Canada,
Mexico and the United States belong to a North American neighborhood,
and all three countries benefit from being strong and prosperous.
North
America is at a crossroads, with skepticism about the virtues of the
North American Free Trade Agreement and the United States’ relationship
with its neighbors. That skepticism disregards the considerable
competitive advantage the agreement has given the United States and, in
turn, transformed North America into a global powerhouse.
Nafta
was signed in 1993, when the economy was much simpler. We have a unique
chance to take advantage of three countries meeting at the negotiation
table in order to modernize the accord and to make it, once again, the
world’s state-of-the-art trade agreement. To maintain North America’s
competitive edge, we have three ideas to update and improve Nafta,
rather than simply discarding it.
First,
the digital economy hardly existed in 1993; now it is a big part of the
global economy and has to be incorporated into Nafta. That will benefit
all companies, in particular small and medium enterprises that will use
the internet to export to the region and worldwide.
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Second,
reform Nafta regulations concerning state-owned enterprises.
Competition from these companies — often government-subsidized — is
often unfair; a clause in Nafta regulating the participation of
state-owned firms in North America would serve as an argument in favor
of including a similar clause for World Trade Organization rules. That
would level the playing field in global trade for the three Nafta
countries; the largest binational commercial deficit for each one is
with China, which openly supports its state-owned companies.
Third,
government procurement in the three countries must be open to
competition, with any North American company able to bid for jobs. In
addition, severe measures to combat corruption should be added to the
agreement.
Being
part of the North American free trade zone has helped United States
manufacturing industries like auto, electronics and aerospace become
more competitive, relative to their Asian and European competitors. This
increased competitiveness results mainly from the development
throughout the last 24 years of strong vertical supply chains that take
advantage of economies of scale: Production takes place wherever it is
most efficient. National borders matter relatively little, and final
assembly generally has little to do with the national origin of the
parts being assembled. Today, United States and Canadian manufacturers
rely on Mexican suppliers to remain competitive and to be able to export
their goods globally.
We
hear a lot about trade deficits, but repealing trade agreements will
not fix the arithmetic. If a country consumes more than it produces, it
will import more than it exports. Federal deficit spending, a huge and
continuing act of dissaving, is the big culprit. Control that, and you
will control trade deficits.
Imposing
tariffs on trade within North America would affect the demand and price
of final goods imported by the United States from Mexico and Canada. It
would also affect the demand for intermediate goods produced in the
United States that are exported to Mexico and Canada for final assembly.
In a 2010 study, nearly
40 percent of United States imports from Mexico were United States
value-added, while about 25 percent of United States imports from Canada
were United States value-added.
Top categories for United States exports to Mexico and for United States imports from Mexico overlap:
vehicles, machinery and electrical equipment. North American products
cross borders often before reaching the consumer. Disrupting supply
chains would have consequences not only for Mexico and Canada but also
for United States exports.
North
American countries should be working toward greater integration in
energy and national security. When Nafta was first negotiated, the
energy sector was excluded because Mexico’s oil, gas and electricity
industries were controlled by the state. But in recent years, Mexico
opened up the sector to competition and foreign investment. The three
countries should push toward an integrated North American energy market;
that will favor the energy independence and national security of the
region.
The
United States, Mexico and Canada should secure the true border of North
America: Mexico’s southern border. One argument from the Trump
administration to repeal Nafta is illegal immigration from Mexico to the
United States and the effect it has on its workers. The truth is that net migration
from Mexico to the United States has been zero or even negative for
roughly 10 years. If the United States wants to do something about
illegal immigration, it must pay attention to the condition of northern
Central America.
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