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Mexico steels itself for NAFTA outcome
Businesses worry the U.S. will pull out of the deal, but hope Canadian ties will flourish, while the elite's goal is to enlist Ottawa to hold the line on Washington

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Tuesday, January 2, 2018 – Page B1

CHIHUAHUA, MEXICO -- Inside Metal Finishing Co. nc.'s cavernous cinderI block plant, aluminum airplane components are dipped in vats of chemicals, covered with primer and painted. The coatings will protect them from corrosion and reduce electrical conductivity.

The company is headquartered in Kansas, and opened this outpost - in an industrial park amid the scrubland of northern Mexico - in 2011 to service parts suppliers south of the border. More than half of the 2,500 parts treated here every day are destined for use on Bombardier airplanes.

"Everything from clips that are super tiny to stringers, skeins, parts that go on the cockpit," says Rene Espinosa, the slim, bearded plant manager, as he stands on the factory floor. "Just imagine it's a big Lego. You have a lot of little parts that get assembled together."

This is the North American free-trade agreement in action: A U.S. company with a plant in Mexico that finishes parts for a Canadian aerospace firm. Over the last 24 years, the pact has transformed Chihuahua, a sprawling city of 900,000 set in an arid valley between low-lying brown mountains, from a place best known for mining and cattle ranching to an industrial powerhouse.

And it's emblematic of the relationship between NAFTA's junior partners. At first, the deal was a marriage of convenience for Canada and Mexico, designed to provide better access to the colossal economy sandwiched between them. But the pact has created a trading relationship, worth an estimated $42-billion annually, that was all but non-existent before.

Now, the two countries find themselves allied in the battle to preserve a continental freetrade zone from U.S. President Donald Trump's protectionist attack. Mexico's business class evinces an anxiety about the U.S. pulling out of the deal, along with a hope that the country's ties to Canada can flourish - and even become stronger. Mexico's political elites, meanwhile, combine hope that the two countries will successfully hold the line on Washington at the NAFTA bargaining table with fear that Ottawa will throw them under the bus to save its own relationship with its largest trading partner.

Canada and Mexico have been in close contact behind the scenes as the negotiations unfold. Foreign Minister Chrystia Freeland speaks weekly with Mexican Economy Minister Ildefonso Guajardo, said sources familiar with the back-channel discussions, and she is also in regular touch with Foreign Minister Luis Videgaray. Mr. Videgaray's chief of staff, Narciso Campos, meanwhile, speaks with his counterpart in Ms. Freeland's office, Jeremy Broadhurst, and Brian Clow, the head of the NAFTA unit in the Prime Minister's office.

Mr. Campos and Mr. Clow hunkered down over coffee at the hotel bar during the most recent Mexico City round of talks in November.

The relationship, however, is not all roses. While Mexico wants the two countries to work together no matter what, Canada has been careful to leave open the option of a bilateral deal with the United States, should the Trump administration decide it must punish Mexico, which it blames for luring manufacturing jobs away from the United States.

During visits to Washington and Mexico City this fall, Prime Minister Justin Trudeau made no public commitment to stick with Mexico to the end.

"It was a missed opportunity and I was disappointed ... That would have been the ideal opportunity for him to say that Canada is committed to this trilateral deal," said Andres Rozental, a former Mexican deputy foreign minister, who paraphrases Mr. Trudeau's father in arguing the two countries need to get closer "to get around the elephant that lies between us."

Luz Maria de la Mora, a Mexico City-based business consultant who was on the original NAFTA negotiating team in the 1990s, said having a three-way deal allowed Canada and Mexico to integrate their economies rather than competing to do business with the United States.

"If we'd had two bilateral deals, the U.S. would be the hub and we would be the spokes and we would be losing investment and trade opportunities, competing for the U.S. market," said Ms. de la Mora, sipping an Americano in a hip café two blocks from the Camino Real Polanco hotel, where trade negotiators were working on the NAFTA overhaul.

"The way I see it, we created a trade relationship and an investment relationship where there was none."

That relationship has certainly borne fruit in Chihuahua.

Among the Canadian companies here are Bombardier, which manufactures airplane components in Mexico before shipping them to Mirabel, Que. for final assembly and Arnprior Aerospace, which makes black boxes for Boeing jets. A short drive from the low-slung city centre, industrial parks stretch in all directions, ringed by new big-box developments that would not look out of place in Mississauga.

From his office, in a tower on a hillside overlooking the city, Luis Lara said the relationship between Mexico and Canada is even more important in the face of Trumpian nationalism. The 72-year-old entrepreneur has made his career running American Industries, a company that helps foreign businesses set up shop in Mexico. Canadian companies have often used his services, but he generally treated them as being functionally the same as their U.S. counterparts. When Mr. Trump rode into office, Mr. Lara realized all of that could change.

"For the first time in my life, I was knocking on the door of the Canadian embassy," says Mr. Lara, a compact, bespectacled man with thinning grey hair and a mustache, sitting at the head of a heavy wooden boardroom table. "I said, 'They really are two countries - the United States and Canada are different countries.' " Beyond his dislike of Mr. Trump, Mr. Lara also expresses a certain disappointment: He always looked to the United States to guide the opening up of trade. Now, the President wants to start dismantling the system of international commerce his country worked so hard to build. If Washington won't lead, Mexico City and Ottawa must, he says: His latest project involves assembling Mexican investors to put capital into industrial operations in Canada.

Mariana Ceniceros, who runs American Industries' Toronto office, says she has no problem selling Canadian companies on investing in Mexico, but many are holding back because of uncertainty over NAFTA's future. She contends that Mr. Trump is hurting North America by trying to divvy it up rather than fuse it into a cohesive trading block ready to take on the world.

"Most of them already are convinced, I don't have to go and sell them on Mexico. They know they have to come here. Now, the thing is, how do we do this partnership with this new political scenario?" she says. "We should redefine the competitiveness of each region and then, together, work to compete with the European Union or China. But instead of trying to unite, the policy is to divide."

Rene Friesen, who runs a Mexican company that builds containers to transport auto parts to assembly plants, says his firm was on edge when Mr. Trump first became U.S. President. But now, it is trying to carry on while it waits for NAFTA talks to play out.

And, as his company shows, the Mexico-Canada relationship need not be a one-way street, with Canadian firms setting up shop in NAFTA's southernmost partner. IZA Design and Manufacturing, started in a small town near Chihuahua, has already flipped that script by expanding to plants in Ontario and Tennessee.

"We're going back to Canada and we're saying, 'How can we partner up?' There's nothing potentially threatening the business relationships between these two great countries, Canada and Mexico," Mr. Friesen says. "Part of the NAFTA concern, in one sense, has brought us together closer."

Associated Graphic

Chihuahua's Metal Finishing Co. factory is an example of the North American free-trade agreement in operation: a U.S. company with a plant in Mexico that finishes parts for Canadian aerospace firm Bombardier.

Luis Lara is head of American Industries, a company that helps both U.S. and Canadian businesses set up shop in Mexico.

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