A new NAFTA?

Nearly 21 years after NAFTA took effect, a report from the Council of Foreign Relations looks at where the three trade partners should go next.

By Peter Bradley

Twenty years ago—21 in January—after years of often-acrimonious debate, the North American Free Trade Agreement (NAFTA) took effect. The agreement over time eliminated virtually all tariffs on trade among the United States, Canada, and Mexico. Today, based on population and gross domestic product (GDP), the NAFTA territory is the world's largest free-trade area, linking 450 million people producing $17 trillion worth of goods and services. Trade among the three countries has roughly tripled since NAFTA went into effect. In 2012, according to the Office of the United States Trade Representative, U.S. exports to Canada and Mexico totaled $597 billion and imports totaled $646 billion.

Twenty years in, the effects of the accord are mixed at best. It has not produced the depth of economic dislocation expected by its opponents, but there has undoubtedly been some. While wages in the U.S. have remained stagnant since the adoption of NAFTA, it is difficult if not impossible to prove that NAFTA (or at least NAFTA alone) is the cause for that. Nor has it lived up to the highest expectations of its supporters, though there have certainly been benefits for all three nations. It is arguable that much of the growth in trade may well have occurred without it. Then again, lower trade barriers may have helped enable the development of international supply chains. That's almost certainly true for the automotive industry, among others.

I bring this up now because a new report prepared by a task force sponsored by the influential Council of Foreign Relations calls for strengthening ties among the U.S., Canada, and Mexico. The task force, chaired by David H. Petraeus, retired U.S. army general, and Robert B. Zoellick, former president of the World Bank Group, is made up of some heavy-hitting government officials, scholars, and business executives, so it's wise to consider it a template for future foreign policy debates. The issues raised in the report could have real and long-lasting effects on the three nations' economies and workforces.

The report, North America: Time for a New Focus, recommends closer collaboration among the three nations in the areas of energy, economic competitiveness, security, and community. It urges development of a regional energy strategy and building new pipelines (including the controversial Keystone XL), bolstering economic competitiveness through the "free and unimpeded movement of goods" across borders, and strengthening security through a unified continental strategy. What may be most contentious in the current political environment is a call for comprehensive immigration reform and creation of a "mobility accord" to facilitate movement of workers.

I have doubts that a broad accord like the one outlined in the report is even on the agenda in Washington. But it behooves anyone in business to pay close attention when it does arrive.