North America's Second Decade

Robert A. Pastor

From Foreign Affairs, January/February 2004

Summary:  In just ten years, NAFTA has created the world's most formidable free trade area. But in the absence of true partnerships and multilateral institutions, movement toward further regional integration has slowed. The United States, Mexico, and Canada have many common interests; they need to pursue them in common ways.

Robert A. Pastor is Professor of International Relations and Director of the Center for North American Studies at American University. He is the author of Toward a North American Community: Lessons from the Old World for the New.

A FIRST DRAFT

The North American Free Trade Agreement (NAFTA) went into effect on January 1, 1994, amid fears of job loss in the United States and cries of revolution in the south of Mexico. Yet, in a single decade, the three nations of North America have built a market larger than, and almost as integrated as, the 15-nation European Union. Trade and investment have nearly tripled, and the United States, Mexico, and Canada have experienced an unprecedented degree of social and economic integration. For the first time, "North America" is more than just a geographical expression.

In 2000, the election victories of George W. Bush, Vicente Fox, and Jean Chretien raised hopes still further that the promise of a trilateral partnership might be fulfilled. Four years later, however, relations among the three governments have deteriorated. No leader refers to "North America" in the way that Europeans speak of their continent. Indeed, anti-NAFTA name-calling has surfaced again in debates among U.S. presidential candidates. After ten years, it is time to evaluate what NAFTA has accomplished and where it has failed and to determine where it should go from here. What should be the goals for North America's second decade, and what must North American leaders do to achieve them?

NAFTA was merely the first draft of an economic constitution for North America. It was a deliberately lean document, intended only to dismantle barriers to trade and investment. Its architects planned neither for its success nor for the crises that would confront it. Although NAFTA fueled the train of continental integration, it did not provide conductors to guide it. As a result, two setbacks -- the Mexican peso crisis of 1995 and the terrorist attacks of September 11, 2001 -- have threatened to derail the integration experiment.

The peso crisis was a blow to the Mexican economy and to U.S. and Canadian faith in integration. NAFTA's authors had assumed that eliminating restrictions on the movement of capital and goods would, by dint of the market's magic, lead to unalloyed prosperity. No clause in the agreement established a mechanism to anticipate or respond to market failures. Whereas the EU had created too many intrusive institutions, North America made the opposite mistake: it created almost none.

The second shock to the North American body politic occurred on September 11, 2001. If a true partnership had existed, the leaders of the United States, Mexico, and Canada would have met in Washington in the days after the tragedy to declare that the attack was aimed at all of North America and that they would respond as one. Instead, in the absence of common institutions, the governments reverted to old habits. Acting unilaterally, Washington virtually closed its borders; Mexican and Canadian leaders responded ambivalently, afraid of how the angry superpower would react.

Both events signify missed opportunities. The establishment of the U.S. Department of Homeland Security places North America once again at a crossroads. One course -- the more likely one -- would strengthen border enforcement and impede movement, even by friends. Trade and investment would decline, tensions would rise, and the myriad benefits of integration would begin to recede. In an alternative course, however, security fears would serve as a catalyst for deeper integration. That would require new structures to assure mutual security, promote trade, and bring Mexico closer to the First World economies of its neighbors. Progress can occur only with true leadership, new cooperative institutions, and a redefinition of security that puts the United States, Mexico, and Canada inside a continental perimeter, working together as partners.

EVALUATING NAFTA

From its outset, NAFTA was subjected to blistering criticism, often based on outlandish predictions. U.S. presidential candidate Ross Perot warned of a "giant sucking sound" -- jobs leaving the United States for Mexico. Mexicans and Canadians, meanwhile, feared that their economies would be taken over by U.S. companies. Opponents predicted that free trade would erode environmental and labor standards in the United States and Canada.