Wanted: Government leadership for the North American economy

By Malin Burnham & Charles Shapiro 5 P.M. NOV. 9, 2013

The integration of the economies of the United States, Canada, and Mexico through NAFTA gives us a global competitive edge, but the NAFTA agreement is outdated. If we are going to increase our ability to compete against China and India, government needs to lead, follow, or get out of the way.

The North American Competitiveness and Innovation Conference met in San Diego Oct. 27-29 Three cabinet secretaries — Canadian Trade Minister Ed Fast, Mexican Economy Secretary Ildefonso Guajardo and U.S. Commerce Secretary Penny Pritzker — met in San Diego for the first time that anyone can remember.

The theme of NACIC was “three countries, two borders, one economy.” Experts discussed a vision for North America and the range of issues that can make North America more competitive internationally.

Businesses in the San Diego–Tijuana region get it. They understand the importance of open markets, open borders, and building strength from complementary assets.

Governments, however, are slow learners.

Secretary Pritzker’s Oct. 31 op-ed in the U-T San Diego is encouraging, but needs to go much further if we are to achieve what North America can be. We are delighted that the secretary is interested in making North America more competitive. But after noting the benefits of NAFTA, she shifted her focus to completion of the 12-nation Trans-Pacific Partnership (TPP) trade negotiations.

The Asia pivot makes sense, but we need to pay attention to our integrated economic foundation. We share the same economic interests as Canada and Mexico. Together they represent 60 percent of our foreign trade. We export twice as much to Mexico and three times as much to Canada as we do to China. Mexican manufactured exports contain 40 percent U.S. content, Canadian exports contain 25 percent U.S. content, but exports from China contain only 4 percent.

Mexico, with its relatively young population and growing economy, will generate the lion’s share of the North American growth. Total North American GDP will rise from $19 trillion today to more than $50 trillion by 2050, when Mexico is projected to be one of the world’s five largest economies. Canada provides the key to energy self-sufficiency.

NAFTA was completed in 1994 before the smartphone, before maturation of the IT and biotech industries, before e-commerce or fracking entered our vernacular. North American businesses have developed interconnected, just-in-time supply chains. We manufacture together. We must deepen North American integration if we are to maximize our gains from potential trade agreements with Asia and the European Union.

The “San Diego Agenda” is the road map.

  • Common regulations. Our supply chains run across all three countries. Border and regulatory delays add up to 10 percent to the final product cost. We must adopt common regulations in all three countries so that we’re not making three different versions of the same product.
  • Harmonized North American trade policy. All three countries are part of TPP and the Asia Pacific Economic Cooperation (APEC). Mexico and Canada already have agreements with the European Union. We must leverage our impact by negotiating as a North American bloc with the Asians and the Europeans.
  • Border security and efficiency. The border is a mess. Security concerns trump the movement of legitimate cargoes and travelers. Inspection needs to be moved away from the borders, and processes automated. Make the border a point of data collection with additional inspection only as necessary. It’s time to give the Department of State and the Department of Commerce a larger role in planning so that trade and foreign policy become part of the border equation.
  • Infrastructure. Government investment in roads, bridges, ports both at the borders and in the interior of our countries is key for competitiveness.
  • Human capital. We must improve our education systems in all three countries and we need to make it easier for the citizens of any of the countries to work in the other two.
  • Energy. North America should meet substantially all of its domestic energy needs within the next two decades, providing us a competitive advantage. We need to develop technologies for lower carbon energy and energy efficiency; improve the security and reliability of cross-border infrastructure and offshore safety standards; align regulatory standards for smart grids and renewable energy; reduce regional and local barriers and facilitate cross-border sales of energy; and align clean energy incentive programs.

This will not become a reality unless the United States takes the lead. U.S. leaders shy away from talking about North America, preferring the potential benefits of deals with Asia and Europe over the hard work and political challenges of making North America a single market.

We must recognize once and for all that Mexico and Canada are our partners and act on the San Diego Agenda. The first step is a new vision for North America competitiveness, an idea of what we want to become. Separately we are three very important countries. Together we are a powerhouse.

Lead, follow, or get out of the way.

Wanted: Government leadership for the North American economy

Burnham is co-chairman of Smart Border Coalition. Shapiro is president of the Institute of the Americas at UC San Diego.

© Copyright 2013 The San Diego Union-Tribune, LLC. An MLIM LLC Company. All rights reserved.

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