Why North America is stronger than its parts

February 21, 2014

Twenty years ago NAFTA, the most ambitious free trade agreement negotiation of its time, gave birth to a profound transformation of the economies and the regional value chains of Mexico, the United States and Canada. Trade dramatically changed the relationship between the three countries, though asymmetries of power and economic vitality persist.

This week, at the North American Leaders Summit in Toluca, Mexico, Presidents Obama and Peña Nieto, together with Canadian Prime Minister Stephen Harper, continued a dialogue about trade, economic growth and the energy revolution in North America. A priority for all parties should be the continued economic integration of the three countries — the region’s greatest hope for job creation and prosperity.

Since 1994 NAFTA, in terms of trade, has triggered a rising tide, lifting boats in all three countries. The numbers are compelling: more than $1 trillion of trade in goods and services annually between the three partners; $1.2 billion of daily trade between Mexico and the U.S.; 6 million U.S. jobs directly related to trade with Mexico; and Canada and Mexico buying more U.S. products than any other nation on the face of the earth.

To understand these numbers in the context of the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) — the two ambitious and critically relevant trade negotiations the U.S. is currently pursuing — the combined exports of the United States’ two neighbors is more than six times that of the other TPP nations, and U.S. exports to Mexico and Canada exceeds those to all EU nations.

But beyond the importance of North America as a marketplace, NAFTA led to one of the most significant trade realignments of any economic bloc: today, Mexico, the United States and Canada have become partners in manufacturing. Through production sharing, the countries are actually building products together, such as automobiles and aerospace parts.

Unlike U.S. trade with most other countries, roughly 25 to 40 percent of the value of U.S. imports from Mexico and Canada comes from components made in the United States, and then assembled into finished goods in one of the other two countries. Around 40 percent of the content in U.S. imports from Mexico is actually produced in the United States. This means that 40 cents of every dollar spent on imports from Mexico comes back to the U.S., a quantity 10 times greater than the four cents returning for each dollar paid on Chinese imports, for example. They are unlike imports from any extra-continental partner in the way they directly support U.S. jobs and exports.

These integrated supply and production chains are the true competitive advantage of North America. Government officials, elected politicians, corporations, and trade associations alike should acknowledge, and publicly articulate, that we are no longer exporting U.S., Canadian or Mexican goods. Rather, we are exporting North American goods and need to promote “Buy North American.”

There is no doubt, however, that 20 years after NAFTA’s implementation, the economies of Canada, the United States and Mexico are facing challenges. While some of the risk is due to external pressures — increasing competition from Asia, or fears of further economic pain in Europe or a crisis in emerging markets — much of the challenge lies in stagnating regional competitiveness and the tyranny of small differences over regulatory matters such as customs procedures.

The inevitable impact of 9/11 on border security, and the way it has played out in the debate over U.S. immigration reform, have left us with a border paradigm driven by the quest for common security, but less so for common prosperity. Borders need to function like membranes, filtering the “bad” stuff out (narcotics, guns, terrorists), while allowing the “good” stuff to pass through (goods and products, transportation, tourists and businesspeople). Outdated border infrastructure and insufficient budgets for state of the art, 21st century technology to ensure secure but efficient customs inspection processes have taken a serious toll on trans-border trade flows.

In this regard, accelerating pre-inspection and pre-clearance processes before goods reach our borders would go a long way to facilitate trade. The regional trusted traveler program, which was agreed upon during this week’s summit in Toluca, is also extremely important and will be a boon to business and investment. And given our shared production platform, efficient logistics — such as containers that can be loaded in Canada, cleared through customs, and transported straight across the U.S. to Mexico — would also be key for the region’s competitiveness and for the seamless and secure movement of goods across borders. Reviewing and eliminating all restrictions on transportation and services, and forging new North American trade and transportation corridors would dramatically enhance North American competitiveness.

Regulatory barriers have also become an impediment to the further deepening of production and supply chains across the region, and must be removed. The fact that businesses still have to deal with three different customs export-import forms, instead of one single North American form used by the three governments, is dysfunctional and costly.

The path forward in enhancing North America’s global competitiveness and economic well-being must be based on a clear understanding that the three North American nations are partners, rather than competitors. The fact that U.S. Secretary of Commerce Penny Pritzker led her first official trade mission to Mexico is an encouraging and important sign.

Businesspeople around the world are looking for ways to break into new or “hard to access” markets, and buy from whomever can reliably offer them the best product, or goods and services with the fastest turnaround time. As the United States once again looks to foreign markets to promote economic growth and job creation, it would do well to fully recognize that the greatest opportunity — and the future — lies in North America.

PHOTOS: U.S. President Barack Obama (R) walks with Mexico’s President Enrique Pena Nieto (C) and Canada’s Prime Minister Stephen Harper for a trilateral meeting in the Courtyard of the Palacio de Justicio at the North American Leaders Summit in Toluca, Mexico, February 19, 2014. REUTERS/Larry Downing 

Factory employees are seen working in the plant of General Motors in the city of Silao, in the state of Guanajuato, Mexico in this November 25, 2008 file photo. REUTERS/Henry Romero/Files 


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