Mexican trade negotiator Kenneth Smith Ramos tweeted this:
#Mexico stated from the beginning of the negotiation that the ideal scenario is for #NAFTA to remain trilateral. We hope the US and Canada will conclude their bilateral #negotiation shortly. If that is not possible we are ready to advance bilaterally with the US...
and this:
...the agreement in principle that we closed with the US is positive for Mexico because it preserves free trade and modernizes our trade agreement in key areas for today's economy such as #digital trade; #telecoms; and #SMEs, among others #NAFTAWorks
For the sake of argument, let's say Canada and the U.S. cannot resolve their issues, and the U.S. and Mexico go ahead with a new bilateral trade agreement on their own. What then happens to the U.S.-Canada trade relationship? One scenario is that NAFTA is terminated, and Canada and the U.S. go dig up the old Canada - U.S. FTA and decide what they want to do with it.
But another scenario would be to keep NAFTA in place for the U.S. and Canada. I can't think of a technical reason why you couldn't do this. Trade agreement relationships get tricky sometimes (see, e.g., the CUSFTA/NAFTA one), but smart trade lawyers can figure it all out. You could have a U.S.-Mexico trade agreement, and then NAFTA for the U.S. and Canada, and finally the TPP for Canada and Mexico (and others). Complicated, but possible.
As far as I can tell, then, the decision about the U.S.-Canada relationship in this scenario will be based mostly on politics, that is, what Congress and the President want to do here. So if the U.S. and Canada can't agree on new terms for NAFTA in the next few weeks, why not just keep the old NAFTA in place for them? They can keep working towards new terms if they want to, or just put the whole exercise on hold and move on to other things.
