The Future of North American Integration: Beyond NAFTA

Chapter 1: Introduction

1 1 Introduction Peter Hakim and Robert E. Litan When it came into force on January 1, 1994, the North American Free Trade Agreement (NAFTA) joined the economic futures of Canada, Mexico, and the United States. Clearly both Canada and Mexico—given their geography and markets—had been integrating with the United States well before NAFTA took effect. Indeed, the United States and Canada had signed a bilateral free trade accord six years earlier. But, with NAFTA in place, the pace of integration accelerated, and systematic rules governing trade and investment along with dispute resolution mechanisms were established, and the governments assumed an active role in guiding, promoting, and managing economic relations among the three countries. Moreover, the three countries are increasingly viewed as a single economic entity, one with a gross domestic product (GDP) of some $10 tril- 2 Introduction lion, or 15 percent larger than the fifteen-country European Union (EU). What then lies ahead for North America? As it stands, NAFTA takes a narrow view of integration, focusing almost exclusively on trade and investment matters, steering clear of any new institutional, social, or development arrangements . NAFTA barely addresses such vital issues as immigration policy and labor markets, the energy sector, environmental protection, and law enforcement. Moreover, despite their trilateral relationship, the three governments of North America largely conduct business within the framework of two bilateral relationships, that is, between Canada and the United States and between Mexico and the United States. The governments of Canada, Mexico, and the United States now must confront the question of whether NAFTA is enough. Do they want to keep their trilateral relationship largely focused on economic matters? Or are they interested in integrating more deeply, in more fully joining their societies—perhaps initiating a process to build a North American Community, if not precisely along the lines of the European Union, then something similar but less ambitious? Whatever the three countries decide their ultimate objective to be, what additional steps, if any, should they take in the interim to affect the pace and structure of their integration? 3 Introduction This monograph is designed to begin a process to help answer these questions. It contains thoughtful discussions about the future of North America by three knowledgeable experts on the continent from each of the three countries . Robert A. Pastor from American University (and formerly with Emory University) in the United States has written a comprehensive book on the subject: Toward a North American Community: Lessons from the Old World for the New.1 Andrés Rozental is an ambassador at large for Mexico and president of Consejo Mexicano de Asuntos Internacionales (Mexican Council on International Affairs). Perrin Beatty, a former foreign minister of Canada, is president and chief executive officer of Canadian Manufacturers & Exporters. The papers in this volume were presented at a conference held at the Brookings Institution in December 2001, as part of a project on the future of North American integration. The project has the support of eight organizations from the three North American countries.2 The consortium was formed to explore the issues and choices that lie ahead— including the costs, benefits, and constraints associated with various options—as the three nations consider the kind of future relationship they wish to develop. The project seeks to assist decisionmakers, opinion leaders, and ordinary citizens in understanding the promise and challenges associated with the integration of Canada, Mexico, and the United 4 Introduction States. It also aims to encourage them to think more systematically about how they wish to proceed and where they want to end up. North American Economic Integration The United States in 2002 is overwhelmingly the largest trading partner of both Canada and Mexico and the biggest foreign investor in both countries. Total trade between the United States and Canada amounts to about $450 billion per year, nearly two-and-onehalf times what it was in the early 1990s. Canada buys some 70 percent of its imports from U.S. suppliers and sends more than 85 percent of its exports to the U.S. market. Nearly twothirds of all foreign investment comes from the United States. Trade between the United States and Mexico exceeds $250 billion per year, more than four times that of a decade ago. Mexico ships almost 90 percent of it exports to the United States and obtains about 70 percent of its imports from the United States. Mexico has become the...