Regionalization Case Study #1

1. Regionalization Case Study #1 NAFTA and AFTA? I mean FTAA

2. What is NAFTA? 300 It is a Free Trade Area serving Canada (you remember Canada?), the USA and Mexico A Free Trade Area is a zone within which tariffs, and other physical restrictions to trade, are eliminated. It might be more, but this is essentially what it is. Why is this of the remotest interest to the USA? What are the pros and cons of such an arrangement?

3. Origins Monroe's Dream No, the other one. The “Hemisphere”

4. In Favor Of NAFTA Open Access to Huge Market (410+m), especially for C & Mex. Gives US Manufacturing a chance to survive using cheaper labor Prevents countries like Mexico being “shut out” by US Protectionism Confirms the reality of the extreme dependence of Canada and Mexico on the US for exports.

5. Why NAFTA is Important to our Neighbors. 85%! • The U.S. received about 89 per cent of all Canadian exports in 2005. About 72 per cent of Canadian imports came from the U.S in the same year “Regionalism has had profound effects on North America, with about 85 percent of Mexican exports destined for the United States under NAFTA”

6. Also… • The US has to compete in a globalizing world in which scale is important. The EU is about 500m. The Hemisphere is close to 900m. The US is 300m. • The countries of Latin America represent an enormous potential for growth, especially with US investment. • Growth in Latin America—especially Mexico and Central America reduces the need for illegal immigration. • This is a world, increasingly, in which only the big boys can play. This is one way for mid-size countries to join the game.

7. And the downside? Recession of 1992 • Hard to remember now, but Ross Perot fought the 1992 election on the basis that NAFTA would steal US jobs—in fact he said they would go south in a “giant sucking sound” and, for manufacturing this has been true. Note effect of 9/11 This it the level in October of 2008 in Credit Crunch Spring of 2007—labor market very tight

8. And other things our next-door neighbors fear are: Cultural Domination The Unequal situation with the US dominating everything Undermines the State Welfare approach of countries like Canada to industry and countries where labor unions have been traditionally strong The US has a history of not being a team player (especially now)

9. Old Memories Die Hard 60% of Mexico is now called the USA

10. Old Memories Die Hard The USS “New Hampshire” on its way to occupy Vera Cruz, Mexico

11. Old Memories Die Hard General Scott enters Mexico City

12. And What are the other Gripes in the USA? FTAs undermine environmental and labor laws—e.g. firms will go to Mexico to pay less to workers, avoid environmental controls. There is almost no evidence that the latter happens, but of course cheaper labor is attractive for manufacturing. So, in Bloomington, RCA went to Juarez, and two other major employers left. But employment remains the same

13. So, will it happen? Is this our Regional Future?? • Some people hope not • Others say it is inevitable if we are to compete with Europe and China • Time is short, Europe just doubled its size • The President seems Committed, but that was before 9/11 • However, NAFTA has been so enormous for the US—30% of our trade, that Business is all for this change.

14. Where is FTAA now? Miami Agreement 1997

15. Change in Political Climate

16. Bilateral US FTAs

17. Is This Our Future Region? Or is This?

18. I think I’m willing to give it a try, always remembering they don’t forget who’s in charge.