North America Brief
Issue 12 | October 5, 2023

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.”

In this issue: Mexico’s energy policy sparks friction, corn still on the menu and more

Mexico, Energy and Reshoring to Manitoba

Keeping an eye on the neighbours, the U.S.-Mexico high-level economic dialogue. The news here is not news of interest to Western Canada. Annual talks between the U.S. and Mexican trade, foreign affairs and economic secretaries, revived under President Biden, touched on supply chain resiliency and cooperation on the U.S. CHIPS and Inflation Reduction (IRA) acts.  Overall, the press release from the meeting reads like a menu at a Nothingburger stand.

U.S. continues to press Mexico on energy policy say Mexico News Daily reports on the meeting between U.S. Trade Rep Deputy Jayme White, in Mexico City with Mexico’s Deputy Economy Minister for Foreign Trade Alejandro Encinas Nájera. The Americans are pressing Mexicans on an issue of concern to Western Canada – the current Mexican government’s reversal of energy market reforms made by the previous administration. White is reported to have “underscored the pressing need for Mexico to address the serious concerns that the United States raised during ongoing consultations under the USMCA regarding Mexico’s energy measures” as reported in the readout from the meeting. Interestingly, the U.S.-Mexico corn spat (covered here last month with explanation of the risk to Western Canada’s global fight against GM crop bans) was not discussed, but surging steel and aluminum exports from Mexico to the U.S. were.

Corn was discussed, just not with Mexico. Even though the Americans did not raise the genetically modified (GM) corn ban with Mexico, it was discussed when USTR Deputy White met Canada’s Deputy Minister for trade who was in Mexico for a new NAFTA working group on SMEs.

U.S. ambassador to Mexico calls for dispute panel on Mexican energy policy.  USTR Deputy White’s face-to-face warning follows public comments from U.S. Ambassador to Mexico Ken Salazar who is quoted by YahooFinance as saying “Sometimes the consultation phase just involves a series of meetings that seek to advance to a solution. But the differences seem enough to go to a formal panel under the framework of the USMCA.” The decision to move from consultations to a dispute panel comes from the White House and USTR, not the State Department. That this call for arbitration wasn’t repeated by White while he was in Mexico may be a case of bon cop – bad cop. But whatever, the Americans are turning the screws.

To back up on the energy spat: Bloomberg has a very good, short summary of where things stand with the dispute as well as the substance. In essence, the government of Andres Manuel Lopes Obrador has moved to give the government electricity company priority access to the national grid for renewable projects. The law enabling this was narrowly approved by Congress in March 2021 and survived a Mexican Supreme Court challenge last year, but the judges declared parts of the law unconstitutional in line with rulings by lower courts. The confusion over the law led U.S. Ambassador Salazar to see “endless litigation and uncertainty” hence the resort to dispute settlement under the trade agreement.

Bottom line, more than US$22 billion and 15,000 megawatts of clean energy. Again, according to Bloomberg’s analytic unit, BloombergNEF (yes, we subscribe), the Mexican energy law would impact investments by over 156 companies. Of the 13 projects examined by BloombergBNF, only one is Canadian, Caisse de Depot et Placement du Quebec, and only one is American. The rest are held by Europeans with China and Saudi Arabia also each having one investment in the Bloomberg list.

What this means for Canada, reshoring, and the new NAFTA agreement.

  • The new NAFTA agreement is halfway to its review, scheduled in less than three years. Mexico’s GM corn ban and energy law, both based on the desire for self-sufficiency, run counter to an agreement designed to create interdependence and won’t help the review. But neither will these issues kill the agreement. NAFTA stood for decades, and trade grew year over year despite major irritants – softwood lumber anyone?
  • But the energy law will hurt reshoring efforts. Two things are critical for reshoring away from China to succeed – producing goods and moving goods. Without strong, reliable electricity for manufacturing reshoring becomes more difficult. In its nationalist push to prioritize state-owned companies, Mexico has disincentivized clean, renewable energy, making its manufacturing less attractive and theoretically less competitive.
  • This may create a “clean manufacturing” opportunity for Canada which has been overlooked in the reshoring enthusiasm/hype due to higher labour cost perceptions. Here there may be an opportunity for Manitoba which sits on enormous clean hydro with the ability to add more coupled with good access to the U.S. (and Asia for inputs) without the bottlenecks elsewhere along the border. This fits with the federal “greening the prairie economy” agenda. Securing labour is a challenge but not as much of one as other factors.

NAFTA expansion he said, she said

Expanding NAFTA one vote for, one against. This is turning out to be a hard story to follow. On the one hand, Sen. Bill Cassidy of (R)) Florida has joined the bi-partisan coalition supporting the bill. On the other hand, that an elected official from heavily Latin American-connected Florida would do so is not surprising. But then Democratic Senator Bennet from Colorado is on board and, according to InsideTrade, presidential special advisor for the Americas and former Senator Chris Dodd is a cheerleader for the expansion idea. But, USTR Deputy Whyte poured cold water on the idea when asked during his Mexico City trip about expansion of the new NAFTA agreement saying expansion is “not a discussion that we’re having at this point.”

Columbia River treaty

It’s news that the Columbia River treaty negotiations make the news. CBC has an update on a story that has largely flown under the radar. A good glimpse into the negotiations, which completed round 18 over the summer, comes from B.C. representative to the talks Kathy Eichenberger, in an opinion piece in the Creston Valley Advance  (yes we read local news, it matters).  In addition to the provincial government, the Ktunaxa, Secwépemc and Syilx Okanagan Nations are also at the table. Here’s the interesting part of the op-ed “the Columbia River Treaty requires B.C. to provide a certain volume of water to the United States at specific times of the year for flood-risk management purposes and downstream hydropower generation. This last requirement being the factor that contributed to the severe drafting (water moving out of the reservoir) this summer. This is all the more painful when we observe high water levels just across the border.”

On the other side of the border, over 40 per cent of all U.S. hydropower! The CBC story quotes the US Energy Information Agency stating that the Columbia River Basin provides over 40 per cent of all U.S. hydroelectric power. Given that the U.S. has over 2,500 hydroelectric dams that says a lot about the importance of the four treaty dams and over 470 dams on the Snake River and tributaries in the U.S. fed by the Columbia.

Other news

RBC bailing out California subsidiary. Not prairie news but of interest nonetheless, former Calgary-based BNN reporter Jameson Berkow has a story in the Globe and Mail on RBC having to “prop up” City National Bank, which RBC acquired in 2015. According to a recent academic paper quoted in the article, Monetary Tightening and U.S. Bank Fragility in 2023: Mark-to-Market Losses and Uninsured Depositor Runs?, “186 U.S. banks with assets of about $300 billion that have a negative insured deposit coverage ratio.” Apparently City National makes the cut. While there is no “list” of institutions, the academic paper gives some tools to figure out which institutions are in trouble.

Avoid Arizona (to the tune of Southpark’s Blame Canada): A widely circulated op-ed in Arizona papers says “Stay away from Arizona. That’s what Canada essentially is telling its people.” The op-ed refers to Canada’s LGBTQ travel advisory for the U.S. And though the piece is clear that the advisory does not specifically mention Arizona, the writer is reading between the lines for Arizona, which recently restricted sports participation for transgender athletes and surgery for transgender children. This has potential economic ramifications. According to our good friends at the Canada-Arizona Business council, close to a million Canadians visit Arizona each year, and Canada is the largest source of Foreign Direct Investment for the state.  The article notes the rise of LGBTQ attacks in the U.S. but argues that a blanket travel ban isn’t the answer. It also notes that Canadian provinces have taken similar measures to Arizona and suggests that the ban has purely, cynical domestic Canadian political motivations. The piece closes with “Trudeau might want to build a wall and moat around his capital city Ottawa and issue travel advisories for the rest of North America.”

Land back, U.S.A. Several western and prairie papers including The Billings (Montana) Gazette are following the case of the Onondaga Nation of New York taking the U.S. government to the InterAmerican Commission on Human Rights (IACHR) at the Organization of American States in Washington, D.C. for “violations by the United States of America of the Petitioners’ collective human right to communal property protected by Article XXIII of the American Declaration on the Rights and Duties of Man (“American Declaration”).” The Billings Gazette sums up the impact of the case by quoting a Notre Dame law professor and former IACHR commission president: “The State Department sends their professional lawyers, who are very talented, to make the arguments. And they participate. And then at the end of the day they’ll say, ‘But this is all non-binding, so we’re not going to follow it.’” The paper concludes that in the end the “biggest gain in pursuing the case is likely to be attracting more attention to their 240-year-old argument.”

Hope springs eternal for North American cooperation and for global football. Canadian Lawyer reports that “The Competition Bureau of Canada, in collaboration with the U.S. Department of Justice Antitrust Division and the Federal Economic Competition Commission of Mexico, has launched a joint initiative to tackle anti-competitive conduct by businesses and individuals involved in providing goods and services related to the 2026 FIFA World Cup.” Or, to paraphrase Dorothy from the Wizard of Oz, “Toto, I’ve a feeling we’re not in Kansas Qatar anymore.”

More on corn: There will (or should) be plenty of English language coverage of the U.S. (and now Canada) vs Mexico dispute on GM corn. Understanding the other side of the argument is important for defending the Canadian position. A good practice run for this is a recent English language piece in Al-Jazeera, Why is Mexico standing up to bigger neighbours US, Canada on corn?

– Carlo Dade, Director of  Trade and Trade Infrastructure

The North America Brief is a compilation of stories and links related to the U.S. and Mexico’s relationship with Canada’s West. 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.