Photo Jonathan Blair

Wednesday, February 19, 2014

There is no "Beyond NAFTA"

IN 1994, NAFTA was as much integration as the needs and politics of its three member countries could afford them. Twenty years later current politics are less amenable than they were to deeper integration, and needs are fewer. Treaties are tougher to undo than to do, and NAFTA won't disappear. But a sequel --better, bigger, deeper--will just not happen. We are back to bilateral agendas, and we should focus on them.

North-American integration had two pillars: the auto industry, with truly North-American production chains, and the energy dependence of the United States on its two neighbours. Only the first was really a trilateral agenda and as the industry is now reconsolidating along a US-Mexico axis, with Canada an increasingly marginal partner, a core rationale for regional integration is withering. Energy proved crucial to the Canada-US deal, but was left out of NAFTA because of nationalist qualms in Mexico. Still, the US's unquenchable thirst for energy, and the reserves and investment needs of its neighbours created a sense of regional interdependence. This second pillar is now crumbling as shale oil and gas transform the US into a self-sufficient energy behemoth.

Twenty years go, moreover, there was no China factor. Yes "Asia-Pacific" was seen as the world's forthcoming engine of growth, but nobody could sensibly bet the house on Asian markets or see them credibly as an alternative to America's. How things have changed. China's share of Canada's trade is increasing as fast as the US' share is declining. The simple fact that Obama could dither for so long on Keystone shows how weak Canada's hand has become on what used to be the central strategic vulnerability of its neighbour. Obviously, killing Keystone will precipitate Canada's turn to Asia, but approving it would not alter the fundamentals: the two countries' economies are drifting apart and soon, the old joke about Canada getting the flu each time the US coughs will need to be "chinezed."

Mexico has been moving in the same direction, as China has become the country's second largest trade partner. The movement, however, is much slower and likely to be much less radical than for Canada. The degree of economic, social and cultural integration of the border area, now reinforced by the redeployment of the auto-industry, has created a level of interdependence that has probably never existed between Canada and the US.

With trilateral stakes so low, there is no logical reason for current administrations to spend scarce political capital on deeper integration and, surprise, surprise, they don't. Meanwhile, however, bilateral agendas pile up: infrastructure, security, environment, water, migration, visas, standards, and so on. The best way to address those challenges is to frame them from the outset as bilateral issues. 

In that new landscape, the US remains Canada's most important partner, especially, if anything, as its increasingly resource-dependent economy is now hooked--both literally and figuratively--on China. Mexico, moreover, matters for Canada and it is just ridiculous that some progress on travel restrictions had to wait for a trilateral meeting to take place. As a significant trade partner, an important link in the value chains of major Canadian companies, and a society with which increasingly close links have been built over the years, it merits more attention from "the Centre" than it has received. That attention should be freed from the NAFTA shackles in which it is still stuck in much public discussion and policy development.

Continentalism and North-American integration made lots of sense a generation ago and clever political leaders seized the day. The very same ideas have now become blinders. We should drop them.

[This post was first published on Open Canada.]