Canada, Mexico brush aside free trade threats

NEW ORLEANS (Reuters) - The leaders of Canada and Mexico on Tuesday brushed aside threats by the U.S. Democratic presidential candidates to try to renegotiate NAFTA and adopt a more protectionist approach to trade.

Democratic contenders Hillary Clinton and Barack Obama -- blaming the 14-year-old North American Free Trade Agreement for U.S. manufacturing job losses -- say the United States could quit the pact unless Canada and Mexico agree to major changes.

Mexican President Felipe Calderon said rising protectionist sentiment in the United States could condemn North America to "complete backwardness" at a time when China and Europe were becoming stronger.

After two days of wide-ranging talks among Mexico, Canada and the United States, Canadian Prime Minister Stephen Harper said reopening the trade deal would cost the United States.

"I'm confident that when the facts are looked at, any president ... will quickly conclude how critically important NAFTA and Canadian-American trade relations are to jobs and prosperity on both sides of our border and, in particular, the importance of energy security," he said.

Canada is the single largest supplier of energy to the United States, Harper noted.

If NAFTA were renegotiated, he said, "I think quite frankly we (Canada) would be in an even stronger position now than we were 20 years ago and we'll be in a stronger position in the future."

President George W. Bush burst out laughing at Harper's comments. Canada sends 75 percent of its exports to the United States and would be economically crippled if the deal were scrapped.

SHIFT TO U.S. CAMPAIGN TRAIL

As Bush's second term winds down, the focus has shifted from his policies to those of whomever would succeed him in January 2009. On the campaign trail, likely Republican presidential nominee John McCain has supported free trade pacts.

Clinton and Obama say that at a minimum, NAFTA needs stronger provisions on labor and environmental standards. Provisions on those issues were not in the core agreement and therefore not enforceable through the same measures as the commercial provisions of the pact.

Bush, Calderon and Harper argued that the agreement has created new jobs, lowered prices on goods for consumers, and made the region more competitive at a time when the Chinese and Indian economies are starting to accelerate.

Calderon warned against the risk posed by protectionists, saying "the only thing they would achieve if they were to prosper would be to condemn North America as a region to complete backwardness in today's world".

The tussle over free trade came against the backdrop of a sliding U.S. economy but Bush denied it was contracting, just slowing down. "We're not in a recession. We're in a slowdown."

Bush, trying to stay involved as the focus turns to the U.S. election in November, said he will continue to bang the drum for free trade as he struggles to get Democrats in Congress to approve pacts with Colombia, South Korea and Panama.

"It's not in our interest to become a protectionist nation," Bush said. "I'll continue to speak out on it and assure our friends that, you know, we will work hard to explain to the people the benefits of why free and fair trade is in our nation's interest."

The U.S. Congress has indefinitely postponed a vote on the Colombia deal, but Canada's Harper said it would be wrong to punish Colombia after all it had done to fight political violence, corruption, guerrillas and drug traffickers.

"If you want to have legitimate trade and see that country progress economically, we need to have a free trade agreement," he said.

"I do worry that if ... the United States and our allies turn their back on an important ally in this region, that that will have long-term security consequences for all of our countries in North America," he said.

Colombia already has duty-free access to the U.S. market for most goods under a U.S. trade preference program that dates back to 1991. The pact would scrap many tariffs on U.S. businesses that export to Colombia and phase out the rest.

House Speaker Nancy Pelosi, a California Democrat who put off the vote on the Colombia pact, said Democrats want to consider domestic economic issues first.

"Democrats have repeatedly told the president we are willing to work with him in good faith to create jobs and restore our economic strength," she said in a statement.

(Additional reporting by Deborah Charles; editing by Philip Barbara)