addition to infrastructure, low-cost, high-skilled labour is essential to reshoring from China. This is something Mexico has in abundance, Canada not at all. This factor explains the discrepancy in the amount of time and rhetoric that the U.S. administration has spent in Mexico vs. Canada talking about – re-, near-, or friend-shoring. What Mexico offers the U.S. for its nearshoring agenda is clear. What, if anything, Canada offers is not.
- Hiring the neighbours. Over 100,000 workers a day cross the border at San Ysidro (Tiajuana) to work in San Diego. Smaller but still ‘higher-than-anywhere-in-Canada’ numbers cross in McAllen, Brownsville, Nogales, El Paso, etc. In Canada, estimates are that around 6,000 workers cross from Windsor into Detroit daily and numbers aren’t readily available for the few other Canadian border crossings where a daily commute would be possible. A six-hour daily, roundtrip, commute from Great Falls to Lethbridge anyone?
- Americans drink Modelo, not Molson. Close to 40 million U.S residents either were born in Mexico or have ancestral ties. The equivalent number for Canadians is well under a million. With this sort of built-in consumer base it’s no wonder that three of America’s top 10 selling beers are Mexican: Modelo Especial at #2, Corona at #4 and the redundantly named Dos Equis XX at #10. No Canadian beer is in the top ten. As for Budweiser being the top selling beer in Canada, there’s no excuse.
- CONCACAF revenge. After decades of beating Canada like a pinata, the U.S. and Mexico, who had presumed permanent ownership of the regional world cup qualifying bracket, suddenly found themselves looking up at, and looking embarrassed by, Team Canada sitting atop of the division. The Americans and Mexicans know what worries us the most and this makes for good revenge.
Well, we ran out steam. But we’ll turn it over to our readers to finish the list. Send us your ideas for numbers 8, 9 and 10 and we’ll give you/your organization a by-line. Deadline is September 29, 2023.
– Carlo Dade, Director of the Centre for Trade and Investment
The North America Brief is a compilation of stories, links and analysis related to the relationship between the U.S., Mexico and Canada’s prairies. The opinions expressed in the links are those of the articles’ authors and don’t necessarily reflect the views of the Canada West Foundation and our affiliates.