Geoffrey HalePolitical Science 3170

The University of LethbridgeOctober 19, 2010

OutlineNAFTA’s Institutional Structure

The TreatyDetailed Contract vs. Institutional Delegation

NAFTA and “Competitive Liberalization”NAFTA in the Context of Broader U.S. Trade

PoliciesU.S. domestic barriers to NAFTA expansionCanadian domestic barriers to NAFTA expansion

NAFTA and Economic IntegrationChapter 1 – Creation of Free Trade Area

Continuum of Economic IntegrationLimited bilateralagreements

------------------------------------------------------------------Economic Customs Free Trade

IndependentUnion Union Area Countries* joint monetary, * common external * separate external

regulatory policies trade policies trade policies

Structure of NAFTAGeneral rules (Chapters 2-5, 8-9, 16, 18)

Definitions * National TreatmentRules of Origin * Customs ProceduresSafeguards * Technical Barriers to Trade

(Emergency Action) * Temporary Entry (business people)

Publication and Administration of LawsSector-specific rules (Chapters 6-7, 10-14)

Energy * Agriculture + SPSProcurement * InvestmentServices * TelecommunicationsFinancial Services

Structure of NAFTAOther policy-specific areas (Chapters 15, 17)

Competition Policies (incl. * Intellectual propertymonopolies, state enterprises)

Dispute Settlement Investment (part of Chapter 11)Financial Services (part of Chapter 14)General Dispute Settlement (Chapter 19)General Dispute Settlement (part of Chapter 20)

OtherFree Trade Commission (Chapter 20)Accession (of other countries) or Withdrawal (Chapter

22)Exceptions

e.g. National Security, Taxation, Cultural Industries, Balance of Payments emergency

Institutional Development of NAFTAContext

Proposals for “deepening” of NAFTA Pastor (2001) – “North American Community” (w. independent

executive) Dobson et al (2004ff) – movement towards customs union.

NAFTA – “just a trade (business) deal”? “High level of obligation; high level of precision; low ...

delegation.” Origin – market access, strategic positioning (Canada, Mexico re: U.S.;

U.S. re: Western Hemisphere, ROW – especially EU, East Asia) Membership – restricted (3), requiring consensus for expansion. Scope – primarily trade and economic issues; minimal capacity for

expansion to include North America wide social issues (NAALC, NAAEC focus on “national standards”

Control – Asymmetry; U.S. has de facto veto on expansion. Flexibility – obligations highly detailed; flexibility for extension largely

based on informal agreement “three can talk, two can walk”.

Factors shaping institutional developmentAll three countries

Protect sovereign authority, subject to reciprocal national treatment for residents of member countries

Limited desire for European-style delegation of sovereign authority through trilateral institutions

CanadaSymmetry of U.S. legal obligations to protect FTA-

related gains (e.g. dispute resolution) ... avoid “hub and spoke”

Factors shaping institutional developmentBroadening, deepening of economic integration to

customs union or future economic union requires development of shared institutions

Advocates of expansion also envisageShared regional development role (Mexico uplift)Shared environmental and health policies

Major asymmetries among NAFTA member nationsShared policies re: labour mobility and security

Extremely controversial in U.S.BUT Canadian advocates of NAFTA expansion focused

mainly on expansion of Canada-US relationship, while U.S., Mexican advocates focused mainly on U.S.-Mexico relationship.

Barriers to Expanded TrilateralismU.S. reluctance to delegate powers restrictive of

national sovereignty to external institutionsU.S. reluctance to accept political responsibility

for social and economic development of Mexico through shared institutionsParallel frustration of FTAA agreement with Brazil,

other Latin American governments (2003) due to competing priorities.

Canadian perceptions that Canada-US, US-Mexican relations have very different problems and challenges.

Shifting focus of U.S. trade policies under Bush Administration “Competitive Liberalization”

Competitive LiberalizationPursuit of network of bilateral and regional trade

agreements with “like-minded trading partners” e.g. Australia, CA-4 / DR, Colombia, Peru, Singapore,

Morocco, Jordan, Chile.Followed similar actions by Mexico in late 1990sDe facto institutionalization of “hub and spoke” regime.Followed belatedly by Canada after 2006

Absence of coherent policy responses to China by NAFTA countries (individually and collectively) Evolving slowly in aftermath of 2008-09 recession

Options for Trade Policy Evolution (Wise)Emergence of “Regional 12” trade bloc from

harmonization of NAFTA countries’ separate trade agreements with CA-6, Dominican Republic, Columbia, Peru and Chile.

Canadian negotiations with Columbia, Peru, CA countries intended to facilitate eventual emergence.Treaties signed with Chile, Costa Rice, Colombia,

Peru, Panama (2010).Negotiations continuing with CA-4, Dominican

Republic, CARICOM.BUT coordination of agreements will require major

political shifts in U.S., cross-partisan cooperation in Mexico to overcome domestic political barriers.

Factors contributing to / constrainingcompetitive liberalization“Single Undertaking” rule at both WTO and FTAA

negotiations “joint decision-trap”U.S.-Brazil standoff in hemispheric tradeCanadian fears of marginalization by U.S. Strategy

Major barriers to reducing NTBs, e.g. “rules of origin”Limited / intermittent U.S. Congressional support for

Trade Promotion Authority necessary to negotiation trade agreements

U.S. Congressional support for trade liberalization evaporated after 2008 Presidential election.