Vive Le Canada

Three Possible NAFTA Scenarios
Date: Tuesday, September 13 2005

Embassy, September 7th, 2005
By Stephen Blank

Three Possible NAFTA Scenarios

It Is Time for Canada to Think Carefully about North America
In a recent Embassy column, Lloyd Axworthy concludes a severe critique of U.S. handling of several U.S.-Canada trade disputes and of other Bush policies by suggesting that "it may be time for Canada to pull out of NAFTA."

I'm not sure Mr. Axworthy dislikes Bush policies more than I do -- after all, I live with them up close. But Canadians should be aware that many Americans disagree with Bush policies. These differences do not break simply along a "red state-blue state" cleavage, but represent more complex issues, divisions and changes in American policies and society. The point I want to make is that rather than Mr. Axworthy's root and branch revulsion, Canadians need to have a better understanding what is happening south of the border.

Why? Why should Canadians bother trying to understand what is happening in the U.S.? Here's why:

First, Canada and the U.S. are far more interdependent than most people realize or, in many cases, prepared to acknowledge. Ottawa and Washington talk about the world's largest bilateral trading relationship. But we really don't trade with each other, not in the classic sense of one independent company sending finished goods to another. Instead we make stuff together.

What characterizes the North American economic system and has differentiated it from Europe is the way in which industries have built integrated continental production, sourcing and distribution systems on regional specialization. Our economy is increasingly structured by these cross-border systems.

We also share integrated energy markets; dip into the same capital markets; service the same customers with an array of financial services; use the same roads and railroads to transport jointly made products to market; fly on the same integrated airline networks, and increasingly meet the same or similar standards of professional practice.

Autos are a vivid example. About a quarter of the upwards of $1.25 billion in goods that cross the U.S.-Canada-Mexico borders daily is automotive. But we don't sell cars to each other. We build them together.

Can Canada withdraw from this system? It would be foolish to say it's impossible. But certainly it would be enormously expensive in terms of Canada's financial, economic and human resources. Over the past 30 years, this economy has been restructuring on a North-South axis. For the most part -- notwithstanding grievances like softwood lumber -- continentally integrated industries have become more efficient and more competitive.


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