Writing in the Globe and Mail, MLI managing director Brian Lee Crowley says that for all its successes, “North America seems to be a perpetual disappointment as economic power blocs go.” He points out that the members of the European Union, formerly torn by war, have done much better in creating an enormous and open free-trade area, and an integrated Asia is coming together with the nascent Trans-Pacific Partnership. “NAFTA is showing its age”, he writes.
Brian Lee Crowley, JANUARY 10, 2014
Like a hockey player who looks great on paper but never quite lives up to his star billing on the ice, North America seems to be a perpetual disappointment as economic power blocs go.
For all its manifest faults, the European Union has created a vast free-trade area, with open internal borders, free movement of goods, capital and people, and common institutions, where before there had been only bickering nation-states that had dragged the world repeatedly into war.
In Asia, while the institutions lag, the reality is of a vast integrated economic machine where Japanese, South Korean and Taiwanese capital and know-how combine with Chinese, Vietnamese and Indonesian workers and natural resources to create the world’s manufacturing centre. The institutions to match Asia’s degree of economic integration are now being forged in the Trans-Pacific Partnership (TPP).
But after a few early successes, like the original Canada-U.S. free-trade agreement and its trilateral successor, the North American free-trade agreement (NAFTA), efforts to create the institutions of an economically integrated North America have essentially stalled.
The logic of closer integration is impeccable. The three countries together have much of what a successful industrial economy requires: capital, managerial know-how, entrepreneurism, workers, natural resources, complementary economies. As Mexico modernizes, we increasingly have convergence on democratic values, the rule of law and strong domestic institutions.
Obstacles at the border cost us all dearly. The U.S. reluctance to permit the construction of the Keystone XL pipeline is costing Canada billions of dollars in lost export earnings for no reason that stands up to rational scrutiny. Ditto for rules of origin for pork and beef. Congestion at the U.S.-Canada border alone costs American companies $10-billion annually. Because of the integration of the North American auto industry, cars repeatedly cross both borders at various stages of production, and costly border delays are, in effect, a tax on our shared industrial production that foreign suppliers do not face. Our failure to match our degree of economic integration with supportive political institutions costs all three nations, and benefits our international competitors.
When you consider the American reliance on Canadian energy, as well supplies of parts and other inputs in various manufacturing processes, there is hardly an American export that doesn’t have a significant Canadian component, and vice versa.
Yet it is not further North American integration that brightens the eyes of decision makers in Washington. That’s just boring and unglamorous. If you want enthusiasm, talk about a U.S.-EU trade agreement or the TPP. And unlike Europe, which bargains as a unit, North America’s on-again-off-again partners bargain separately.
NAFTA is showing its age. Later trade agreements have dealt with many new issues, and Washington clearly relies on that to modernize relations with its NAFTA partners through the back door. Assuming that Canada, Mexico and the U.S. all join the nascent TPP, for example, any improvements it provides on NAFTA’s provisions will automatically apply. But they’ll also apply to other TPP members, like Vietnam and Malaysia, and eventually almost certainly China. Not exactly the route to constructing a robust North America that plays to its domestic strengths.
Responsibility can be laid at the door of all three NAFTA countries, but is chiefly down to Washington. While NAFTA enjoys majority support in U.S. opinion polls, it is anathema to the trade unions that swing influence in today’s White House. The environmental movement has tied up Keystone XL’s approval. Optimistic talk of “reshoring” manufacturing in the U.S. means less sympathy for the idea of shared North American production.
President Barack Obama’s foreign policy rightly focuses on Asia, Middle East peace deals and Iranian nuclear capabilities, but in his presidency he has spent a scant few hours in Ottawa. We cannot build an integrated and competitive North America without the energetic engagement of the constituent parties.
There has been progress, like the Beyond the Border initiative. Canada has spent billions on border infrastructure to convince Washington of our bona fides on protecting U.S. security. But these are mostly technocratic adjustments within the existing framework. Our politicians need to engage the public with a vision of North American leadership in the world, and workable institutions to match. Otherwise we will continue to limp along while our international competitors benefit from our languor.
Brian Lee Crowley (twitter.com/brianleecrowley) is managing director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa: www.macdonaldlaurier.ca.