North American Economic Integration

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Will North America achieve closer
economic integration? iPolitics Insight

By | Oct 11, 2012

The idea of North America is ready for a revival. This week’s meeting in Ottawa of the North American Forum provides an opportunity to talk through the cause of closer continental economic integration and interdependence.

Meeting annually since 2005, the Forum brings together senior representatives from government, business and the research community. It will not decide change but their discussions, whether in plenary or in the corridor, help inform good policy.

There will be close attention to the Canadian energy debate over finding new markets and investment. How do we manage relations with China in the context of the CNOOC bid for Nexen against the backdrop of Huawei and cyber espionage?

Will the new Mexican administration open its energy sector to foreign investment? And how will it deal with the drug wars that have taken over 50,000 lives, chilling both tourism and investment?

There will be keen interest in the U.S. election and the bigger question of how the U.S. will deal with its fiscal cliff. The IMF warns that ‘muddling through’ is inadequate and that risks of a global slowdown are ‘alarmingly high’ because of policy uncertainty in Europe and the United States.

Americans should take home the MacDonald-Laurier Institute’s latest study, Northern Light: Lessons for America from Canada’s Fiscal Fix. Canada stood at a similar abyss in the early ‘90s but with cross-party political consensus, determined leadership at every level of government and a combination of retrenchment and revenue generation, we put our house in order.

But the main focus of discussion will be: How can we marry our resources, markets and labour with our geography so as to create sustainable jobs and prosperity?

The first iteration of the North American idea – the NAFTA – ushered in a decade of growth and prosperity for all three partners, although there continues to be little appreciation of this in the United States. NAFTA became the scapegoat for job loss and outsourcing. An unfair charge, but neither business nor successive governments made much effort to correct the record with the result that any effort at trade liberalization in the U.S. faces an uphill struggle.

The NAFTA-generated gains of continental economic integration were realized during its first decade. A combination of new border restrictions in the wake of 9-11, then recession and continuing economic turmoil have stalled progress.
Success requires American leadership.

George W. Bush’s effort to first revive the North American idea through the Security and Prosperity Partnership was well-intentioned but lacked focus and ran out of steam. With an overflowing international in-box – the financial crisis, the wars and unrest in the Middle East and Arab states – North American integration has not figured large on President Obama’s agenda. The summits have been perfunctory, sporadic and more an occasion for three separate bilateral discussions than advancing the trilateral agenda.

But with Canada and Mexico about to become active members in the December round of the Trans Pacific Partnership (TPP) negotiations, there is additional incentive for North America to get its act together.

In terms of economic integration, North America has a long way to go. The World Bank estimates that European integration has reached nearly 75 percent, and Asia is over 50 percent. NAFTA only stands at about 50 percent. Without the auto industry, our joint production would be much lower.

Yet autos should point the way forward. Smart supply chain production means that cars and trucks made in North America contain a high degree of parts manufactured in at least two, if not all three, partners.

Start with unfinished business: the U.S. has launched regulatory reform with both Mexico and Canada and the two-tracks should be pursued in tandem and harmony.

So should the efforts to expedite the flow of goods across our borders. We welcome the new American economic patriotism, but let’s be sure it doesn’t morph into old fashioned Yankee protectionism.

Americans need to remind themselves that U.S. imports from Mexico and Canada contain an average of 40 percent American-made parts, compared to about 4 percent for imports from China.

U.S. trade with Mexico translates into six million American jobs, while U.S. trade with Canada generates over eight million jobs.

The North American idea makes sense. Trilateralism requires accommodating our differences in language, culture and economic development. The emphasis is less on considerations of power, than on crafting rules that can have a wider application, especially now that we are together in the TPP.

The political auspices in all three countries are propitious. Mexico’s Enrique Pena Nieto takes office in December with a six-year mandate and a commitment to increase trade. In January, the next U.S. Administration will take office for four years. Mr. Harper is secure with his majority government until May 2015. There is elbow room for action.