Let's use the new NAFTA to strengthen North America



by Eric Miller

The Globe and Mail
August 14, 2017

Among trade agreements, NAFTA is a senior citizen. Like its forerunner, the Canada-U.S. Free Trade Agreement, it was negotiated in response to the flagging competitiveness of North America's economies in the 1980s.

The North American free-trade agreement succeeded spectacularly in its core mission – to catalyze trade and investment growth. Trade flows among Canada, the United States and Mexico have grown from $290-billion (U.S.) in 1993 to $1.1-trillion in 2016. Canada's stock of foreign direct investment in the United States has grown six-fold while U.S. stock in Canada has grown five-fold.

While market access and a transparent set of rules, procedures and dispute-settlement processes remain the core of any trade agreement, the economic challenges of today demand additional responses that are not found in the traditional trade model.

Consequently, Canada, the United States and Mexico should include a North American Commercial Framework (NACF) in the re-negotiated NAFTA. It would be designed to address shared economic challenges both within North America and vis-à-vis competitors around the world. The NACF would be a side agreement to NAFTA and grounded in the principles of commercial policy rather than in classic trade law.

So what would the NACF do? In essence, it would provide a mechanism for North America's governments to address issues best suited to collaboration rather than internal competition.

For example, a rising China, with its mercantilist trade model, has significantly affected industries around the world. It has millions of tonnes of stockpiled steel and aluminum looking for a market. Some of it will be used in China's Belt and Road projects. Evidence suggests that other destinations could include informal channels for getting these goods into U.S. and Canadian markets.

Concerns about "circumvention" – the practice of obscuring the origin of a product in order to get favourable trade treatment – has led the U.S. Commerce Department to launch an investigation of foreign practices related to steel and aluminum under Section 232 of the 1962 Trade Act. Canada's steel workers are as much victims of subsidized, dumped steel as American workers.

The NACF would include a mechanism to allow for co-ordinated investigations and penalties by the three governments in cases where dubious practices undermine producers in North America. Put another way, Canada would be a lead investigator, not a target, of future U.S. "Section 232" and trade-remedy actions.

Most economic value today is held in digital form. Each day, thousands of firms across North America are attacked by cybercriminals, some of whom are state-sponsored, seeking intellectual property, money or sensitive information. The NACF would put the imperative of solving one of the most vexing economic challenges – cybersecurity – into the heart of North America's commercial regime. Canada, the United States and Mexico should work together on a coherent response to cyberthreats, ranging from standards setting to co-funding of scalable cybersolutions.

North America's trade infrastructure is woefully inadequate. Building on Canada's Infrastructure Bank model and other innovative financing solutions, the NACF would authorize the establishment of a facility designed to build world-class trade and border infrastructure. Numerous studies have demonstrated that time delays to market erode competitiveness. By leveraging government resources and private pools of capital, Canada, the United States and Mexico can ensure that goods flow efficiently across North America. The economic benefits of closing the continent's infrastructure deficit would be massive.

Finally, the NACF should formalize a structure for the North American Leaders Summit (NALS) process. North America faces a myriad of common economic and security challenges that necessitate an ongoing dialogue among the three countries. The NALS should be like the NATO Summit or APEC – held at the same time each year and put on the forward calendars of leaders well in advance. Each country also should provide staff to a small secretariat that could efficiently prepare the meetings.

North America retains all of the necessary assets to be the world's most competitive region for years to come. Two decades ago, NAFTA harnessed the competitive energies of Canada, the United States and Mexico by opening markets. Today, competitiveness requires not just economic freedom, but frameworks for ensuring that everyone is playing by the rules, economic value is protected and goods can efficiently get to market. Let's use the new NAFTA to deliver on these imperatives.

Eric Miller is a fellow at the Canadian Global Affairs Institute and author of the forthcoming paper Re-Making NAFTA: Where it Came From, What it is, Where it is Going and What it Should Become.

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