The North American Free Trade Agreement (NAFTA) has bumped investment and trade in North America since its implementation, but more needs to be done to boost the region’s competiveness, an economist told delegates at the Canola Council of Canada’s conference in San Antonio in late February.
“Trade and investment flows in North America have been increasing dramatically ever since NAFTA was introduced,” said Dr. Jaime Serra Puche. Puche led the negotiation and implementation of NAFTA, and today he consults on issues around international trade, investment and economic competiveness.
“After 20 years we are not only selling each other things, we are producing jointly things. And that has really changed the dynamics of the market in North America,” said Puche. He added the region has more coordinated economic cycles, citing stable interest and exchange rates as examples.
For every dollar Mexico exports to the U.S., 40 cents are American inputs, Puche said. Each dollar Canada exports to the U.S. includes 25 cents of American inputs. “Therefore the aggregate for the whole region is that for every dollar that Mexico and Canada export to the U.S., on average 32 cents are American input.”
But North American leaders should aim “to make the region very competitive in a sustainable way. And I think we have almost all of the stars aligned. We’re missing one, that is we don’t have very strong leaders (on the issue of trade),” Puche said.
Puche outlined several ways North America could boost competiveness as a whole. For example, when it comes to manufacturing “today Mexico can land a product in the U.S. market at a price that is much lower than the Chinese and of course that is much lower than the Americans.”
A growing future labour pool, gas production and a good handle on environmental issues also add up to a more competitive continent, he added.
But to take advantage of some of those competitive advantages, political leaders need to start handling trade negotiations differently. Puche said North America should distinguish between intra-regional issues, such as market access, transportation, and energy issues, and extra-regional issues such as trade agreements with other regions.
Instead of following a complex, highly political dumping system, North America should look at a common competition policy such as found in Europe, Puche told delegates. He asked “why should the Americans treat a product coming from Ontario into California different from a product coming from New York into California?”
“The Canadian product can be subject to dumping. The New York product cannot be subject to dumping. If you’re within the borders, you do not have dumping.”
Puche was also critical of the way the U.S. handled labour migration from Mexico, describing it as myopic. Making it difficult to enter a market also makes it difficult to leave a market, he explained.
“If the guy suffers hell to cross, he will never go back to Mexico because he says, ‘I’m not going to go through that again.’”
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American lawmakers need to realize that Mexicans will continue migrating to the U.S. for work, Puche said. “But they don’t want to become American citizens and leave their families back there alone. They want to make money and go back to their houses and improve their standard of living.”
Puche cited Canada’s guest worker program as a small step in the right direction. By allowing people to move where the work is, “we solve many other problems that people are concerned with which is the stop of illegal workers and we’ll take advantage of that fact that we have a labour supply in the region that is able to compete with the labour supply from China.”
New trade deals could trump NAFTA
Puche said a Geneva treaty dictates that new trade agreements trump previous agreements such as NAFTA. “So the TPP (Trans-Pacific Partnership) negotiation needs certain coordination among the North American countries, particularly between Mexico and Canada, to avoid the sort of things that would water down our preferences.”
When it comes to TPP and the Transatlantic Trade and Investment Partnership with Europe, Canada and Mexico rushed into negotiations, Puche told delegates. America’s real agenda is China’s policy, he added.
“It’s not a trade issue. And it’s basically a containment negotiation, which is very smart, very intelligent. It has a very nice face. But when you listen to what the positions are, it’s clearly an issue of saying I can enter and get some of the Asian countries.”
TPP negotiations are taking place without fast track, meaning the U.S. government doesn’t have permission from Congress to negotiate the deal. “It’s an issue of the way the vote takes place. So when the government takes the deal to Congress, the Congress says yes or no. But they don’t do cherry-picking. Well, this negotiation is not under that authority,” said Puche.
Canada, Mexico and the U.S. should negotiate free trade agreements with the rest of the world as one block, Puche said.
“I think it’s time to start thinking about converting the free trade agreement to a customs union. And that naturally will create the block, vis-à-vis the rest of the world,” he added. Customs unions don’t have rules of origin because they have common external targets. Countries that negotiate free trade agreements such as NAFTA, on the other hand, have different external targets.
Puche said he thought NAFTA had been successful, and that North America could be very competitive. But all three countries are missing one thing, he said.
“We need leaders that are thinking about the next generations and not leaders that are thinking about the next elections.”