Up Front

North American Leaders Meet in Toluca, Mexico: What Can We Hope For?

Diana Villiers Negroponte

President Obama, President Peña and Prime Minister Harper meet at a time of darkening outlook for regional integration within the United States and Canada. There is little political appetite for free trade agreements and integrated energy policies. Despite this, citizens express a preference for trade negotiations within North America over negotiations with Asia and Europe, and significant majorities support trilateral trade within the region. It is time for the private sector and civil society to educate and persuade political leaders on the need for broader integration in trade, investment and energy within a North American production platform.

The North American Free Trade Agreement (NAFTA) provokes a deep yawn because at 20 years old it represents an old type of trade agreement. Instead of acting regionally, the three nations of North America have lapsed into dual bi-lateral discussions, i.e. U.S.-Canada, U.S.-Mexico, and Canada-Mexico. The days of exciting trilateral North American summits peaked in 2004 and subsequent gatherings of leaders focused on security and trade. But, even the Security & Prosperity Partnership was deactivated in 2009. With national problems making summit meetings unwelcome, political leaders left it to the private sector to use the NAFTA framework to develop a North American automobile industry that takes advantage of geographic proximity and complementary wage rates to create a highly competitive regional industry. Today, the aerospace industry is in the process of doing the same, and Mexico’s energy reform presents a significant opportunity for increased production in oil and natural gas.

What should be on the agenda for this North American summit to take place on February 19 in President Pena Nieto’s hometown, Toluca? An October 2013 survey commissioned by The Center for North American Studies at American University identified citizens’ preference to negotiate trade and economic matters in the context of the United States/Canada/Mexico.[1] Despite a sense of stagnation, in both the United States and Canada, those surveyed in all three nations gave priority to negotiating free trade agreements within North America as compared to negotiations with Europe or Asia. Eighty percent of those surveyed in Canada support free trade between North American countries. Seventy-four percent of Mexicans and 65 percent of U.S. citizens surveyed stated the same.[2] Thus, Presidents Obama and Pena Nieto as well as Prime Minister Harper meet in Toluca knowing that today their respective citizens support this regional effort.

Since NAFTA came into force in 1994, foreign direct investment (FDI) in North America has risen from $110 billion per annum in 1992 to $650 billion per annum in 2010.[3] Canada has invested $200 billion per year in the United States, making it the fifth largest investor and the U.S. has invested $310 billion per year in Canada to become its largest foreign investor.[4] Strong macro-economic policies and transparency have contributed confidence to further investment in Mexico, as well as Mexican investments in the United States and Canada. Canada weathered best the economic recession of 2009, but the U.S. economy and the closely associated Mexican economy have emerged adequately with Mexico predicted to grow at over 3 percent in 2014. However, to sustain, if not increase these investment flows, greater private sector and civil society engagement is required.

North American trade has more than trebled from $288.2 billion in 2010 to $547.3 billion in 2012.[5] Every day, $2 billion worth of goods cross our northern border and goods valued at roughly $1 billion per day cross our southern border. According to the U.S. Chamber of Commerce, U.S. exports to North America have risen to $478 billion in 2011, accounting for 32 percent of total goods exported.[6] This increase supports, partway, President Obama’s 2010 National Export Initiative to double U.S. exports within five years. Also, current efforts to harmonize regulatory measures and standards within the Trans Pacific Partnership might be incorporated into trilateral discussion under the NAFTA umbrella. This could begin to take place, whether or not the U.S. Congress approves the Trade Preference Authority (TPA) before our mid-term elections.

In the meantime, the regional production of automobiles and to a lesser extent electronics is not sufficient to create a comprehensive regional production platform. Integrated value chains take advantage of where the product and service is delivered more efficiently. Thus, products and related services constantly move across our three borders. This has accounted for the satisfactory increase in trade and investment flows, but more is needed. Within North America, we should widen the framework for consultations and begin to consider the recognition of professional degrees, discuss the interoperability of Medicare, IMSS and Canadian health care. Furthermore, the inter-operability of stock exchanges lies in our future, as does the regional regulation of hydrocarbons.

The most dynamic potential area for expansion is in energy where North America approaches self-sufficiency in hydrocarbons. The tight oil of North Dakota, the tar sands of Alberta and the shale gas along the Mexican border with Texas deliver the prospect of regional production to meet the energy needs of all three nations, plus natural gas for export. A critical factor in the region’s production of hydrocarbons is Mexico’s constitutional reform and implementing legislation to open up its energy sector. However, substantial challenges remain: a regional energy policy needs to be planned and the North American Working Group (NAEWG) recreated with private sector participation. Regulatory collaboration and the construction of additional cross-border pipelines must begin. To turn the regional dream into reality, governments must license investments in infrastructure to get the energy to market and make energy markets more efficient. All three governments need to address fuel efficiency measures and promote the shift from diesel and gasoline to natural gas in trucks and electrical power for cars.

A majority of people in all three nations remain reluctant, if not ignorant about the potential for energy collaboration and the three governments have a role to educate their respective citizens on the benefits of energy integration. Although those same citizens do not envisage a threat to their national sovereignty through closer economic integration, they are concerned about closer collaboration on hydrocarbons with only 24 percent of those surveyed in the U.S. favoring an integrated energy policy. In Canada, more people surveyed prefer an independent energy policy, a number which rises to 45 percent among those surveyed in Mexico.[7]  Governments must focus and educate on the advantages of North American energy integration while recognizing that environmental issues remain politically important in both the United States and Canada. Divergent approaches to regulating carbon emissions highlight the need for a regional conversation on the future of climate change mitigation.

In 1994, the private sector played an indispensable role in communicating the advantages of NAFTA to skeptical publics in all three countries. Well financed publicity campaigns won over the business community and their customers on the importance of regional production to meet global competition. Twenty years later, the private sector and civil society need to play a leadership role again. They need to cajole governments into playing a pro-active role in resolving the infrastructure problems of North America.

If leaders over-promised the opportunities of NAFTA in 1994, they could now respond to the challenges that have developed in the intervening 20 years. In May 2013, Vice President Joe Biden called upon citizens and the private sector to push their respective governments to make North America, “the most prosperous and most economically viable place of the world in the 21st century…”[8]   It is now up to us, citizens to make our leaders take up the opportunities of geographic proximity, predictable monetary policies, and greater public security along Mexico’s northern border. Citizens in all three countries are eager for new opportunities to design, manufacture, communicate and print their products for a global market. To meet these needs, all three presidents should lean in to strength NAFTA through the creation of a North American production platform.

Diana Villiers Negroponte is the editor of End of Nostalgia: Mexico Confronts the Challenges of Global Competition, Brookings Press, 2013.

[1]The NAFTA Promise and the North American Reality: the Gap and How to Close it. Center for North American Studies conference at American University, Washington, D.C., October 31, 2013. http://www.american.edu/sis/cnas/upload/1_c_2013CNAS_RP_Introduction_to_Conference.pdf

[2] The NAFTA Promise, “Tracking support for trilateral trade,”  Ibid.

[3] Available at: http://www.bea.gov/international/ii_web/timeseries2.cfm?econtypeid=1&dirlevel1id=1&Entitytypeid=1&stepnum=1; Bureau of Economic Analysis, Foreign Direct Investment in the U.S.: Balance of Payments and Direct Investment Position Data, http://www.bea.gov/international/di1fdibal.htm; Source OECD, International Direct Investment Statistics, http://miranda.sourceoecd.org/vl=4415314/cl=17/nw=1/rpsv/ij/oecdstats/16081080/v45n1/s1/p1; Statistics Canada, Table 376-0051: International Investment Position, Canadian direct investment abroad and foreign direct investment in Canada, http://www.statcan.ca.

[4] NAFTA at Twenty: Accomplishments, Challenges and the Way Forward, Carla A. Hills, statement before the House Committee on Foreign Affairs, Subcommittee on Western Hemisphere, January 15, 2014. Ms. Hills is the Chair of the Inter-American dialogue. http://thedialogue.org/page.cfm?pageID=32&pubID=3505

[5] See n. 3. These statistics are drawn together from OECD, TradeStats Express, U.S. Census Bureau, WTO and Industry Canada.

[6] NAFTA Triumphant: Assessing Two Decades of Gains in Trade, Growth and Jobs. 2012. US. Chamber of Commerce.  https://www.uschamber.com/sites/default/files/legacy/reports/1112_INTL_NAFTA_20Years.pdf

[7] Survey carried out by Knowledge Networks in the U.S. EKOS in Canada and Miguel Basáñez  in Mexico for the Center for North American Studies, American University, Washington, D.C. http://www.american.edu/sis/cnas/upload/1_c_2013CNAS_RP_Introduction_to_Conference.pdfhttp://www.american.edu/sis/cnas/upload/1_c_2013CNAS_RP_Introduction_to_Conference.pdf