International trade is under attack.
Recession has tested commitments to keeping borders open as politicians
beholden to domestic audiences have succumbed to the temptation of throwing up
barriers for short-term economic benefit.
But
policymakers should remind themselves how important trade is for economic
development. They need look no further than North America.
In the
almost 20 years since the North American Free Trade Agreement (Nafta), the
benefits are clear. Trade volumes are much larger than expected. Mexico is the
second-largest supplier of non-oil goods to the US. It buys 13.3 per cent of US
exports, more than Germany, the UK, Netherlands, France and Italy combined.
Nafta also
produced convergence in quality, variety, price and availability of goods;
convergence in investment in technologies and environmental standards in
manufacturing in Mexico; and macroeconomic convergence so Canada and Mexico
boast low debt and deficit, low inflation and sound monetary policies.
But we
need to look beyond our borders. For all practical purposes, Nafta countries
give each other little preference because most-favoured-nation duties are very
low and each has negotiated a web of free trade agreements around the world.
The challenge is to deepen integration to export to other regions, particularly
Asia.
The
rebalancing of the world economy and eventual deleveraging mean the US will
reduce its current account deficit. It is much better for everybody, but
particularly Canada and Mexico, that the adjustment takes place via increased
exports rather than fewer imports. To achieve that, increasing exports of
finished manufacturing goods at competitive prices implies co-producing them
with Mexico. And that requires even deeper industrial integration.
Structurally, re-industrialisation is taking place for three reasons:
·
the
need by multinationals overexposed to China to diversify
·
the
inevitable shrinking of the US financial sector, which will result in more
value-added generated in the real economy
·
the
revolution of shale gas, which will promote the return to North America of
energy-intensive industries that had migrated to Asia.
In this
context, North American trade policy should go on the offensive and insist on
the opening of relatively closed economies such as the Brics. It should also
make progress on transport and energy.
A first
step would be to welcome Canada and Mexico to the Transpacific Partnership
(TPP). This would set the stage for engaging China and exert pressure to
advance on the Doha agreement at the WTO.
Nafta
countries should work on a more ambitious agenda on services. On land
transport, the pilot programme at the Mexico-US border should be expanded, and
there could be an open skies framework for tourism and cargo.
Other
services where integration would work are healthcare, in which Mexico has an
advantage for medical tourism; and education, which could lead to a student
exchange programme.
On
energy, free trade is needed to ensure access to competitive natural gas,
electricity and petrochemicals throughout the region. Free trade on energy
could be accomplished via the TPP – bilaterally or, better still, unilaterally
by Mexico moving to end the monopoly of Pemex, the state oil company, and the
CFE, the government’s electricity monopoly.
And now
that there are no import duties on regional trade, cumbersome border crossing
have to be streamlined. The bombings of 9/11 tightened borders and trade has
suffered. The law enforcement community often fails to grasp that barriers
create an incentive to smuggle.
Mexico
has implemented a significant reduction of most-favoured-nation duties and, in
December, it eliminated anti-dumping duties for goods coming from China. In
addition, it accepted US and EU technical and safety standards for electronics,
certain medical devices and medication and others. This liberalisation leads to
better prices for companies and consumers and less smuggling and acts as a
disincentive to the informal economy.
The
recent trade agreements with South Korea, Colombia and Panama in the US are a
signal that progress can be made. If necessary, Mexico should proceed on its
own or with Canada. Open trade is a distinguishing factor that favours Mexico;
progressing down that road would distinguish it more.
Luis de
la Calle
Luis de la Calle is president of
Hill+Knowlton Strategies Latin America and a former trade negotiator for Mexico
of Nafta
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