North America’s Agenda for 2017 and Beyond

Gary Clyde Hufbauer and Earl Anthony Wayne

North America’s Agenda for 2017 and Beyond
In shared production North America found a successful formula for competing in global markets. The treaties reached by the presidents of Mexico, the United States and Canada at the recent summit held in Ottawa outline the route to scaling up the international competitiveness of the region and improve the performance of the three economies. In this article the prime matters on the agreed work agenda are explained.

Contrary to the assertions of some in the United States of America (U.S.) political campaign, under the North American Free Trade Agreement (NAFTA), North America’s economy has grown significantly and adapted with success to tough competition in global markets. North America can be even more competitive in 2017 and beyond, if the next U.S. President joins the leaders of Canada and Mexico in further strengthening the continent’s integrated production networks and further unharnessing its significant human and natural assets to generate more prosperity together for the region.

North American trade networks and continental investment ties generate millions of jobs. North America is the region that shows the best economic performance among advanced economies. But it needs to create more and better jobs while delivering higher wages. Economic growth is too slow, infrastructure badly needs renovation, and productivity growth is far below its potential. An ambitious and cooperative agenda can boost the three economies.

Since the signing of NAFTA in 1993 the trade in goods and services between the three neighbors has expanded four-fold. Canada and Mexico are the world’s largest buyers of U.S. products: sales to the two neighbors account for up to 14 million U.S. jobs, about 9% of U.S. employment. Canada, in some cases, and Mexico in others, are the largest export market for most U.S. states. Stunningly, the finished manufactured products Mexico and Canada sell to the American market have by far the highest content of U.S.-produced materials compared to U.S. imports from other countries: an estimated 40% for finished manufactured goods exported from Mexico and over 20% from Canada.

 

 

Continental supply chains that link Canada, the United States and Mexico mean that much of what is produced in each country has content from its neighbors. For example, a CRV SUV built in Jalisco, Mexico, has inputs of 70% from the United States and Canada. To establish these supply and production chains, private firms in all three countries have invested in their neighbors: U.S. companies have invested about 386 billion dollars in Canada and 108 billion dollars in Mexico. Canadian firms have invested 348 billion dollars in the United States and 12 billion in Mexico. Mexican companies, despite operating in a smaller economy, have invested about 19 billion dollars in the United States and Canada and its rate of investment has picked up significantly in the last several years.

Each of the three governments must enhance its country’s economic performance with domestic reforms in key areas including education, worker retraining, infrastructure investment, support for innovation, smart regulation and tax policy. The United States, for example, needs to work to maintain its strengths in advanced industries and services; if it coordinates with its neighbors, it can also bring the entire economy of North America to higher levels of performance. 

Cooperation is well established. This was reinforced by the North America Leaders’ Summit held in Ottawa on June 29, 2016. The document called White House Fact Sheet ticked off commitments for 2017 and beyond. Many of the items are developed across a wide range of topics from sensitive international trade issues to educational exchanges to support for women entrepreneurs to collaboration in international forums. But a few commitments deserve the spotlight for promoting increased economic competitiveness, if the next U.S. president is willing to pursue the work of making North America even more prosperous. These commitments suggest an agenda for 2017 and beyond.

 

Reduce the border crossing time

 

Borders inevitably create frictions, but frictions can be reduced by progress on agreed programs. Separate trusted traveler programs are now operated by the three countries. The leaders have agreed to launch a single North American portal for applications by the end of 2017. Currently, about 5 million North Americans participate in trusted traveler programs, but well over 300 million people legally cross the U.S.-Mexican border each year, and some 70 million cross the U.S.-Canadian border annually. Many of these crossings represent the same person taking multiple trips, but with a combined North American population of almost 500 million, it’s reasonable that at least 20 million should enjoy a trusted traveler designation. Making website portals and registration processes easy to navigate and ensuring that fast lanes are always available to trusted travelers will facilitate this expansion. The same logic applies to “trusted shippers” who are willing to take extra steps to assure governments that their goods are safe from contraband. A number of initiatives are under way to speed up shipment clearance while assuring security.

The three North American customs agencies should set a goal of not more than 30 minutes on average for a traveler —whether trusted or ordinary— to clear the border. Each crossing location and international airport should post its average wait times electronically and the periodical analysis of this data should be the basis for making improvements. Comparable goals and programs should be established for truck and rail traffic.

 

Build more border infrastructure

 

A big step would be to create a virtual trilateral mechanism with a mandate to develop a North American Transportation Plan, and update it as well as regional plans along the borders on a rolling basis. The federal governments should partner with state, provincial and municipal border authorities to plan new border infrastructure, set priorities consistent with trade and travel flows, and tap private as well as public funding sources. The Tijuana International Airport, since 2015 accessible to San Diego travelers through a short pedestrian bridge and the use of its big parking lot, provides a wonderful model of public-private collaboration. The only complaint is that it took bureaucracies too long to enable Tijuana to complement San Diego’s own inadequate airport. Visionaries were talking about this solution as early as the 1980s.

 

 

 

 

Reduce trade obstacles

 

Whether or not the Trans-Pacific Partnership (TPP) agreement is ratified in 2017, the North American leaders should establish the goal of common external most-favored-nation (MFN) tariffs for 95% or more of 6-digit Harmonized System (HS) product lines in 10 years. This would pave the way for a waiver of NAFTA/TPP rules of origin on most commerce (apart from sensitive areas like automobiles, auto parts, textiles and apparel) as there would be no motivation for “trade deflection”, namely the importation of third-country goods into the lowest-tariff country followed by trans-shipment duty free to its North American neighbors.

 

Help small business

 

This can be done by enacting higher de minimis thresholds in Mexico and Canada, below which customs declarations are simplified and imports are exempt from all taxes and tariffs. At present, the U.S. de minimis threshold is 800 dollars, the Canadian level is 20 Canadian dollars, and the Mexican level is 50 U.S. dollars. Raising the Canadian and Mexican limits would enhance express deliveries, support e-commerce, and spur participation by small and medium-sized enterprises (SMES), which often export lower-value goods. In the same spirit, the three governments should create user-friendly tri-lingual websites for SMES to identify potential buyers throughout North America. Governments should also encourage commercial banks —through generous provisions for deducting anticipated loan losses— to extend export credit support to SMES.

 

Strive for regulatory coherence

 

In addition to energizing trilateral talks seeking more alignment among the three countries, the three governments could agree in principle that, when considering new standards or regulations, each North American regulator should first examine what their other regional partners have done (see U.S. Executive Order 13609 of May 2012). Unless an existing standard or regulation is manifestly inadequate, the presumption by other countries should be to accept it. As for the existing massive body of relevant standards and regulations at the respective federal levels, the North American partners should set a bold goal, such as harmonization or mutual recognition of half of them in 10 years.

 

To build a North American vision on energy and the environment

 

At their June summit, the leaders agreed on creating a partnership and establishing a North American action plan with regard to climate, clean energy and the environment with a series of commitments for collaboration, including setting a target to increase clean power to 50% of the electricity generated across North America by 2025, to reduce methane emissions from the oil and gas sector by 40-45% by 2025, to strengthen standards for energy efficiency and vehicle emissions, and to expand cooperation to protect wildlife and improve early warning systems for natural disasters. The three countries have the opportunity to establish a world-class model for regional cooperation in these areas, while promoting energy security and sustainability and generating jobs and prosperity.