Building a North American Community
Case Synopsis
This report, signed by 31 high-level experts and authorities on NAFTA and North American economic and trade relations, may or may not represent a pivotal initiative in the future of North American economic integration.
Reflecting events since the attack of September 11, 2001, the report emphasizes security measures that will "keep North America safe" while continuing to facilitate the flow of goods across borders. But the document also highlights challenges to prosperity as well as security (p.4):
NAFTA has dramatically enhanced our ability to make better use of the abundant resources of our three countries and thus made an important contribution to economic growth within North America. Over the last decade, however, our economies have faced growing challenges in increasingly competitive and globalized world markets. We need to do more to ensure that our policies provide our firms and workers with a fair and unfettered basis to meet the challenges of global competition. Unwieldy North American rules of origin, increasing congestion at our ports of entry, and regulatory differences among our three countries raise costs instead of reducing them. Trade in certain sectors-such as natural resources, agriculture, and energy-remains far from free, and disputes in these areas have been a source of disagreement among our countries. Furthermore, the NAFTA partners have been unable to resolve a number of important trade and investment disputes, which has created continuing tension in our commercial relationships.
Further on, Mexico is singled out for special comment on the state of its adjustment to NAFTA, especially the persistence of deep regional disparities and the sluggishness of institutional reform.
In confronting the security and economic development issues, the Task Force members lay down five cooperative principles which pave the way for a list of 43 recommendations and their discussion. The recommendations are divided into immediate "to do" lists and longer term lists to be accomplished by 2010. These eight security recommendations, nine recommendations for common energy and resource sharing, 22 recommendations that would move NAFTA towards a more comprehensive economic community with a common external tariff (to end to rules of origin) and enhanced labor mobility, plus four recommendations that would strengthen the NAFTA institutional framework. Summarizing, the authors of the report conclude (p.32):
Establishment by 2010 of a security and economic community for North America is an ambitious but achievable goal that ... buttresses the goals and values of the citizens of North America, who share a desire for safe and secure societies, economic opportunity and prosperity, and strong democratic institutions.
Educational Objectives
It provides a useful tool for students of NAFTA to gain further understanding of the impact of the trade treaty, the management of North American common national interests, and the management of the integrated economy that has emerged since NAFTA was signed.
Teaching Plan
While the document is useful on its own, students may gain deeper understanding by also consulting Fry (2006), North American Economic Integration (a pdf file on the PNA website) and Blank & Golob, Report on the Security and Prosperity Partnership (SPP) (forthcoming) and the SPP website (http://www.spp.gov/).
Two books also provide excellent background to the issues discussed in the Task Force Report: Hufbauer& Schott (2005), NAFTA Revisited: Achievements and Challenges, International Institute for Economics. (Washington DC), Pastor (2001) Toward a North American Community: Lessons from the Old World for the New, International Institute for Economics (Washington DC).
Questions for Discussion
Not surprisingly, given the scope of the recommendations, a large proportion of the Task Force (15 members) added statements to nuance or dissent from particular ones. These additional reflections provide interesting ways to interpret the text of the report. This is a particularly valuable exercise for students. For example:
1. How practical is the goal of a common external tariff, given the complex trade relations each NAFTA member has with third countries. This reflects the explosion of bilateral trade and investment agreements negotiated since NAFTA was signed and which the WTO has drawn attention to in recent years as undermining the gains from global trade negotiations. (see the WTO website for additional commentary (www.wto.org).
2. Account for the "imbalance" between the security aspects of the recommendations and the economic and trade recommendations. Partly this may reflect the "imbalance" between the US global responsibilities and the regional defense concerns of the smaller NAFTA partners. It may also reflect the very different roles played by the military within Mexico and Canada. The report paid some attention to developing an integrated North American command structure, common exercises and pointed the way for more integrated role for North American forces within NATO and UN. But these were not pursued with the same vigor and commonality as the economic questions. The resulting "security" provisions were therefore limited to defining a perimeter and tracking "terrorists": i.e. an inward looking and defensive strategy in which the whole is less than the sum of its parts. The contrast with the economic sections is striking. What is the explanation?
3. What do the measures in the report offer average citizens in all three countries? The report lists (p.13) a seven point program to accelerate Mexican economic development with funding contributions from its North American partners and overlays it with general provisions to further liberalize trade and investment, including common rules for North American sharing of energy and raw materials, as well as broadening and deepening the liberalizing provisions of the NAFTA agreement itself. But there is little in the report for those for whom the term "community" implies something beyond market transactions such as more comprehensive and better funded social programs.
4. The report is also light on specifics for a common North American approach to environmental issues.
In light of these observations, based on the additional comments of the task force participants, students can be asked to evaluate the measures suggested in the task force report and their likely impact.
5. How closely does the report track the recommendations made in Pastor (2001)?
6. How closely does it follow and address the issues in Hufbauer and Schott (2005)?
Relevant Courses
Students of federal structures and in particular the impact of NAFTA on sub-government activity in NAFTA might examine the report from, say, the standpoint of a border state governor.
Students of trade theory or organizational and institutional theory may wish to analyze the report from a broader perspective. What, for example, does the Task Force tell us about competition and complementarity and how well do these forces explain the three-country relationship? What does the report imply about the importance of non-tradables, such as regulations or internal trade barriers, in limiting the effect of market forces?
Suggested Bibliography
For an extensive collection of development issues on Mexico, the World Bank offers a comprehensive source of information at: http://web.worldbank.org/.
For a recent examination of how regulations, taxes and internal trade barriers hobble Canada's economy, see:
- Mission Possible: Stellar Canadian Performance in the Global Economy, available from http://www.conferenceboard.ca/.
Finally, as the report mentions, the impact of China and India is becoming a factor in NAFTA's further development. The Task Force draws attention to this, but the recommendations do not address outside competition directly. Students can be asked to evaluate the impact of "offshore" Asian competition within NAFTA. Some good starting points:
- El Financiero (for example: Creció 40.9% el déficit comercial de México con China (available from http://www.elfinanciero.com.mx/).
- The Wall Street Journal (Subscription required) for example: "U.S. Will Add Trade Data To Arsenal Against China: Third Monthly Rise In Deficit Boosts Case For Opening Economy By GREG HITT December 12, 2006 1:14 p.m."
- More generally, see various papers and books on China-US trade at the Peter G. Peterson International Institute for Economics (available from http://www.iie.com/).
Note: PNA is committed to encouraging intelligent discourse among our members. Comments are moderated by PNA, in accordance with the PNA Comment Policy. PNA does not necessarily endorse any of the views posted below.
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