Integration will help fix border: Think tank

TORONTO, (Feb. 9, 2003) — It has been clear to anyone whose business depends heavily on cross-border trade that since Sept. 11 the United States’ mandate to increase security has hampered trade efficiency and commerce.

While NAFTA is clearly a commercial success as it completes its 10th anniversary, Sept. 11th has shown that several “potholes” have been left unattended, states a new discussion paper published by the C.D. Howe Institute — a respected economic and social policy think tank in Toronto.

The authors of the report, Gary C. Hufbauer and Jeffrey J. Schott, acknowledge that overcoming such challenges is becoming difficult as the U.S. continues, in the name of security, to build “speed bumps” on NAFTA’s superhighways and around ports. For trucking, such hurdles come in the form of increased identification scrutiny at the border, as well as new rules mandated by CBP and the FDA that require the pre-notification of goods before they reach the border.

“These security taxes on NAFTA commerce pose a particular challenge to businesses that have integrated their operations on a regional basis — one of the great virtues of the trade association,” the authors write.

The paper — titled The Prospects for Deeper North American Economic Integration — advocates tighter economic and regulatory integration between Canada, the U.S., and in some instances Mexico, if cross-border flow is to be improved in the post-Sept. 11 world. Government negotiators, the paper advises, should focus on the following key objectives:

The acceptance of a Common External Tariff (CET) for a wide range of merchandise by the end of this decade. The action would remove the need for costly rules-of-origin regulation, commonly seen as a haven for protectionism in North America, the paper argues.

Secondly, as a prologue to work on the thorny problem of migrant workers, the paper suggests that the three countries forge common visa standards for most non-NAFTA visitors and immigrants. This goal is highly significant from a security standpoint, the authors write.

There is also scope for deeper financial cooperation within NAFTA, but “little prospect for a common currency,” the paper states. “This conclusion arises from the predominance of the U.S. economy in the region — accounting for almost 90 percent of North American GDP — and the reluctance of U.S. leaders to share control over monetary policy with their North American neighbors.”

Instead, the authors recommend that the Federal Reserve Board of Governors in the U.S. welcome representatives of the Banco de Mexico and the Bank of Canada to join its key meetings. Reciprocal invitations should be forthcoming from the Banco de Mexico and the Bank of Canada.

While the support of border states most directly affected by economic integration with Canada would help such initiatives gain momentum, the paper’s authors conclude that such participation remains unlikely in the near future. “The agenda that we have posited largely involves areas of federal jurisdiction. The influence of northern border states seems muted on trade issues,” the paper states.

“If they acted in concert, the big northern border states — Washington, Illinois, Michigan and New York — could make a difference, but so far there is little evidence that they will actively advocate deeper integration.”