NAFTA and the New Strategic Imperative of Mexico's Development

It is in each of our interests to find ways to work more fully together so that, in the global economy, we will be able not just to survive, but to flourish. We cannot succeed absent greater North American integration, or without more rapid Mexican development, which, as a consequence, is in our strategic interests to promote.
–from the Executive Summary of “A Compact for North American Competitiveness” (April 2005)

There is perhaps no relationship between the United States and any other nation so encumbered by history, geography, and culture—and so graced with opportunity—as the US relationship with Mexico.

Yet despite the complex nature of this relationship, or perhaps as a result of it, virtually every attempt historically to put the bilateral relationship on a sound footing for the longer term has been frustrated by missed signals, mutual provocations, and external events unrelated to a common agenda.

It was with this in mind that in the second half of the 20th century the US Council of the Mexico-US Business Committee (MEXUS), in conjunction with its counterpart Mexico Council, committed to formulating and advancing a common agenda that would be mutually rewarding for the people and governments of the United States and Mexico. Only by rationalizing the existing relationship, it was felt, would both nations be able to direct their energies toward mutually rewarding activities, rather than constantly working to overcome the latest real or perceived slight.

After all, with a shared border of almost 2000 miles, the United States and Mexico were going to
be neighbors, whether they liked it or not. The only question was whether they would also be
partners and friends.

Out of such thinking during the 1980’s came the idea for a set of common goals and principles for both governments to observe in regulating cross-border trade and investment. In just a few years this initiative resulted in the US-Mexico Framework Agreement, and then, with the addition of Canada, blossomed into the North American Free Trade Agreement.

Negotiation of NAFTA was a signature achievement of the first Bush Administration, and passage on a bipartisan basis was a signature accomplishment of the Clinton Administration. Not only did MEXUS play a
critical role in the conceptual work that led to NAFTA, its members also wore out significant shoe leather on Capitol Hill, ultimately leading to successful passage. It was an achievement of which MEXUS is justifiably proud.

But the agenda is far from complete. In fact, as much remains to be done in the next ten years of NAFTA, if not more, than the first 10 years. In particular, as China comes on line economically, MEXUS will continue to seek new and creative ways to advance the North American competitiveness dialogue.

Founded in 1948, the Mexico-US Business Committee (MEXUS) is the oldest binational private sector business organization with a focus on economic, commercial, and political relations in North America. As a forum for senior business leaders to interact regularly with their counterparts in government, MEXUS was critical in the conceptualization, promotion, passage, and emplementation of the North American Free Trade Agreement….

The US Council of MEXUS is a standing committee of the Council of the Americas, and plays an active leadership role in public policy discussions that shape North American economic relations….

Excerpts from “A Compact for North American Competitiveness: A Strategy for Building Competitiveness within North America” (April 2005)

Executive Summary

The emergence of China, India, and others in the global marketplace has caused anxiety among observers, but only in relatively few instances are coordinated steps being taken to gain full economic and political advantage of this new world. That is particularly true within North America, defined as the United States, Canada, and Mexico. Since NAFTA went into effect in 1994, only rarely have North American leaders envisioned and sought the competitive benefits accruing with greater regional economic integration. To the extent such efforts have occurred, it has generally been within the context of “making
NAFTA work better.”

To be sure, NAFTA can work better, and it should, particularly in terms of the dispute resolution process. But the original trade agreement was only the first step. If North American economic integration ends with NAFTA, we will soon find ourselves at a
competitive disadvantage with Asia, because the relative gains from NAFTA have already largely been eroded by the Chinese and, to a lesser extent, Indian economic explosions.

Significant work must be done in the face of the looming competitiveness challenge from Asia. In response and consistent with the Security and Prosperity Partnership of North America announced by Prime Minister Paul Martin, President George Bush, and President Vicente Fox on March 23, 2005, the US Council of the Mexico-US Business Committee proposes a Compact for North American Competitiveness as a means to address these issues.

At the heart of the Compact lies a grand bargain: the United States and Canada will work closely with Mexico to mobilize additional public and private sector resources to advance Mexico’s development. In exchange, Mexico will commit to a robust program of
second-generation reforms in regulatory harmonization, the rule of law, and infrastructure
improvements, including education, which will create conditions necessary to attract the long-term domestic and direct foreign investment that ultimately drives development.

Within this general framework, specific (non-exclusive) areas for concentration would
include border security and efficiency, energy security, and increasing labor mobility. The
Compact would have at its core the following:

• Promotion of policies in all three nations designed to unlock the full development and job creation potential of the private sector.

• Establishment of a Development Fund for Mexico, with proportional contributions from all three nations, so long as Mexico commits to implementation and
benchmarking of a mutually-agreed reform agenda.

• Support for the integration of all factors of production, including labor, through a robust, enforceable temporary worker program.

• Aggressive promotion of research and development through the identification of specific opportunities for joint cooperation and cross-border investment.

The key question is, why? Why should the United States and Canada care about Mexican development beyond a general humanitarian instinct or a fear of the potential of increased export of illegal activities (migration, narcotics, security threats) brought on by
potential economic uncertainty on our southern border?

The answer is simple to articulate, but extraordinarily difficult to achieve. If the United States and Canada plan to compete with China and other emerging economies by the time Asia reaches greater economic
maturity in 2020 or 2030, both nations will have to put in place now the economic and commercial frameworks to take full advantage of economic efficiencies that would naturally accrue with creation of a larger internal North American market, harmonization of cross-border business practices and regulations, and a reduction in both risk and the cost
of capital. Labor must also be seen increasingly as the irreplaceable input in global economic production and knowledge-based economies, and trained and utilized fully at its most effective potential use. Doing so will bring economic benefits to all three North American nations.

But this paradigm requires increased development in Mexico. Put another way, Mexico’s development directly impacts US national strategic objectives. Both nation

al security and economic security—which is itself a national strategic imperative—require
our southern neighbor to be democratic and politically stable, economically healthy, and increasingly to see its own interests aligned more fully with ours. Canada faces similar realities with Mexico, if less intensively.

It is in each of our interests to find ways to work
more fully together so that, in the global economy, we will be able not just to survive, but to flourish. We cannot succeed absent greater North American integration, or without more rapid Mexican development, which, as a consequence, is in our strategic interests to promote.

MEXUS is committed to improving North American competitiveness as a strategic imperative for the United States. The time to begin is now.

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