North American Brief
Issue 15 | February 2024
In this issue: Team (Central) Canada, a new COOL, Mexico: 4th largest LNG exporter? and more!
Team (Central) Canada
There’s a lot of important news to start the year, but we’re going to start with some ink on this big item: the federal re-launch of the Team Canada approach to engaging the U.S. in the run up to the 2024 federal elections and the 2026 review, and potential renegotiation, of the North American Trade agreement.
The Team Canada announcement came in the margins of the Liberal’s winter caucus retreat in Montreal. As such it was more symbolism than substance. As a refresher, the “Team Canada approach” refers to the federal government convening and coordinating an enhanced advocacy campaign by all levels of government, business, labour and civil society to deliver a consistent, and therefore more powerful, message during U.S. outreach activities conducted by these groups. As presented by the Canadian media and analysts back east, this approach carries the implicit idea that the songbook from which everyone sings will be developed in common and represent the full range of Canadian interests.
We’ll wait while Westerners settle down.
The re-launch of the Team Canada approach in Montreal featured the appointment of Minister François-Philippe Champagne from Quebec and International Trade Minister Mary Ng from Ontario. No ministers or MPs from Western Canada. Worse, the West was also largely excluded from the group of businesses and associations representatives. The group included the Future Borders Coalition, a national advocacy organization with some western representation. But the other two business representatives were Flavio Volpe of the Toronto-based Automotive Parts Manufacturers’ Association and Marc-Andre Blanchard, executive vice-president at the Quebec government-created investment group CDPQ Global (Caisse de dépôt et placement du Québec). This despite the fact that Western Canada has the highest trade dependency on the U.S.
US exports as % of GDP, 2022
Source: CWF calculations from Statcan data
Our good friends in D.C. at the Woodrow Wilson Canada Institute have a good critique of the new Team Canada approach which includes questioning whether this approach is Team Canada or Team Trudeau.
Yes, the western and especially prairie provincial governments have an extensive and effective presence in the U.S. including representation in Washington D.C. for Alberta and Saskatchewan. But the new Team Canada approach will overwhelm efforts and messaging by individual provincial governments and business associations.
Any federal Team Canada approach includes a flood of engagement materials: policy papers, conferences, media interviews, academic exchanges, think-tank working groups. These will be produced in Central Canada, not the West and certainly not the Prairies, which means the battle to shape Canada’s engagement will be lost before it starts. Prairie governments operating individually will invest what they can but will nonetheless be outmanned, outgunned and unable to counter the dominant narrative created by Central Canada.
Prairie issues will, of course, still be represented by the federal government. This North America brief has several examples of that. But as parties begin to prepare, it would be wise to wonder where western issues will be placed on any list of priorities and who will be representing them. The answer varies by issue – energy, agriculture and livestock vs the environment. For an issue like energy, where the Prairies will not fare well in the hands of the federal government, the news around the re-launch of the Team Canada approach is a warning.
It’s too late to retool and organize for the upcoming federal elections. But it’s not too late to think about new approaches to engage the U.S before the July 2026 review of the North American trade agreement.
Speaking of new approaches for engaging the U.S. we published some ideas in the Financial Post in January, “Why Canada should think ‘America First’ when it comes to trade with the U.S.”
Livestock, the new softwood?
Livestock on the table. According to an official Canadian government readout of the meeting, Minister of Agriculture and Agri-Food Lawrence MacAulay met with U.S. Ag Secretary Vilsack in mid-January in D.C. to attempt once again to head off voluntary country of origin labelling (mandatory labelling is a subject frequently covered here) and California’s proposition 12, the Farm Animal Confinement Initiative. Proposition 12, which survived a Supreme Court challenge, bans the sale of pork products from farms that keep pregnant pigs in “gestation crates.” Massachusetts is implementing similar restrictions, and several other states are considering similar initiatives. Canadian producers now face a fragmented U.S. market, a subject that may deserve to be on the table for discussion during the upcoming review of the North American trade agreement.
One issue that MacAulay and Vilsack discussed that will be more problematic is the U.S. government’s finalization of a scheme to support “voluntary” country of origin labelling for beef and pork. Under the new scheme, the USDA is redefining the criteria for its “Product of the USA” and “made in the USA” labels that producers can chose to affix to their products.
Canada and Mexico won a WTO challenge against the U.S. for its previous mandatory labelling requirements arguing that they imposed unreasonable and discriminatory costs that were a non-tariff barrier and at odds with U.S. treaty obligations. To fight voluntary labelling Canada will have to come up with a new argument. Rather than being decided in international arbitration, voluntary labelling is more likely to be resolved by the market. Do U.S. packers want to incur the additional cost and is there market demand from U.S. consumers to pay more for “made in the U.S.A. beef?” If U.S. beef costs more but there’s plenty of cheaper North American beef in the supermarket, past U.S. consumer behavior suggests “made in U.S.” beef would suffer.
One strategy for protecting Canadian access to the U.S. market could be to demand acceptance of a “Made in North America” label. Rejection by the U.S. government of such a proposal would clearly be discriminatory. There should be a strong market in the U.S. for beef labelled Made in North America. For one, Canada has a reputation for quality and safe production. On the other side of the equation, there are 37 million Mexican citizens or descendents in the U.S. who may prefer beef from Mexico. And if beef labelled Made in North America is cheaper than the Made in U.S.A. product it should be even more attractive to consumers.
Other ag news is good news. We’ve been following the North American dispute over GM (genetically modified) corn. Mexico wants to ban it, the U.S. and Canada, which are fighting GM bans around the globe, don’t want a ban at home in North America. According to InsideTrade (paywall warning), the North American dispute settlement panel on the issue has denied intervenor standing to two Canadian NGOs that support Mexico’s ban, the Council of Canadians and the Canadian Biotechnology Action Network (CBAN). The panel found that only NGOs located in the territory of the disputing Parties (in this case the U.S. and Mexico) have standing. The Canadian NGOs had originally been granted standing to submit comments to the dispute panel, but that permission was revoked after a protest by the U.S. and Canadian governments. The CBAN press release provides details. The Dispute Panel also ruled that the 11 NGOs that do have standing must avoid “any discussion of ‘glyphosate-based herbicides and Bt endotoxins,” as those issues are not before the panel.
The USDA is the preferred source in Canada for foreign ag and ag-foods market intelligence so it’s always interesting to see their take on Canada. Their most recent Exporter Guide to Canada was released in January. As expected, “Canada remains the top foreign market for U.S. consumer-oriented products, accounting for approximately 24 per cent of the United States’ total global consumer agricultural exports.” Notable on the list of reasons not to sell in Canada was that ‘buy local’ campaigns are becoming increasingly popular. So while Canada worries about Made in the U.S.A. regulations, the U.S. embassy in Ottawa is worried about Buy Local YXE (Saskatoon for those that don’t speak airport code like Carlo.)
North America beyond Mexico…
Much has been written about Canada’s exclusion from one U.S. regional economic initiative, the Indo-Pacific Economic Framework (IPEF), (see for example this piece in the Globe and Mail featuring our good friends from the Business Council of Canada, with whom we disagree on this point.)
The other regional initiative of which Canada is part, the Americas Partnership for Economic Prosperity (APEP), may have some legs. Of the 13 IPEF members, the U.S. has trade agreements with only three – Australia, Korea, and Singapore. The U.S. has trade agreements with all but two of the 11 APEP members – Barbados and Ecuador. In other words, and as stated in its official declaration, APEP is about strengthening already existing agreements not trying to add new members to a political environment in the U.S. that is hostile to any new trade agreements. For free trade opponents in the U.S., APEP is a horse that’s already out the barn. In this regard, news that Costa Rica, an applicant to join both the CPTPP and the North American trade agreement, is hosting the next APEP summit should be getting more attention. For Western Canada, having Costa Rica join the North American agreement is of little benefit even if comes at zero cost.
However, Costa Rica joining the CPTPP makes enormous tactical sense. It adds another liberal, and yes, progressive member with a stronger and much longer track record of democratic governance than most existing CPTPP members. The country ranks in the top half of CPTPP countries, and higher than the U.S., in Freedom House’s Freedom of the World report. Economically? Well, it’s more important for Canada than CPTPP member Brunei. But thinking strategically about the CPTTP it makes sense to have another strong democracy with longstanding ties to Canada sitting at the table negotiating with and voting on the ascension of more difficult applicants to the agreement. Costa Rica also has longer experience dealing with China than most other countries in the hemisphere, having signed a trade agreement two decades ago. An experience that former President Solis recalls with some ambivalence. But, as noted in an analysis in the Globe and Mail, Costa Rica joining the North American trade agreement is still a longshot. Its ascension to the CPTPP may be closer and its presence at CPTPP tables would benefit Canada and the West.
Energy
In an exclusive interview with InsideTrade, European Commissioner for Trade, Valdis Dombrovskis, said he raised concerns over the reliability of LNG shipments from the U.S. to Europe in light of the recent Biden administration decision to pause consideration of new LNG export terminals. While the EU official received reassurances, it’s notable that there was enough concern in Europe for the topic to be raised several times during Dombrovskis’ visit.
Mexico, 4th largest LNG exporter? This question is raised in a NYTimes article on something we’ve reported on in the past, the construction of LNG export terminals in Mexico and specifically on the Pacific coast. The article provides a comprehensive overview of Mexico’s prospects including the impact of U.S. President Biden’s pause on U.S. export facilities which would also affect four of the proposed Mexican projects. The fifth project, Costa Azul, is not affected by the U.S. pause because it is near completion. An interesting point raised in the article is that concern about transit through the Panama Canal have made the Mexican projects, which are linked by pipeline to the Pembina Basin in Texas, more viable. Shipping from Mexico’s Pacific coast also cuts into Canada’s time advantage over U.S. gulf coast ports.
Meanwhile, according to an in-depth analysis by CSIS, Mexico has reportedly been increasing petroleum shipments to Cuba, effectively replacing Russia and Venezuela as the country’s largest supplier. Whether the shipments are donations or being sold is an open question as the President of PEMEX has, in congress, contradicted the Foreign Minister’s assertion that the shipments are donations under the Agency for International Cooperation for Development. The addition of “and I’m not lying” to his statement underscored the point. The Mexican state oil company, which is responsible for the shipments, is also a recipient of financing from the U.S. government’s Export Import Bank meaning that if PEMEX is indeed selling oil to Cuba without having obtained a license from the U.S. Treasury it would be in violation of U.S. economic sanction regulations. Of the 20 countries on which the U.S. has imposed economic sanctions, other than Cuba the only place where Canadian energy exporters might run into this kind of trouble would be ASEAN member Myanmar. Something to keep in mind with a Canada-ASEAN trade agreement under negotiation.
Speaking of the PEMEX president, our friends at the Latin America Advisor newsletter ran a collection of expert opinions on whether the country’s new Olmeca refinery will start producing 274,000 barrels per day of gasoline, diesel and jet fuel by the time President Andrés Manuel López Obrador leaves office in September, as Pemex CEO Romero asserted in January.
Newsbytes
Our friends at the Latin America Advisor turn to experts for an explanation of Mexico’s incoming flood of, not just guns, but military grade weapons – including rocket and grenade launchers. A U.S. court has recently revived a US$10 billion lawsuit brought by the Mexican government against U.S. gun manufacturers. Interesting for Canada is that several of the experts offering insights noted that part of the problem rests with Mexico’s lax border enforcement and cuts to its customs service. A common theme in the experts’ responses was lack of attention to the issue by both governments until the situation, literally and figuratively, explodes.
A story resurfacing in headlines in the first week of February of this year is something on which we first reported in Issue 11 | September 14, 2023 – 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, we published in September 2023 our list of the top 10 reasons, in random order, for why Mexico, not Canada, is the U.S.’s top trade partner. Here are the top two from that list. For the rest click here.
- 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.)
(BTW – The list is still open for additions from readers.)
U.S. reconciliation… According to the Minnesota Star Tribune, the State of Minnesota is preparing to transfer, or return, a 1,300 acre state park to the Upper Sioux Community. The park was the site of a former a former U.S. government-run manual labor school and flash point for the Dakota War of 1862. Before congratulating the Minnesota state legislature, it’s important to note that the park was one of the least visited in the state and in need of extensive repairs.
…and lack thereof. Meanwhile, in South Dakota, state-first nations relations took a different turn as the Rapid City (South Dakota) Journal reports that the state’s Governor, Kristia Noem has been banned from the territory of the Oglala Sioux nation. The story was picked up by papers across the U.S. and internationally. The tribe banned the governor for sending razor wire and security personnel to the U.S. southern border in support of republican governors. The Pine Ridge reservation is one of the largest in the U.S. and comprises roughly five per cent of South Dakota’s territory.
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.