The signing of the North American Free Trade Agreement (NAFTA) in 1992 heralded what many hoped would be a new era of North American economic integration and cooperation. Essays in a new book, Requiem or Revival? The Promise of North American Integration, examine how the early promise of the agreement has faded, while progress towards further integration on other pressing issues, including energy, security, and migration, remain unresolved.

On Monday November 5, 2007, the Wilson Center's Canada Institute and Mexico Institute hosted a panel discussion on the future of NAFTA featuring the co-editors of Requiem or Revival? , Carol Wise, associate professor at the University of Southern California and former Wilson Center public policy scholar, and Isabel Studer, assistant director general for Canada at the Mexican Ministry of Foreign Affairs. Gary Hufbauer of the Peterson Institute for International Economics, Daniel Lederman of the World Bank, and Sidney Weintraub of the Center for Strategic and International Studies, joined Wise and Studer on the panel to discuss various chapters of the book and assess the challenges and prospects of past and future North American integration.

Assessing Mexico's Progress under NAFTA

Noting the uneven pattern of economic convergence between Canada, the United States, and Mexico, Sidney Weintraub argued that Mexico's economic development since implementing NAFTA is a mixed story. Although Mexico's foreign direct investment and exports to Canada and the United States have increased substantially since the implementation of NAFTA, Weintraub pointed out that these achievements were offset by the failure of former Mexican President Vicente Fox to carry out critical structural reforms in such areas as taxes, education, labor, and energy. Mexico, he said, had squandered possibilities. One discussant echoed Weintraub's remarks, citing intellectual property rights, public health, and agriculture as additional areas in need of structural reform in order for Mexico to remain competitive against other economic powers, such as China and India, which are likely to continue to increase their presence within the North American market. Further discussion highlighted ongoing problems in Mexico's industrial policy, which has been struggling with lagging rural productivity and development despite concentrated government involvement and spending in rural areas. This disparity has resulted in what one discussant termed a "deep failure of rural development policy" in Mexico.

Weintraub noted that while Mexico's current president, Felipe Calderón, has enjoyed mild success in implementing much needed economic reforms, the country has a long way to go before it can reach the level of efficiency in cross-border trade achieved by its NAFTA partners. Nevertheless, even these gains are at risk of being lost unless Mexico can overcome the looming challenges facing its energy sector. Weintraub emphasized that Mexico could face oil scarcity in as little as ten years if no further oil reserves are found and, more importantly, developed. He criticized PEMEX, Mexico's state-owned oil company, for its mounting debt burden and inability to develop partnerships with private firms that possess the technical expertise to extract new deep-water sources of oil in the Gulf of Mexico. While the panelists agreed that energy, and petroleum in particular, remains a pressing issue for Mexico, there was also discussion of other areas in the energy sector in which the three countries could work together on a cooperative basis. Gary Hufbauer called attention to a number of such promising areas, listing nuclear power, liquefied natural gas, bio-fuels, and the reduction of carbon emissions, as prominent examples.

Aside from the structural issues mentioned, Carol Wise suggested that Mexico's uneven growth since the implementation of NAFTA could also be explained by the country's heavy reliance on its geographical proximity to the United States as a competitive advantage. One discussant argued that technological advances have greatly diminished the competitive advantage provided by geographical proximity, a fact highlighted by China's emergence as the United States' second largest trading partner, a position formerly held by Mexico.

Evaluating the Expansion of Free Trade in a Global and North American Context

During his presentation, Weintraub noted that NAFTA has likely "peaked" in terms of its ability to foster increased economic efficiency, integration, and cooperation among NAFTA members. This led to a broad discussion on how to improve and expand NAFTA beyond its original framework, particularly on the institutional level. Weintraub was skeptical of achieving this, however, and reminded the panel that NAFTA was formed deliberately with few institutions. He also alluded to Canada's discomfort in the trilateral arena and its often tacit preference for bilateral partnership with the United States as another obstruction to institutional expansion within the Agreement. Thus, argued Weintraub, although a greater level of institutionalization is often cited among academics as the best way to expand and improve NAFTA, there has been little enthusiasm among any NAFTA leader to seriously engage in this discussion.

Going beyond the discussion of the future of NAFTA, Gary Hufbauer presented his perspective on the challenges and prospects NAFTA members face when operating within the multilateral trading system. He criticized one chapter in Requiem or Revival? for suggesting that the United States and the European Union recognize that new global economic powers such as Brazil, India, and China should have a more prominent leadership role in WTO trade negotiations. If this were the case, argued Hufbauer, developing nations should be prepared to lose as much as they gain in trade negotiations. This is due to the fact that historically the EU and the United States have asked little in return from the developing world for access to their markets, so long as the West was able to set the agenda and design the institutional framework of the global trading system.

Additionally, Hufbauer suggested that recent WTO trade rounds have resulted in a stalemate for reasons beyond European and U.S. agricultural subsidies. While recognizing agriculture as a contentious issue, he noted that the difficulty of reaching multilateral agreements has also been due to the lack of cohesive negotiating groups and other structural difficulties that have continued to impede progress in recent WTO trade rounds. Carol Wise took an alternative approach to the WTO deadlock, remarking that the involvement of the United States in several bilateral free trade agreements has lessened its incentive to provide "good faith" concessions in the multilateral arena.

Wise also noted that the development of NAFTA remains clouded by the issue of migration and the lack of an organized U.S. immigration policy. Comparing Canadian and U.S. immigration policies, she pointed out that while Canadian policy has set incentives to capture scarce human capital, American policy remains outdated and unresponsive to ongoing demographic changes, and has opted instead to simply "close the border." Sidney Weintraub made a similar point, commenting that the United States has been unwilling to implement NAFTA provisions that would allow the free movement of trucks in North America. This ongoing ambiguity surrounding border issues, added one discussant, was aptly summarized by one of the book's essays, which made a clear point in distinguishing between the roles of border protection and immigration policy.

An Uncertain Future for NAFTA

The panelists discussed what lies ahead for NAFTA. Each panelist noted that significant questions remain unanswered over the Agreement's future, not only in terms of its scope, but membership as well. Despite possible economic benefits for the three NAFTA countries, the panel felt that expansion to a wider free-trade area remains an unlikely premise, through either ongoing talks for a Free Trade Area of the Americas (FTAA), or harmonization of existing free trade agreements in the Americas, because of continuing disagreements between Brazil and the United States. While Hufbauer observed that this is a "quiet time for NAFTA and North American integration," he also noted that Europe's integration also went through long periods of stagnation, leaving hope for the possibility of expanding North American free trade. Nevertheless, the panel discussion highlighted the growing number of pressing issues facing NAFTA that need to be addressed in order for the agreement to remain relevant.

Several of the contributing chapter authors present offered remarks in the closing discussion, including Antonio Ortiz Mena, professor at Centro de Investigación y Docencia Económicas, Mac Destler from the University of Maryland, and Charles Doran from Johns Hopkins School of Advanced International Studies. Destler raised the point that the U.S. Congress is currently preoccupied with a host of issues ranging from health insurance to labor law and tax reform, all of which make significant advances in the realm of trade policy unlikely in the near future.

Drafted by Darlene Seto and Ken Crist
David Biette, Director, Canada Institute