Shaping the Future of the North American Economic Space

Abstract

Canada faces challenges to its living standards and economic position that the events of September 11, 2001, exacerbated. Although made-in-Canada efforts are required to improve our productivity performance, access to the US market is essential but less assured than it was. Paradoxically, a window of opportunity is now open because of the United States' current openness to its friends and neighbors. Canada should decide how to take advantage of this opportunity. With power so dispersed in the US political system and with the Bush administration's exclusive focus on homeland security and defense, only a Big Idea will succeed, one that addresses US objectives while creating new economic opportunities for Canada. This Commentary explores three such ideas - each of which would be a step toward removing remaining bilateral economic barriers. One idea is a customs union, which could be created by adopting a common tariff or a common external trade policy toward the rest of the world, allowing free circulation of goods and services within the common area. A second idea is a common market, which would free up the movement of people and flows of capital and technology, and common institutions could administer common standards, regulations, and policies that must be harmonized throughout the economic space. The third idea is a pragmatic strategic bargain that Canada would initiate to achieve its objectives. Canadian initiatives would be required in areas of interest to the United States, specifically border security, immigration, and defense. Energy security is another key area where Canada should build on its existing strengths. In exchange for these initiatives, Canada should seek customs-union- and common- market-like arrangements that achieve deeper integration but recognize deep attachments to political independence and distinctive national institutions. As part of the package, Canada should seek to eliminate troublesome barriers to people, trade, and foreign direct investment. Negotiations would be needed to curb US trade remedy laws that continue to harass softwood lumber producers; strengthen dispute settlement mechanisms; and develop the much-delayed common competition policy needed for industries that support growing North American production networks.