Archived — Discussion Paper Number 10: North American Economic Integration: Issues and Research Agenda

by Richard G. Harris, Simon Fraser University, April 2001


Introduction

The purpose of this paper is to promote discussion on policy issues and identify critical research needed on North American (NA) integration from a Canadian perspective. Its main object is to outline a framework and a set of issues that require further research in light of the probable policy demands on North American governments, and the Canadian government in particular, over the next few years. The subject is hardly new. Indeed, it is one of the most durable themes in Canadian economic and political research. Since the signing of NAFTA, and prior to that the Canada–U.S. FTA, there has been a large amount of research attempting to detail the impact of these agreements on the Canadian, Mexican and U.S. economies. But a combination of factors has heightened concerns about this integration, its future potential, and the manner in which policy should react to, or attempt to direct it. Clearly, in terms of trade statistics and interactions among the governments, firms, and inhabitants of the North American countries increased integration is a fact. At the same time, the process that is known as globalization has raised considerable alarm in some quarters. From the perspective of Canadians, the reality is that Canada has become a) smaller in relative terms in the global economy, and b) more dependent upon North American developments for its economic future. It is thus critical to identify the key research and policy questions about North American economic integration in order to have a better understanding of the current state of economic integration in North America, and what the future risks and opportunities are for Canada as the three North American countries respond to and anticipate these developments. In the interest of sparking a debate, the paper also proposes specific policies that address some of the current concerns and that would merit further research.

A few caveats are in order. First, many of these issues cannot be easily organized within the conventional linear trade policy integration framework of moving from a free-trade area to a customs union to a common market. This well-known textbook integration paradigm was motivated in large part by the EU integration program. It is useful but limited. It fails to deal with a number of complexities that modern technology, commerce and politics have raised. In the North American case, for example, it does not offer an analytical framework that deals with the asymmetry of relationship between the United States, Canada and Mexico due to differences in economic size and geographic links. For these reasons, it is useful to think about North American integration along the multi-dimensional lines laid out in Section 2. Second, the list of research questions is limited by our focus on economic issues. Obviously, potential changes in political institutions may occur but, assuming a medium-term policy time horizon, it is natural to expect that the basic political structure of the three countries is not likely to change drastically. For example, the paper does not contemplate a type of European federalism for North America. Thirdly, the paper is not intended to be exhaustive on either what has been done on each of these issues in the past, or on the set of issues that are pertinent to future integration. Rather, it attempts to provide an overview on the broader themes of integration around which specific policies can be discussed. As most readers will be aware, this is one topic where everything is interconnected. One cannot talk about integration of environmental policies without also talking about trade, taxation, regulation, and so forth. No attempt is made to detail the nature or the extent of all these interdependencies. Lastly, the focus here is largely on Canadian integration relative to the United States, but obviously many of these issues will, of necessity, have to be dealt with in a Canada–Mexico–United States framework.

The paper is organized as follows. The next section sets out the context of North American integration — the who, why, where, with whom and when. Section 3 deals with trade and investment issues, including questions of regional growth, and the prospects for a customs union in the NAFTA area. Section 4 goes over a large number of traditional policy areas, many of which are usually viewed as domestic, but all related to the general theme of moving NAFTA toward a North American common market framework. Research issues are summarized at the end of each section; they are numbered consecutively, flagged by the letter R, and set in italics. The paper concludes with a review of the major policy issues that North American integration poses for Canada.

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