Sunday, August 26, 2007

The Challenges Facing North America

The creation of the Free Trade Agreement and later NAFTA was a reaction to underlying structural integration that occurred without government involvement. Leading up to free trade, US companies that had once had Canadian branch plants and then Canadian subsidiaries were moving to an integrated US-Canada corporate model. Since the free trade agreement structural integration has continued to grow, notably in supply chains. For example, the power supply in the US and Canada is more integrated even than in Europe; and railroads and other freight haulage now have a north-south orientation, rather than east-west.

NAFTA brought trade laws up to date with business reality, but it failed to create institutions that could provide a vision for our future. We face a bunch of major issues that we are currently unequipped, as a continent, to face. These include:

* security issues
* environmental issues
* energy issues
* transportation issues
* planning infrastructure such as more deep ports to trade with Asia

Another area in which North American trade cooperation is failing miserably is the nuts-and-bolts details of commerce. The Globe & Mail had a front-page article last week about the hurdles facing a maker of jelly beans: for example, the US and Canada have different regulations about the font used for nutritional information, so they have to spend a lot of extra money producing two sets of packaging that is otherwise identical.

The need for institutional infrastructure to deal with our existence as a continent includes the need for a voice for groups other than business and government. Even academics are mostly left out of current free trade talks, much less NGOs and other community groups.

Having wider input will help the mainstream business and government interests as well as make the whole process more productive. It would also avert dangers (such as the poor southern Mexicans who are not being helped by NAFTA and in consequence are becoming more nationalistic).

In terms of business regulations, the US is taking the lead and setting standards on its own. Canada's lagging on the regulatory front is hurting us economically - many corporations (including banks, CN Rail and other service companies) have moved their headquarters to the US to be closer to the effective regulators. Countries in Europe don't have this problem because they don't have one dominant market and they have a say in multilateral discussions via the EU.

In all the areas I mention above, the US will forge ahead on its own if Canada and Mexico don't find a way to more effectively influence the process. A full tripartite effort in all of those areas will benefit the US more than a unilateral approach. For example, the US focuses on its porous southern border, but perhaps more importantly it should be worried about Mexico's porous southern border and what threats might emerge from it.

The recent talks in Montebello were part of an ongoing, inadequate process for dealing with our common economic and security issues (see the Security and Prosperity Partnership). We need to do so much more. I recently heard Stephen Blank argue that mayors should take up the challenge and forge tri-country discussion groups; while mayors don't have a legislative mandate they are very influential. Others have argued that we need an annual forum of all federally elected representatives in the three countries.

I hate to say it (since that ship, apparently, has sailed) but what we need is Bob Rae to run our country and bring his intelligence and vision to forge a new continental relationship. Compare the EU to North American free trade and our inadequacy is especially apparent. There are issues of huge importance to all citizens of North America that we just aren't dealing with.

(Some of this information is from a recent panel discussion at CIGI involving Ginny Dybenko, Daniel Schwanen, Stephen Blank and Duncan Wood.)


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