Canada, Mexico brush aside free trade threats

By Jeremy Pelofsky and David Ljunggren

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.