north american integration and international relations theory

Société québécoise de science politique

North American Integration and International Relations TheoryAuthor(s): Robert O'BrienSource: Canadian Journal of Political Science / Revue canadienne de science politique, Vol. 28,No. 4 (Dec., 1995), pp. 693-724Published by: Canadian Political Science Association and the Société québécoise de science politiqueStable URL: http://www.jstor.org/stable/3232007 .

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North American Integration and International Relations Theory*

ROBERT O'BRIEN University of Sussex

Integration theory featured prominently in both prescription for and explanation of regional integration in the European Community in the 1950s and 1980s. European integration was of considerable concern to political scientists and international relations scholars as its fortunes rose, but of less interest as it stalled. To date, the movement that established a North American Free Trade Agreement (NAFTA) has not stimulated the same degree of interest even though it created a larger market than that of the newly named European Union. The present study is a first attempt at sketching out the implications of NAFTA for our understanding of integration and international relations theory more generally.1

This article reviews the movement to codify North American integration, and explores the implications for integration and international relations theory. By codifying integration, I mean the attempt by governments in North America to move beyond unilateral liberalization measures to a regional institutionalized system which includes a dispute settlement mechanism and common rules in many areas of economic activity. The first section reviews the intellectual history of inte-

* An earlier version of this article was presented to the annual British International Studies Association conference at Warwick University, December 14-16, 1993. My thanks to this JOURNAL'S anonymous reviewers for their constructive criti- cisms. This article is concerned with the phenomenon of regional integration in Western Europe and North America rather than with political integration as a separate, distinct aspect. It does not argue that NAFTA is a form of political integration leading to political unification. Rather than viewing the European and North American experiences as unique because one contains an underlying commit- ment to political union and the other does not, this article sees them as variations on the theme of regional integration with differing levels of institutionalization.

Robert O'Brien, School of English and American Studies, University of Sussex, Brighton, BN1 9QN, United Kingdom. E-mail: [email protected]

Canadian Journal of Political Science/ Revue canadienne de science politique, XXVIII:4 (December/ d6cembre 1995). Printed in Canada / ImprimO au Canada



694 ROBERT O'BRIEN

gration theory as it developed in the European context. The second considers the North American experience of codifying integration 1982-1994. The third part of the study returns to integration theory and international relations offering some amendments and suggestions considering the North American experience. The final section moves from a consideration of integration theory to the North American experience and back to its implications for theory. The point is not to demonstrate that one theory is closer to reality, but to determine how reality can best be interpreted.

The article will argue that the best understanding of regional integration in the 1990s can be achieved through an approach that stresses developments in the global political economy as catalysts for change, and looks to national characteristics to explain the form that regional integration takes. The competition for investment and markets compels changes in state structures, but these are influenced by existing institutions and social forces.2 The article will also suggest that the conflict and struggle around the form of regional integration is not between states, but between state/business elites and large sections of their domestic population. International relations or domestic theories of politics unable to integrate these levels of analysis in a systematized manner, paint a misleading view of present dynamics.

European Integration Theory European integration in the postwar era, whether economic, social or political, has been studied in great detail in some decades and virtually ignored in others. International relations scholarship has alternatively trumpeted the European experiment as offering lessons for building a more peaceful world, and dismissed it as a regional phenomenon, or lacking in importance, because success was confined to issues of "low politics."3 Reviewing the history of European integration study from the mid-1990s, it can appear faddish, receiving overblown attention when current events bode well for the project, and hastily abandoned in times of difficulty.

When integration progresses smoothly, neofunctionalist theories are usually employed. In times of difficulty, state interest theories are

2 For an elaboration of a framework which uses such categories see the work of Robert W. Cox, "Social Forces, States and World Orders: Beyond International Relations Theory," in Robert O. Keohane, ed., Neorealism and Its Critics (New York: Columbia University Press, 1986), 204-54, and Production, Power and World Order (New York: Columbia University Press, 1987).

3 The low/high politics distinction is prominent in traditional international relations literature. High politics was thought to involve the primary concern of states-the issue of war and peace, while other issues fell into the category of low politics.



Abstract. Although North American integration has been the topic of heated public debate, it has not yet received adequate theoretical attention from the field of international relations. This article reviews the movement to codify North American integration, and explores the implications for integration and international relations theory. The first section reviews the intellectual history of integration theory as it developed in the European context. The second considers the North American experience of codifying integration, 1982-1994. The third part returns to integration theory and international relations, offering some amendments and suggestions considering the North American experience. The article argues that the clearest understanding of regional integration in the 1990s can be achieved through an approach which stresses developments in the global political economy as catalysts for change, and looks to national and transnational institutions and social forces to explain variations in integration projects. Because other international relations theories such as neofunctionalism and interstate bargaining are unable to integrate these levels of analysis, they offer an incomplete view of present dynamics.

Resume. Bien que l'integration nord-americaine ait fait l'objet de d6bats publics passionn6s, le domaine des relations internationales ne lui a pas encore accord6 suf- fisamment d'attention th6orique. Cet article scrute le mouvement vers la codification de l'int6gration nord-americaine et cerne les implications de l'int6gration et la th6orie des relations internationales. La premiere partie de l'article fait l'histoire intellectuelle de la th6orie de l'int6gration telle qu'elle s'est d6velopp6e dans le contexte europ6en. La deuxibme partie considbre l'exp6rience nord-am6ricaine de la codification de l'int6gration, 1982-1994. La troisibme partie aborde de nouveau la th6orie de l'int6- gration et les relations internationales, proposant des modifications et des suggestions en tenant compte de l'exp6rience nord-am6ricaine. L'article propose que l'on peut arriver a une compr6hension plus riche de l'int6gration r6gionale des ann6es quatre- vingt-dix par une approche qui insiste d'abord sur le fait que des d6veloppements dans l'6conomie politique globale sont des catalyseurs du changement, et qui se tourne en- suite vers des institutions nationales et transnationales, ainsi que des puissances so- ciales pour expliquer les variations dans des projets d'int6gration. Parce que d'autres th6ories des, relations internationales, telles que le n6ofonctionnalisme et les n6gocia- tions entre Etats, ne peuvent pas int6grer ces niveaux d'analyse, elles n'offrent qu'une vision incomplete des dynamiques courantes.

dominant. In the context of international relations, integration theory could be viewed as an outpost of liberals working under the shadow of realist dominance. A third approach, structural theory, has tried to explain European integration as a response to the global political economy. Various scholars place greater emphasis on different factors, but there is some overlap. In the early 1990s, there has been an attempt to synthesize theories or acknowledge their respective merits.4

In reviewing the developments in international relations theory concerning integration in Europe since the 1950s, two relationships are particularly important. The first is the relationship between integration

4 For example, Michael G. Huelshoff, "Domestic Politics and Dynamic Issue Linkage: A Reformulation of Integration Theory," International Studies Quar- terly 38 (1994), 255-79; Linda Cronett and James A. Caporaso, "And Still It Moves! State Interests and Social Forces in the European Community," in James N. Rosenau and Ernst-Otto Czempiel, eds., Governance without Government: Order and Change in World Politics (Cambridge: Cambridge University Press, 1992), 219-89; and Robert Keohane and Stanley Hoffmann, "Institutional Change in Europe in the 1980s," in The New European Community (Boulder: Westview Press, 1991), 1-39.



696 ROBERT O'BRIEN

theory in the form of neofunctionalism and broader international relations theory. The second is the relationship between theory and practice, in which various theories are proposed or abandoned as events change. The bulk of this section will deal with neofunctionalism, as it is the theory most closely associated with explanation of regional integration, while two other powerful interpretations will also be considered.

Neofunctionalism The body of theoretical literature most closely associated with Western European integration is neofunctionalism.5 In the 1950s, it served both as an explanation of, and prescription for, integration. Neofunctional- ism appeared to explain what was happening, and it offered a predic- tion of future progress. Its popularity has mirrored the successes and failures of the European Communinity in moving towards increased integration. In the 1950s and early 1960s it enjoyed some success, was discredited in the 1970s and experienced a mini-revival in the mid- 1980s. With the disappointment of the Maastricht process it will most likely fade away again.

As its name implies, this literature is built on the assumptions of functionalist theory. Functionalists sought to eclipse traditional nation- states with a network of arrangements dedicated to specific issue (or functional) areas.6 Transnational institutions organized to address specific technical problems could operate to the benefit of all members of society. Once progress was made in a specific area, technicians and elites would discover that efficiency and welfare could be improved if functional organizations operated in related fields. A process of spillover would expand the areas that could benefit from increased technical cooperation. Once integration had occurred, decision makers would favour further integration to secure the full benefits of the original project or to gain further benefits. The process would be assisted by further learning and experience. Eventually, functional units would become more important than territorial units. The European Coal and Steel Community and Euratom can be seen as functional experiments.7 Nar-

5 An intellectually coherent, but practically more difficult alternative strategy has been federalism, while other theorists have concentrated on the formation of community that does not undermine the traditional state (pluralists). See Charles Pentland, International Theory and European Integration (London: Faber and Faber, 1971), chaps. 2 and 5.

6 David Mitrany, A Working Peace System (Chicago: Quadrangle Books, 1966). 7 The European Coal and Steel Community was formed by France, West Germany,

Italy, Belgium, the Netherlands and Luxembourg in 1951. Its primary purpose was to create a common market for coal and steel. For details see William Diebold, The Schuman Plan (New York: Praeger, 1959). Euratom was created at the same time as the European Economic Community and was designed to inte-



North American Integration and International Relations Theory 697

row technical fields were chosen in the hope that cooperation could be achieved and might spill over into other economic sectors.

Let us consider two examples of how spillover might work in the European Coal and Steel Community (ECSC) and the European Eco- nomic Community (EEC) frameworks.8 In the ECSC's domain it was believed that the rationalization and integration of coal would necessi- tate similar steps in other sectors because a domestic switch from one energy source to another would create havoc with ECSC planning. Similarly, the creation of a common market would create pressures for monetary union and abolition of nontariff barriers (NTBs). In a liberalized market, governments would be tempted to use the exchange rate as a tool to restore competitiveness or give domestic industry a boost. Governments might also increase nontariff barriers and subsidies to protect industries exposed by tariff elimination. If the common market was to be made truly competitive, government initiatives in these areas would have to be curbed through a fixed or single currency and elimination of NTBs.

Neofunctionalist theory, as put forward by Ernst Haas and Leon Lindberg, grafted a political element onto the functionalist version of technocratic spillover.9 Integration was seen to rely on the interaction of political forces such as interest groups, parties, governments and international organizations in pursuit of their own interests. As one sector of the economy became integrated, pressure groups in that sector would prevent backsliding and insist on further integration in con- nected sectors in order to reap greater economic benefits. Seeing the success of the original sector, other interest groups would push for integration in their field.

Neofunctionalism differed from the dominant view of international relations theory, realism, in that states were not assumed to be unitary actors, nor was cooperation deemed to be limited or unimpor- tant. Stress was placed on transnational contacts between interest groups and bureaucrats. Neofunctionalists paid particular attention to the development of supranational institutions. These were international organizations where decision making became collective, as states delegated sovereignty to the supranational body. In neofunctionalist studies of the European Community, a great deal of stress was placed on the autonomous role of the Commission in instigating integration

grate the nuclear sector. Its operation has been frustrated by state desires to maintain autonomy in this delicate field.

8 These examples are taken from Stephen George, Politics and Policy in the Euro- pean Community (2nd ed.; Oxford: Oxford University Press, 1991), 21-23.

9 Ernst B. Haas, The Uniting of Europe: Political, Social and Economic Forces, 1950-1957 (Stanford: Stanford University Press, 1958); and Leon N. Lindberg, The Political Dynamics of European Economic Integration (Stanford: Stanford University Press, 1963).



698 ROBERT O'BRIEN

and coordinating diverse interests.' Scholars and members of the commission developed a close working relationship, reinforcing each other's perceptions about the inevitability of successful increased European integration." From a neofunctionalist perspective, the future of the European Community in the early 1960s appeared to be one of continued expansion, health and innovation.

The neofunctionalist vision of the future and its interpretations of integration dynamics were dealt a severe setback by France's President Charles de Gaulle's 1965 boycott of the EEC over budget and decision- making issues. The resulting "Luxembourg Compromise" stipulated that no initiative would be put into effect over the strong objections of any single member state. Such a procedure shifted the balance to intergovernmentalism and increased the capacity of member states to block Commission proposals. This is the reverse of what neofunctionalist theorists would have expected.

European reaction to the oil crisis and stagflation in the 1970s also violated neofunctionalist logic. Instead of seeing the advantages of further integration and the pursuit of common programmes, national economic policies moved in separate directions. Rather than documenting the progress of integration the focus shifted to answering questions such as "Why does a common challenge, such as the oil crisis, elicit different national responses in the international political economy?"12

In 1975 the leading neofunctionalist exponent, Ernst Haas, declared that regional integration theory had become obsolete.'3 Spill- over had not proved to be automatic, and interest groups could success- fully oppose integration instead of advocating closer ties. Haas recom- mended that it would be more fruitful to concentrate on the general condition of interdependence, which was much more pervasive than regional integration in Western Europe. This is, indeed, what hap- pened. Interdependence theory, expounded by Robert Keohane and Joseph Nye, moved to centre stage in the international relations literature dealing with political economy and peaceful change.14 Similar to

10 The Commission is the European Community's bureaucracy. 11 Pentland, International Theory, 131. 12 This was the question posed at the beginning of a collection of essays consider-

ing the responses of key member states of the Organization for Economic Coop- eration and Development to the turbulence of the 1970s (Peter J. Katzenstein, ed., Between Power and Plenty: Foreign Economic Policies of Advanced Indus- trial States [Madison: University of Wisconsin Press, 1978], 3).

13 Ernst B. Haas, The Obsolescence of Regional Integration Theory (Berkeley: Uni- versity of California Press, 1975).

14 See Robert O. Keohane and Joseph S. Nye, "International Interdependence and Integration," in Fred Greenstein and Nelson Polsby, eds., International Politics Handbook of Political Science, Vol. 8 (Menlo Park: Addison-Wesley, 1975), 363-414; and Robert O. Keohane, Power and Interdependence: World Politics in Transition (Boston: Little Brown, 1977).




neofunctionalism, interdependence stressed the growing links between societies, states and economies. However, the elements of spillover and the teleological path towards integration were abandoned. Attention shifted to the concept of international regimes which were global arrangements in particular issue areas.'5 Neofunctionalism was abandoned, but it was never adequately replaced as US academics shifted to study the "problems of interdependence." Post-1970 European Com- munity (EC) studies were painstakingly empirical, making little explicit reference to theory. Ironically, just as regime theory was achieving academic prominence, events signalled an integration renais- sance.

Following the unexpected relaunch of the Community in the 1980s with agreement to the Single European Act (SEA), interest in neofunctionalist theory rekindled. Elements of spillover were seen in the renewed integration, and qualified support was advanced for the possibility that integration in one sector might lead to pressure for integration in another.16 This could take the form of expansion from one economic sector to another. For example, the internal market programme was created because decision makers realized that the full benefits of a common market could not be achieved unless nontariff barriers were also eliminated. Similarly, an internal market would require a single currency or fixed exchange rates to generate the maximum benefits. Spillover might also take place from economic to political realms. Thus, the completion of the internal market was seen to require a change in the process of voting from unanimity to qualified majority, so that the disagreement of any single state could be sur- mounted. 17

The rejuvenated 1980s European Commission, which in 1985 came under the leadership of Jacques Delors, also seemed to be in line with neofunctionalist analysis of the 1950s. The Commission was instrumental in providing resources for various reports, coordinating interests in favour of increased integration and pushing tirelessly for more ambitious action. Delors was particularly influential in persuad- ing French President Mitterrand that European economic interdependence was so great that France would have to pursue its policy agenda at

15 An influential collection of articles exploring regime theory was published in 1983 (Stephen D. Krasner, ed., International Regimes [Ithaca: Cornell Univer- sity Press, 1983]).

16 Jeppe Tranholm-Mikkelsen, "Neo-functionalism: Obstinate or Obsolete? A Reappraisal in the Light of the New Dynamism of the EC," Millennium 20 (1991), 1-22; and David Mutimer, "1992 and the Political Integration of Europe: Neofunctionalism Reconsidered," Journal of European Integration 13 (1989), 75-101.

17 Keohane and Hoffmann acknowledge the limited applicability of spillover from economic to political domains ("Institutional Change in Europe," 18-22).



700 ROBERT O'BRIEN

the European level. Delors came to the Commission after his term as economics minister in the 1981-1984 Socialist cabinet: Stephen George has suggested that the 1992 programme, the push for scientific collaboration, the drive to monetary union and the social charter all bore the hallmark of a plan devised in Paris at the end of the 1981-1984 French reflation failure.'8

The difference between neofunctionalist theory in the 1950s and in the 1980s was that in its later version it was viewed as one of many possible explanations for integration. Rather than acting as the primary explanation, it served to draw attention to the links between various economic and political sectors. The teleological nature, insensitivity to state power and the contending attraction of nationalism were abandoned. In addition, the momentum for integration brought about by spillover pressures was balanced by placing Europe in the context of a broader environment of interdependence and state competition which could provide incentives for integration or for disintegration.

Interstate Bargaining Whereas neofunctionalism stressed the integration process, transnational actors and institutions, other theories focused on the dominant position of the state, or on interstate bargaining, to explain both slow- down and acceleration of European integration. Although some attention might be given to other factors, the primary focus remained interstate bargains.

Following the crisis brought on by the seven-month French boycott of the Council of Ministers' decison-making sessions in 1965, Stanley Hoffmann's critique of neofunctionalism stressed the importance of state structures and nationalism.19 He suggested that while integration might succeed on issues of "low" politics, it foundered on traditional state concerns such as sovereignty and security. He also made the point that along with a logic of integration, there was a more powerful logic of diversity which characterized the international system. This diversity, stronger in the issues of "high" politics, responded to the external environment. The EC could not be cut off from this environment, and its states would be subject to its pressures. This was similar to points that would later be made by interdependence theorists.

In the 1980s, explanations stressing the central role of state-to- state relations were prominent. Although Keohane and Hoffmann agreed that a variety of factors such as spillover, international economic pressures, domestic political processes and international institu-

18 George, Politics and Policy in the European Community, 16. 19 Stanley Hoffmann, "Obstinate or Obsolete? The Fate of the Nation-State and the

Case of Western Europe," Daedalus 95 (1966), 862-915.




tions also played a role, they stressed that "interstate bargains remain the necessary conditions for European integration and must be recognized as such."20 A stronger view held that although institutions such as the Commission play a vital role, "the primary source of integration lies in the interests of states themselves and the relative power each brings to Brussels."21

Using an intergovernmental bargaining perspective, one would still view events in terms of, for example, German national interest or the attitude of the British government toward a specific policy. The key to the Single European Act could be seen to be the convergence of national interests among three of the larger member states: France, Britain and Germany. France saw the SEA as an attempt to bolster European options following its failure at national reflation in the early 1980s, Britain sought extension of deregulation among its EC partners and Germany sought to maintain its position as a supporter of European integration. For international relations scholars, the focus on inter-state bargains as the key to explanation seems to maintain its attraction.

The difficulties in ensuring ratification of the Maastricht Treaty in Denmark and in France provided the opportunity for intergovernmen- talists to reassert their position of dominance. For example, Stanley Hoffmann rejoined the integration debate by highlighting the disjunc- ture between the French and British nation-states on the one hand and, on the other, the European Community structure, which tries to bridge the interests of various nations.22 Although pointing to the clash of national interests, he also refers to the growing gap between state elites and the general public, which is of central concern to this analysis.

Global Political Economy A recent overview of theories about the evolution of the European Community dealt with neoclassical economics, neorealism, neoliberal institutionalism, functionalism and neofunctionalism.23 There is another perspective: a global political economy (GPE) approach. A GPE approach has four distinct features which distinguish it from other international relations and international political economy perspectives.24 First, its ontology is that of the global political economy rather

20 Keohane and Hoffmann, "Institutional Change in Europe," 17. 21 Andrew Moravcisk, "Negotiating the Single European Act: National Interests

and Conventional Statecraft in the European Community," International Organ- ization 45 (1991), 66.

22 Stanley Hoffman, "Goodbye to a United Europe?" New York Review of Books, May 27, 1993, 27-31.

23 Cronett and Caporaso, "And Still It Moves!" 219-89. 24 A review of the study of international political economy in British universities

contrasts the inclusive nature of a global political economy approach with more



702 ROBERT O'BRIEN

than of an interstate system. While states are important actors in such a system, they share the field with other forms of organization and iden- tity such as the firm, class and gender. Conflict takes place across states as well as between them. Secondly, such an approach stresses the importance of global political economy structures in influencing, but not determining, actors' behaviour. These overreaching structures are themselves subject to change and modification through the determined struggle of agents in the system. Thirdly, the GPE approach stresses the importance of ideas, knowledge and ideology as sources of power when they are supported or taken up by influential social forces. Finally, scholars working in this area tend to take a more explicitly nor- mative approach to their analyses than do those working from the more established perspectives.

Peter Cocks is an example of someone stressing the systemic pressures for regional integration. He has argued that political and economic integration "are methods of providing the institutional conditions for the expansion of capital while social integration is the process of legitimating the new institutions."25 In his view, postwar integration in Europe took place so that capital accumulation could be guaranteed following the destruction of the Second World War. The 1992 single- market project might also be explained in terms of the need to expand markets and engage in activity on a European-wide basis after the crisis of the 1970s. The system demands increasing expansion of the area in which capital can operate freely, and the EC has provided for this.

Events in the 1980s might support such a view. For example, one could argue that the continued transformation of the production and financial structures of the global political economy has exerted immense pressure on West European state managers. Competition for European business increased as more efficient Japanese and Newly Industrializing Countries' producers penetrated continental markets. In contrast to Europe, the US also experienced growth, but through a strategy of deregulation, tax cuts, increased spending and increasing labour market flexibility. A feeling of "Europessimism" was fed by the impression that Japanese and American competitors were doing better than domestic firms in both productivity and technology. As if to underline the global economic pressure, the recession of 1982 reminded Europeans of the need to compete more efficiently.

traditional approaches in Robert O'Brien, "International Political Economy and International Relations: Apprentice or Teacher?" in Andrew Linklater and John Macmillan, eds., Boundaries in Question: New Directions in International Rela- tions (London: Pinter, 1995), 89-106.

25 Peter Cocks, "Towards a Marxist Theory of European Integration," Interna- tional Organization 34 (1980), 1-40.




Systemic restrictions forced a convergence of economic policies as left-leaning European governments came to adopt more market- oriented economic development strategies. The key convert was the French Socialist party, whose attempt at reflation in 1982-1983 resulted in a currency crisis as imports flooded the country. The government of Frangois Mitterrand was faced with the option of maintain- ing the expansionary programme by dropping out of the European Monetary System and reducing ties with other continental economies, or reversing course and mimicking the deflationary consensus. After some infighting, the Socialists came to the conclusion that the cost of economic autonomy was simply too high. Once the French Socialists acknowledged that a Keynesian reflation was not possible on their own, their attention turned to building a stronger Europe.

Business organizations have played a prominent role in advancing the Single European Market (SEM or 1992) project. The Roundtable of European Industrialists, organized in 1983, began to push for a unified internal market before the Commission's 1985 White Paper (the Cock- field Report) advocating the SEM. The Roundtable counted many of Europe's most influential corporations amongst its members, including Philips, Siemens, Olivetti, Fiat, Bosch and Ciba-Geigy. They were in close contact with officials in the Commission, and they lobbied national governments to accept the creation of a competitive internal market.26

Another example of an analysis in the GPE mould would be Stephen Gill's explanation of the 1992 programme principally as a response to the economic crisis of the 1970s and 1980s.27 Multinational corporations and social forces supporting a laissez-faire Europe have been the most successful in achieving their agenda on a Europe-wide basis. While state-to-state relations play a role, as does the European position in relation to the US and Japan, the real contest is within and across Western European countries. Here the struggle is between transnational liberalizing forces and those seeking a more social democratic Europe. The thrust of the 1992 programme has been almost wholly liberal, with a few minor measures aimed at slight changes in the operation of European institutions, and minute movement in the social field. A similar hierarchy of issues was evident in the Maastricht Treaty,

26 Wayne Sandholtz and John Zysman outline the role of European companies in the 1992 process in "1992: Recasting the European Bargain," World Politics 42 (1989-1990), 95-128. Also see Bastiaan van Apeldoorn and Otto Holman, "Transnational Class Strategy and the Relaunching of European Integration: The Role of the European Round Table of Industrialists," paper presented at the International Studies Association Conference, Washington, March 29, 1994.

27 Stephen Gill, "The Emerging World Order and European Change: The Political Economy of European Union," in Ralph Miliband and Leo Panitch, eds., The Socialist Register 1992: New World Order? (London: Merlin, 1992), 157-96.



704 ROBERT O'BRIEN

where the primary thrust was towards monetary union devised by central bankers, while issues of social welfare were considered so secondary that Britain was allowed to opt out of the Social Charter.

Western European integration in the past 40 years has stimulated a great deal of interest. Initially dominated by neofunctionalist thought, the 1970s saw liberal scholars with similar world views turn to the concept of interdependence. Recent United States-based commentary has stressed the importance of interstate bargains along with a range of other factors which include spillover, institutions and the international environment. An outsider to this discussion has been global political economy work, primarily in the historical materialist tradition, stressing the dominance of global systemic factors.

North American Integration As the European Community was experiencing rejuvenation in the mid-1980s, North Americans were edging their way towards a continental economic agreement. There are four elements of the North American integration experience in the 1980s and early 1990s that are of relevance to the present discussion. The first is the impact of systemic economic shocks. The second is the role of a transnational epistemic community linked to powerful social and/or state forces. The third is the source of resistance to codified North American integration and the fourth is the form that integration has taken both institu- tionally and substantially.

Systemic Economic Shocks

Shortly after his election in 1980, US President Ronald Reagan called upon his northern and southern neighbours to join the United States in forming a large free trade zone. Both the Canadian prime minister and Mexican president rejected that offer, but within a decade, the two countries placed free trade with the United States at the centre of their economic strategies. The severe global recession in the first part of the 1980s had a crucial role in reversing Canadian and Mexican state economic policies.

The Canadian government's decision to negotiate a bilateral trade deal had its roots in the policies of the early 1980s.28 Canadian- American relations were tense as a number of nationalistic Canadian initiatives such as the National Energy Program, Foreign Investment Review Agency and protection for cultural programmes irritated pri-

28 Brian W. Tomlin, "The Stages of Prenegotiation: The Decision to Negotiate North American Free Trade," International Journal 44 (1989), 254-59.




vate and government interests south of the border.29 The Liberal government's plan to base economic development on energy megaprojects collapsed with falling oil prices, sparking a search for an alternative strategy. The worst recession since the Great Depression and fears of growing protectionism in the United States gave an added urgency to the hunt. The Trudeau government tried to pursue a number of agreements with the United States for free trade in specific sectors, but found the American government uninterested. The US wanted a com- prehensive trade deal, so issues not usually considered part of a trade agreement-services, investment and intellectual property rights- could also be addressed.

The original Canadian desire for a free trade deal developed as a response to external pressure. The business community, spooked by deteriorating Canadian-American relations and an aggressive US Con- gress, brought the issue of market access to the attention of politicians, bureaucrats and academics. Canadian business, liberal economists and Conservative government officials, fearing the rise in American protectionism, sought a solution to the US harassment of Canadian exports. They required a mechanism that would insulate Canada from protectionist pressures in the American trade system. One of Canada's free trade negotiators, Gordon Ritchie, summarized the position this way: "As the only industrialized country without free access to a major con- sumer market, Canada's prospects for diversifying from excessive dependence on volatile international resource commodity markets hinged on enhanced and secure access to her giant neighbour to the south."130

As the movement to freer trade picked up momentum, a second objective, with an internal focus, came to dominate the business community's desire for an agreement. A bilateral free trade deal could help restructure domestic economic and political relationships, as well as secure access to the US market. Free trade would turn Canada into a lean, mean, competitive economic machine. A bilateral deal would liberalize the Canadian economy by reducing tariffs and restricting the role of government in the economy. Forcing Canadian companies to compete with less protection would help them evolve into "world- class" companies.31

The United States responded to recession, increasing competitive pressure and economic dislocation by greater use of American trade

29 For a review of disputes in the areas of the National Energy Policy, softwood lumber and culture in the early 1980s, see David Leyton-Brown, Weathering the Storm: Canadian-U.S. Relations, 1980-1983 (Toronto: Canadian American Committee, 1985).

30 John Crispo, ed., Free Trade: The Real Story (Toronto: Gage, 1988), 16. 31 This strategy is examined below under "powerful epistemic community."



706 ROBERT O'BRIEN

law to protect domestic industries. The US system, often referred to as "contingent protection" by Canadian commentators, provides relief from competition on a case-by-case basis, usually at the request of industry.32 A potentially theatening pattern had emerged in Congres- sional trade bills of 1974, 1979 and 1984. At each stage, industries feeling competitive pressure or which were unsuccessful in previous trade remedy cases went to Congress with specific complaints and advice about how the laws should be tightened. In practice, "revisions have been an ad hoc series of amendments derived from specific proposals from domestic companies involved in recent or anticipated cases.'"33 The administration and large business lobbies usually fought against the more protectionist positions, and a compromise was often worked out that tightened the law but left out the most threatening elements.34 Unhappy industry representatives would then start preparing for the next round of negotiations.

For Canadians, the primary problem was the use of American countervailing duties (CVD). A CVD is a duty levied on an import that equals the amount of subsidy that has been given to that product, usually by a home government. The intent of the CVD law is to ensure that domestic producers do not suffer from subsidy practices in other countries. Strengthening the CVD provisions in 1979 resulted in a shift away from using temporary legal actions against fairly traded imports (escape clause or safeguard actions) to unfair trade laws for protection. Increasingly, industries seeking relief claimed that their rivals traded unfairly, rather than more efficiently. The 1980s saw a sharp jump in the number of cases being investigated and in the duties in effect, relative to the late 1960s and early 1970s. Whereas there was one investi- gation in 1973 and five in 1974, this rose to 10 in 1980, 27 in 1981, 146 in 1982, 30 in 1983, 55 in 1984 and 43 in 1985. In 1983 there were 56 countervailing duties in effect compared to 13 in 1968.35

From a foreign perspective, US fair trade law is seen as a nontariff barrier to trade, reducing market access.36 Because of their structure,

32 Rodney de C. Grey, United States Trade Policy Legislation: A Canadian View (Montreal: Institute for Research on Public Policy, 1982), 8.

33 Gary N. Horlick and Geoffrey D. Oliver, "Antidumping and Countervailing Duty Law Provisions of the Omnibus Trade and Competitiveness Act of 1988," Journal of World Trade Law 23 (1989), 5.

34 Judith Hippler Bello and Alan F. Holmer refer to the role of multinational businesses in turning back a number of provisions of the 1984 Trade Act in "The Trade and Tariff Act of 1984: The Road to Enactment," The Antidumping and Countervailing Duty Laws (Washington: American Bar Association, 1987), 49-82.

35 I. M. Destler, American Trade Politics: System under Stress (Washington: Insti- tute for International Economics, 1986), 125.

36 For a detailed liberal economic Canadian critique see Alan M. Rugman and Andrew D. M. Anderson, Administered Protection in America (London: Croom Helm, 1987), 42.




US trade laws allow American industries to harass imports by impos- ing large financial costs.37 They can also be used by US industry to force competitors to the bargaining table. They threaten the use of unfair trade laws to bully other nations into adopting voluntary export restraints or entering into trade deals.38 A further concern regarding the use of American trade law is that uncertainty about access to the US market might hinder foreign investment in other countries. In Canada, uncertainty about access to the American market might cause investors to go south of the border.39 This would apply to Japanese and European investors seeking a base in the North American market, as well as the decisions of Canadian companies expanding their operations.

The Mexican government's decision to pursue a North American free trade agreement had its origins in the debt crisis of 1982. Unable to finance its import substitution industrialization policy and in desperate need for new sources of capital and investment, the Mexican government began a liberalization strategy which culminated in NAFTA. Mexico's strategy was to take measures which would secure foreign and domestic investment. Crucial to this was reaching agreements with the International Monetary Fund (IMF), the United States and with the General Agreement on Tariffs and Trade (GATT), encouraging exports through plants on the US border and amending investment rules.

Following Mexico's declaration in August 1982 that it would be unable to continue paying the interest on its debt, international bankers made it clear to the Mexican government that unless drastic reforms were undertaken no further loans would be forthcoming. Banks were no longer willing to turn over Mexican loans and lend money to pay the interest charges; Mexico would have to pay its interest from budget and export surpluses rather than loans. Mexico began a series of negotiations with the IMF and with private banks to secure further credit and to keep capital flowing into the country. Striking a deal with the IMF was vital, because private banks were reluctant to provide new capital.

37 It is estimated that the Canadian steel industry spent over one million dollars in trade cases in 1983-1984, while the Canadian softwood lumber industry spent $11 million in legal and consulting fees in its unsuccessful fight in 1986-1987 (Alan M. Rugman, "U.S. Protectionism and Canadian Trade Policy," Journal of World Trade Law 20 [1986], 373; and Michael B. Percy and Christian Yoder, The Softwood Lumber Dispute and Canada-U.S. Trade in Natural Resources [Halifax: Institute for Research on Public Policy, 1987], 138).

38 When American steel producers decided to limit European competition in 1982, they filed over 150 unfair trade petitions! In adopting similar tactics against newly industrializing countries in 1984, American steel officials admitted the aim was to make the burden of fighting legal cases so great that foreign producers would be happy to enter into negotiated trading practices (Destler, American Trade Politics, 130).

39 The Question of Secure U.S. Market Access in the Canada-U.S. Free Trade Agreement (Toronto: Ontario Government, 1988).



708 ROBERT O'BRIEN

Working out an arrangement with the IMF would act as a seal of approval of Mexican government policies and would encourage private banks to resume lending. The IMF agreement reached in November 1982 stipulated that exchange controls would have to be abandoned by 1983, and that the government budget deficit would have to be reduced from 17 per cent of the gross national product to 8.5 per cent in 1983, 5.5 per cent in 1984 and 3.5 per cent in 1985.40 The Mexican government immediately began to close over 100 state companies to meet these targets.

In addition to domestic adjustments, the new Mexican government of President de la Madrid embarked upon a series of measures to liberalize its foreign economic relations. In the year following the debt crisis, the binational Mexico-US Business Committee submitted a proposal for a bilateral commercial agreement to the Office of the United States Trade Representative. The first major binational measure to improve trading relations was an agreement to ease the problem of subsidy disputes between Mexico and the United States, signed in April 1985. Later that year Mexico began to negotiate to join the GATT, and was admitted in July 1986. In November 1987, the United States- Mexico Framework Agreement was signed. It provided a statement of principles and a negotiating agenda for future liberalizations.41 The following month the Mexican government announced an acceleration of import liberalization. The average maximum import tariff was reduced to 20 per cent, with an average level of 16 per cent. This was much fas- ter than what was required under the GATT accession agreement, and represented a rapid retreat from tariff levels of 100 per cent a decade earlier. In addition, 7,500 import categories or 90 per cent of total imports were fully liberalized, in that import licences were either eliminated or transformed into tariffs. The primary exceptions were in agriculture, computers, automobiles and the pharmaceutical industry.42

Faced with the immediate need to increase foreign currency and boost exports, President de la Madrid, and later President Salinas, brought in legislation to facilitate maquiladora growth.43 Maquiladora

40 Nora Hamilton, "State-Class Alliances and Conflicts," in Nora Hamilton and Timothy F. Harding, eds., Modern Mexico (London: Sage, 1986), 164.

41 Guy C. Smith, "The United States-Mexico Framework Agreement: Implications for Bilateral Trade," Law and Policy in International Business 20 (1989), 655-81.

42 Luis F. Rubio, Christina D. Rodriguez and Roberto V. Blum, "The Making of Mexico's Trade Policy and the Uruguay Round," in Henry Nau, ed., Domestic Trade Politics and the Uruguay Round (New York: Columbia University Press, 1989), 186.

43 See Ana Maria Perez Gabriel, "Mexican Legislation Affecting the Maquiladora Industry," in Khosrow Fatemi, ed., The Maquiladora Industry (New York: Praeger, 1990), 207-16.




industries, or maquilas, are usually found in the Mexican-US border region and are primarily owned by American or other foreign capital. Essentially, they provide cheap labour for transnational corporations' assembly operations. Maquilas are allowed to import industrial inputs duty free and re-export products into the United States, paying customs duty only on the value added in Mexico. In 1986, the government set a target of 15 per cent growth in the number of maquila plants. The deflation of the Mexican economy and devaluation of the Mexican peso had a positive effect on the maquiladora industry. At the end of the Por- tillo regime in 1982, Mexican hourly wage rates were $1.69, less than 15 per cent of US wages ($11.70), but still 26 per cent more than Korean and 17 per cent more than Taiwanese rates. By 1989, the rate had dropped to $1.07, only 8 per cent of the US rate and, what is more important, 24 per cent lower than the Korean rate ($1.40) and 37 per cent lower than in Taiwan or Hong Kong ($1.70).44 By 1989, the maquiladora system accounted for 25 per cent of Mexican valued-added exports and generated approximately $2 billion in foreign exchange.45

Another important step in liberalizing the economy and integrat- ing it more closely with the global structure was the publication of Mexico's Foreign Investment Regulations (New Regulations) on May 16, 1989.46 This presidential proclamation had the effect of allowing majority foreign ownership by revising Mexico's Foreign Investment Law (FIL) which had governed foreign investment since 1973. The FIL had established the general rule that foreign investors could control no more than 49 per cent of an enterprise, with Mexicans owning the other 51 per cent. Very few exceptions were allowed to this rule. Following the introduction of the FIL, foreign capital moved into Mexico at a rapid rate in the form of loans (debt) rather than direct investment (equity). Modifying the FIL was meant to increase foreign investment.

In May 1990, Mexican President Salinas informed his Senate that he would seek a free trade deal with the United States and Canada. American trade officials responded slowly and it was not until Febru- ary 1991 that Salinas, US President George Bush and Canadian Prime Minister Brian Mulroney formally announced their intention to negotiate a three-way continental free trade pact. The decision to pursue a North American Free Trade Agreement followed from the Subsidies

44 Marc N. Scheinman, "Report on the Present Status of Maquiladoras," in Fatemi, ed., The Maquiladora Industry, 22.

45 Sidney Weintraub, Transforming the Mexican Economy (Washington: National Planning Association, 1990), 10; and Fatemi, "Introduction," in The Maquila- dora Industry, 4.

46 Jorge Camil, "Mexico's 1989 Foreign Investment Regulation: The Cornerstone of a New Economic Model," Houston Journal of International Law 12 (1989), 1-22.



710 ROBERT O'BRIEN

Agreement and the Mexico-United States Framework Agreement.47 The Mexicans were well aware of the accomplishments of the Canada- United States Free Trade Agreement (FTA) of 1989, which created a unique dispute settlement mechanism.

While trade matters were undoubtedly important considerations in the NAFTA negotiations, the primary Mexican concern was to create an institutional structure that would bolster investor confidence. Mex- ico desperately needed the return of capital to its country to maintain economic growth. Investors had to be assured that if they bought Mexi- can bonds, the peso would not be devalued and that if they bought Mexican assets, they would not lose value. NAFTA would cement the liberalization process, reassuring investors that any future government would find it difficult to return to protectionist policies. In a 1989 interview, Salinas made the trade-investment link explicit: "If we give our investors the certainty of access to the US market, investment in Mexico will grow substantially. That's why I place so much emphasis on the trade agreement.''48

Powerful Epistemic Community Central to the turnaround in Canadian and Mexican development strategy was the rise of a powerful transnational epistemic community. Peter Haas has defined an epistemic community as "a network of pro- fessionals with recognized expertise and competence in a particular domain and an authoritative claim to policy-relevant knowledge within that domain or issue-area."49 In this case, the community centred around the prescription of neoclassical economics for economic growth. However, ideas usually require powerful backers before they can be implemented. In both Canada and Mexico the emerging community was able to secure the support of the most powerful forces in each country.

In Canada, the liberal principles were most forcefully articulated by a government-appointed Royal Commission on the Economic Union and Development Prospects for Canada (Macdonald Commis- sion).50 The Commission claimed that exposing Canadian firms to

47 For an overview of the radical change in Mexican policy see Rudiger Dornbusch, "Mexico's Economy at the Crossroads," Journal of International Affairs 43 (1990), 273-90, and Jorge G. Castafieda, "Salinas' International Relations Gamble," Journal of International Affairs 43 (1990), 407-22.

48 Newsweek, October 16, 1989. 49 Peter Haas, "Introduction: Epistemic Communities and International Policy

Coordination," International Organization 47 (1992), 3. 50 Report of the Royal Commission on the Economic Union and Development

Prospects for Canada (Ottawa: Supply and Services Canada, 1985), see Vols. 1 (especially 324) and 2 (especially 381). The view that the Commission's report drew its conclusions excessively from liberal economists and business presenta-




increased competition would allow them to take advantage of economies of scale and increased productivity. Conservative Prime Minister Mulroney was eager to use the recommendations of a committee appointed by the previous Liberal government as evidence of a biparti- san approach to trade policy. While the Conservatives ran with the idea of pursuing a free trade agreement, they pointedly ignored the Com- mission's call for an extensive adjustment programme to ease the transition period and to take advantage of new opportunities. In the Con- servative view, free market forces would take care of restructuring. Canadian firms and workers would have no choice but to increase their productivity or perish in competition with US corporations. Canada would be forced to leave behind its spoilt and lazy ways.51

A significant factor in pursuing a bilateral free trade treaty was that it would have the effect of institutionalizing liberal reforms. Any future government would have to risk the whole deal to overturn any individual section. The federal government would find it hard to intervene in the energy field, and provincial governments would have difficulty implementing new policies such as public auto insurance. The risk of antagonizing the United States and Canadian business community would deter any such action. One of the Canadian negotiators of the FTA declared that of Canada's objectives, "the most important, if least publicized, was to effect domestic economic reform. .. ."52

The political muscle to push through the FTA was provided by the business community. Although most Canadian business organizations supported the idea of a free trade deal, it was the Business Council on National Issues (BCNI) that was most influential in putting this option high on the government agenda.53 It began to back publicly a compre- hensive trade deal in 1983, following discussions with United States Trade Representative William Brock. The BCNI represents the inter-

tions, casting other views aside, led to the publishing of Daniel Drache and Dun- can Cameron, eds., The Other Macdonald Report (Toronto: Lorimer, 1985).

51 The characterization of Canada as a spoilt and lazy country is provided by a former chief of staff to Prime Minister Brian Mulroney in Linda McQuaig, The Quick and the Dead (Toronto: Viking, 1991), 108.

52 Michael M. Hart, "The Future on the Table: The Continuing Negotiating Agenda under the Canada-United States Free Trade Agreement," in Richard G. Dearden, Michael M. Hart and Debra P. Steger, eds., Living with Free Trade (Ottawa: Institute for Research on Public Policy, 1989), 73 (emphasis in the original). This view is also expressed by critics of the trade deal (see John W. Wamock, Free Trade and the New Right Agenda [Vancouver: New Star Books, 1988]).

53 The decision of the Canadian Manufacturers Association to reverse its traditional stance and back a trade deal was also important as it allowed business to present a relatively united front on the issue. An overview of the BCNI's political impact on government policy can be found in David Langille, "The Business Council on National Issues and the Canadian State," Studies in Political Economy 24 (1987), 41-85.



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ests of Canada's largest companies (many US transnationals) spanning manufacturing, resource and financial industries. Shortly after the Sep- tember 1984 Conservative victory, the new trade minister, James Kel- leher, reacted positively to the BCNI's proposal to pursue a bilateral free trade deal.54 Six months later, at the Canada-US meeting known as the Shamrock Summit, Prime Minister Mulroney and President Reagan announced their willingness to begin investigating a free trade pact.

In Mexico, liberal ideas and strategies were proposed by technocrats in the bureaucracy and at some of the universities. Initially, the bureaucracy was hesitant to support trade and investment liberalization and it was a subject of some debate. In 1984, the Ministry of Com- merce published the "National Program of Industrial Promotion and Foreign Trade." Rather than abandon import substitution, it advocated the rationalization of protection, and the ministry suggested partial liberalization in chosen sectors. This cautious approach was countered later the same year when the Bank of Mexico published its liberalization plans including the suggestion for a "Certificate of Right to Import for Exports." Under this plan, exporters would be allowed to import products equivalent to a given percentage of their export revenue without recourse to a permit. The Bank wanted to liberalize imports to reduce their cost and prevent further currency devaluation and infla- tion. Whereas the Ministry of Commerce favoured a selective, cautious, case-by-case approach to liberalization, the Bank of Mexico pushed for liberalization based on a general approach.55

Eventually, the 1985 trade liberalization process was guided by the Ministry of Commerce, but it had the full backing of the president who insisted on GATT membership and on securing agreements with the United States.56 The negotiating team that led the Mexican side in the NAFTA talks was highly committed to neoclassical economic principles. In the early stages it was headed by Herminio Blanco, an economics PhD from the University of Chicago and former student of Mil- ton Friedman. Other key negotiators included economics PhDs from Yale, Harvard and the Massachusetts Institute of Technology.57

The Mexican adoption of liberal economic principles was primarily state-led, whereas in Canada the initiative came from dominant business organizations and found support from a political party and government bureaucrats. This reflects the relative strength of civil society in each country. Mexico's US-educated technocrats made the most

54 The shift towards a free trade strategy and the coalescing of the business agenda and Conservative government's policies is explored in McQuaig, The Quick and the Dead.

55 Rubio, Rodriguez and Blum, "The Making of Mexico's Trade Policy," 169-71. 56 Ibid., 169-90. 57 "Mexican Trade Negotiators Form an Elite Team," The Financial Post (Can-

ada), May 3, 1991.




of an economic crisis, wielding state power to initiate fundamental changes in development strategy. These patterns can be seen in numer- ous other developing countries.5"

Location of Resistance

A significant aspect of North American integration is that conflict and resistance is sharper within states than between states. The process of liberalization and integration has highlighted class divisions in Canada and the US rather than heighten tension between states. There were disagreements between negotiators from the three countries, but they agreed on the general goals and on the package. The desire to reach an agreement took precedence over special provisions for any particular sector. For example, the Canadians staged a walkout during the FTA negotiations, but were able to secure an agreement at the last minute that met each party's minimum conditions. Negotiators have often found more in common with each other than with their respective citizens. In the Canada-US FTA, both sets of negotiators agreed that the creation of a continental energy market was a worthwhile objective. Resistance to the plan came from elements in Canadian civil society rather than from the Canadian state.

In Canada, the Free Trade Agreement was the centre of a large, active and often bitter political debate. A broadly based coalition of women's, labour, nationalist, cultural and environmental groups mobil- ized against the deal. They faced the business establishment, the federal Conservative party and the governments of two provinces crucial to Conservative power (Quebec and Alberta). The Alberta government saw the FTA as a method of limiting federal interference and cementing the creation of a continental energy market. In Quebec, it was hoped that the deal would loosen dependence on the rest of Can- ada and secure export markets to the United States. The issue was decided through a federal election in which the Conservative party secured a majority of the seats in the legislature, but did not achieve a majority of the popular vote.59 The Conservatives won a majority of 170 to 125 seats, but most of the population voted for parties that were against the trade deal (43 per cent voted for the government, 52.3 per cent for the anti-FTA Liberals and New Democrats, 4.7 per cent for other parties).

58 Thomas J. Biersteker, "The Triumph of Neoclassical Economics in the Develop- ing World: Policy Convergence and Bases of Governance in the International Economic Order," in Rosenau and Czempiel, eds., Governance without Govern- ment, 102-31.

59 A view of the election campaign is provided by three party strategists in Gerald Caplan, Michael Kirby and Hugh Segal, Election: The Issues, the Strategies, the Aftermath (Toronto: Prentice-Hall, 1989).



714 ROBERT O'BRIEN

Equally notable is the degree to which class divisions were exposed and the influence of business associations asserted. Direct business participation in the election was unprecedented, with the possible exception of the 1911 election that also dealt with free trade. Over 160 corporations, 20 per cent of which were foreign owned, donated over $5.2 million to support the Canadian Alliance for Trade and Job Opportunities over a two-year period, trying to convince the public to support free trade. Approximately $2.1 million was spent during the election campaign.60 Although there were substantial regional differences in two provinces (Alberta and Quebec) the lower and lower- middle classes tended to vote for parties against the deal and the more wealthy voted for the government.61

In the United States, there was little concern about the effects of the Canada-US Free Trade Agreement other than the occasional commercial lobby, such as that for softwood lumber or the pork industry. NAFTA, however, was an area of far greater concern. The ratification of NAFTA turned out to be a large political struggle pitting labour, most environmental groups and the populist Ross Perot against big business. The class nature and division between transnational elites and less integrated groups was striking, as President Bill Clinton was able to draw upon the support of former presidents, Nobel laureate economists and Fortune 500 business leaders. Despite the overwhelming support of elite opinion, there was some doubt up to the day of the vote whether it would pass in the House of Representatives.

On the day of the vote, November 17, 1993, President Clinton needed 132 Republican votes added to 102 Democrat votes to defeat 156 Democrats and 43 Republicans. The president was abandoned by, or he abandoned, his core constituency and relied upon otherwise hos- tile conservative Republicans to ensure NAFTA passage. The House whips switched positions, the Democrat working against the president and the Republican for him. The wealthier, more educated, more white-collar a district was, the more likely its Representative voted in favour of NAFTA.62 Once again, the challenge to North American integration did not emanate from another state, but by the possibility that elite control of the process would be upset by excluded groups.

Public reaction to Mexican liberalization can be divided into two parts. The first deals with the general restructuring of the 1980s and the

60 "Four Giants Disclose Pro-Free-Trade Donations," Toronto Star, April 11, 1989. Companies acknowledging large contributions include Canadian transnationals Alcan, Noranda, Brascan, Maclean Hunter, the Royal Bank, Ford of Canada, Shell Canada, Texaco Canada and Gulf Canada Resources.

61 "Poor Back Opposition, Rich Support PCs," The Globe and Mail (Toronto), November 24, 1988.

62 See "Clinton Forms New Coalition to Win NAFTA's Approval," Congressional Quarterly Weekly, November 20, 1993, 3181-85.




second with the NAFTA initiative. Reaction to the first was negative and to the second was mixed. The tremendous punishment inflicted on the mass of Mexican society by the adjustment programme in the 1980s generated substantial political resistance. From 1982 to 1988 per capita GDP declined by 12 per cent while real wages fell 45 per cent.63 Opposition to the government broke into two camps. The first centred around Cuauht6moc Cairdenas, who gathered a coalition of left-wing forces opposing the government's rapid liberal economic restructuring efforts. His party, Party of the Democratic Revolution (PRD) stressed the development of the internal market, suspension of debt payments until their cost was lowered and processing of oil products before export. The left-wing opposition overshadowed the traditional expression of dissent from government policies which rested in the right-wing National Action Party (PAN). The PAN tends to be a regional party, more concentrated in northern Mexico, and its liberal economic policies do not differ substantially from those of the govern- ing Institutionalized Revolutionary Party (PRI). Public dissatisfaction with the policies of the 1980s almost resulted in the defeat of the ruling PRI candidate in 1988, but failure of the computer system and questionable calculations ensured that the ever-present PRI maintained its grip on power. Similar questionable results in state elections in 1989 and 1990 brought criticism that the authoritarian nature of the Mexican state did not mirror the advances in economic liberalization.64

In 1993, the year preceding Mexican presidential elections, opposition to the PRI appeared to be well established, but not capable of defeating the ruling political machine. President Salinas was personally very popular, and the PRI enjoyed renewed support once the worst of the restructuring and deflation was behind it by the early 1990s. Mexi- can support for NAFTA also appeared to be high, although opinion polls are often unreliable. The selling of NAFTA as a chance to join the "first" world had found some popular resonance. Critics contended that opposition groups were unable to make a case against the agreement due to government control of the media, and that electoral opposition was simply repressed.65 The rosy picture of the Mexican political economy literally exploded with a bang in early 1994. The January 1994 rebellion of peasants and Aboriginal groups in southern Mexico raised doubts about the support for continued rapid liberalization.

63 Weintraub, Transforming the Mexican Economy, 13. 64 For an effective critique of the Mexican regime see Andrew Reding, "Mexico:

The Crumbling of the Perfect Dictatorship," World Policy Journal 8 (1991), 255-86.

65 Judith Adler Hellman, "Mexican Perceptions of Free Trade: Support and Oppo- sition to NAFTA," in Ricardo Grinspun and Maxwell A. Cameron, eds., The Political Economy of North American Free Trade (New York: St. Martin's Press, 1993), 193-204.



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These groups targeted the change in landholding rights in the run up to NAFTA as a major element of concern. Their alliance with urban poor groups in Mexico City forced the government to take their concerns seriously, and to commit themselves once again to reform. In March 1994, the assassination of the PRI presidential candidate, Luis Donaldo Colosio, threw the country into further confusion and raised doubts about the stability of the "perfect dictatorship."66

Nature of Integration While NAFTA contains mechanisms for consultation and dispute settlement, its institutional structure is primitive in comparison to the EC. There is no well-resourced trilateral bureaucracy with thousands of employees, no continental parliament and more limited ministerial contact. Legislation relevant to the trading area is sent through national parliaments rather than a trilateral body.

Sovereignty is not "pooled" in NAFTA. American negotiators were adamant in the Canada-US Free Trade Agreement that they would not agree to an institutional structure which might restrict the sovereignty of the US Congress. The Canadians were not able to secure exemption from US trade law nor the creation of a more restric- tive set of rules. The most the US was willing to concede was a system of binational review which would be limited to monitoring the correct application of domestic laws in each country. There was no possibility of a supranational body (as in the EC) determining which domestic programmes were or were not permissible.

NAFTA is primarily based on liberal economic principles with few of the compromises that went into the creation of the EC. The names of the two arrangements accurately characterize the differences. The EC (now European Union [EU]) is indeed a community where there are limited attempts to seek joint solutions to common problems through measures in the social, environmental, agricultural, scientific and regional development fields. Some pooling of sovereignty has been a key function of this community. A qualified majority voting system in the Council of Ministers allows decisions to be taken against the desires of a particular state in a number of jurisdictions.

NAFTA is a trade agreement between member states that eschews such concerns, leaving the respective governments to deal with the fall- out from the liberalization process. There does not seem to be a vision

66 Mexico has been labelled a perfect dictatorship because for many years the party's hegemony was so complete that few considered it a dictatorship (see Red- ing, "Mexico: The Crumbling of the Perfect Dictatorship"). On the volatile environment following the southern rebellion, see Andrew Reding, "Chiapas Is Mex- ico: The Imperative of Political Reform," World Policy Journal 12 (1994), 11-25.




either of community or of eventual political union. Indeed, the mainte- nance of state borders serves vital functions. For example, a lack of worker mobility keeps most Mexicans out of the US in a jurisdiction which restricts their ability to organize and agitate for improved working conditions. This offers a captive pool of cheap, coerced labour for transnationals and reduces the possibility of increased social tension in the US which might result from an open migration policy.67 At the same time, the number of Mexicans who do elude US immigration form an integral part of the domestic economy by providing cheap and easily exploitable labour for areas of the US economy that have not, or can not, make the journey southward, such as domestic services and agriculture.

Strong domestic opposition to NAFTA in the US did force the government to consider taking steps to alleviate concerns in the labour and environmental fields. Side deals were struck which increased the possibility that NAFTA would make it through Congress, but would not greatly hinder the liberal thrust of the agreement. During the ratification process, the administration was forced to argue both that the agreements had teeth which would make them effective and that they would not be used by Canada or Mexico to undermine US standards. All three governments were comfortable with an arrangement that lacked effective enforcement safeguards.68

NAFTA and Theory This section offers a brief comparison of the factors that have been prominent in European and North American integration. This will be done by pointing out the differences and similarities. It also draws out the implications of these factors for integration and international relations theory.

The European Union and NAFTA

NAFTA invites one to think about regional integration in a North American context and consider its relationship to the historical experience of the European Union.69 The major differences are instructive,

67 For details on the condition of Mexican labour see Dan la Botz, Mask of Democ- racy (Boston: South End Press, 1992).

68 For a preliminary assessment see Ian Robinson, "The NAFTA Side Agreement on Labour Standards," North American Trade as if Democracy Mattered (Ottawa: Canadian Centre for Policy Alternatives, 1993), 37-46; and Jerome I. Levinson, The Labor Side Accord to the North American Free Trade Agreement (Washington: Economic Policy Institute, 1993).

69 Charles Pentland speculated on the domestic implications for Canada of increased Canada-United States integration in "North American Integration and the Canadian Political System," in Denis Stairs and Gilbert R. Winham, eds.,



718 ROBERT O'BRIEN

because they highlight the variety of integration models in the late twentieth century. The similarities are helpful because they point to the systemic forces pushing actors to change their behaviour and structure. The following is a preliminary list of the major areas of difference and similarity.

The first major difference between the EU and NAFTA dates back to the origins of European integration. At that time, the devastation of the Second World War and onset of the Cold War cast a shadow over Europe. Western European integration was seen as a project that could bring peace between rivals such as France and Germany and assist in strengthening the European pillar of an anti-Communist alliance. In North America, war has been replaced by economic competition and there is no external supporter of integration as the United States was in the 1940s and 1950s. Integration is not justified by its prospects for creating a militarily secure North America, but by the promise of a prosperous North America.

A second noticeable difference is the lack of any movement for North American political integration. In Europe, organizations from the wartime resistance to the present European Movement have agi- tated for continental political federation. While they have had little success, their lobbying has kept the issue of political union on the agenda, and attempts at further economic integration are usually taken with an eye to the spillover pressure this might create for political unification. In North America, political union is not a significant issue, nor is there a transnational group working for its implementation. The dominant partner, the United States, has no interest in diluting its sovereignty, while both the Canadians and Mexicans fear the social and cultural implications of a move to continent-wide decision making.

The third difference is the greater extent of integration in the EU than in NAFTA. At the most basic level, the EU is a customs union which provides for a common external tariff, while NAFTA allows each country to set its own tariffs against third countries. The 1992 project moved further to take steps to create a single market by elim- inating many nontariff barriers. This required a concentration of some decision-making powers at the Community level. Recent plans for monetary union also indicate another step which moves the newly named European Union closer to a federal structure.

As mentioned in the previous section, the EU has an impressive institutional structure and administration. The jurisdiction of the Euro-

The Politics of Canada's Economic Relationship with the United States (Toronto: University of Toronto Press, 1985), 95-125. While of interest to the present study, Pentland was engaged in answering a different question by focus- ing on the implication of established theory for Canada rather than considering the implications of North American events for international relations theories.




pean Court reaches down into national jurisdictions and its law over- rides domestic legislation. A bureaucracy with loyalty to a united Europe exercises immense influence, drafting rules and regulations for the Union as a whole. Politicians are elected specifically to deal with Europe-wide problems and sit in their own chamber on a party rather than a national basis. NAFTA does not encompass similar measures and such a structure is not foreseen.

Although there are many significant differences between the EU and NAFTA, a number of factors in the 1980s are strikingly similar. The first is the momentum for integration that emerged from the 1982 recession. This article has discussed its effect in North America, but it also played an important role in Europe. France's doomed response to the recession laid the groundwork for convergence of neoliberal economic policies. Consensus gathered around the plan for a deregulated European relaunch through an internal market.

This leads to the second factor, which is the formation of an epistemic community around the virtues of liberal economic policy. In Europe, the major intellectual argument was made by the Commis- sion's 1988 Cecchini report which undertook micro- and macro- analysis of the possible effects of an internal barrier-free Europe. Micro-analysis focused on the benefits of reducing barriers sector by sector. It estimated benefits of 4.3 to 6.4 per cent of Community GDP. These would be once and for all gains. On the macro level, a number of scenarios were produced, the most supported being a medium-term increase in Community GDP of 7 per cent and the creation of five million jobs.70 French Socialists and British Conservatives signed up for economic growth on liberal prescriptions.

While the consensus surrounding liberal policy prescriptions reflected the degree of state and business elite consensus, the Maas- tricht Treaty ratification process revealed the shallow support that this project had among the populations of member states. Despite the backing of major political parties, commercial enterprises and trade unions, it required two referendums before the Danish people would accept it. In France the treaty squeaked by with the slimmest of possible mar- gins. The leadership of both the British Labour and Conservative parties ensured that Britons did not have a vote on the treaty. Any such vote would most likely have resulted in a resounding rejection. It is this growing division between elite decision makers and large sections of domestic societies that is the third, crucial similarity between the West European and North American integration projects of 1982-1994.

70 Paolo Cecchini, Michael Catinat and Alexis Jacquemin, The European Chal- lenge 1992 (Aldershot: Wildwood House, 1988).



720 ROBERT O'BRIEN

NAFTA and IR Theory

Regional integration in North America and Western Europe is both an intellectual and a substantive battleground: victories in one may lead to victories in the other. From an international relations perspective, the intellectual debate has revolved around those stressing neofunctionalist ideas and those with more state-centric views, with an occasional word from historical materialist scholars. Outside international relations theory, and largely ignored by it, the battle has been ferocious between those advocating accelerated movement to a more liberal system and those stressing the importance of other values in organizing economic and political life.71

Neofunctionalist and state bargaining theories of the liberal or realist variety are not capable of transferring their attention to the key issues of change, transformation or even construction of the good society. They concentrate on secondary activities rather than scrutinizing the major cleavages and conflicts. They especially miss the dynamic element of the changing nature of cross-border relations. For example, it is probable that they would not consider the debate mediated through the Canadian press in 1994 between the leader of the Mexican rebellion, Subcomandante Marcos, and Canadian Prime Minister Jean Chr6tien about the nature of Mexican democracy as being a significant indication of development in international relations or regional integration.72

Writing from a substantially different theoretical perspective in international relations theory than this author, Kenneth Waltz once argued that to understand the general phenomenon of war, one had to look at systemic causes.73 While any particular war could be explained in terms of analysis at the state or even individual level, war itself was a result of anarchy in the system. A similar argument can be made for regional integration around member states of the Organization for Eco- nomic Cooperation and Development. The structure of the system provides incentives for actors to press for integration, but the particular form it takes is influenced by the international structures and political balances within, between and across particular states. It is the interplay between systemic forces and regional/national/transnational responses that provides the best explanation for present regional integration and offers hints about future possibilities.

What are the systemic forces operating to make regional integration a policy followed from Mexico City to Copenhagen? The common

71 See, for example, Ernest F. Hollings, "Reform Mexico First," Foreign Policy 93 (1993-1994), 91-103; and Gary Clyde Hufbauer and Jeffrey J. Schott, "Prescrip- tion for Growth," Foreign Policy 93 (1993-1994), 104-14.

72 Toronto Star, April 10, 1994. 73 Kenneth Waltz, Theory of International Politics (Reading, Mass.: Addison-

Wesley, 1979).




causes for accelerated regional economic and political integration in the 1980s and 1990s are found in an increasingly competitive environment for firms and states. Multinational firms are trying to increase their productivity and profits while states are eager to attract investment or assist nationally based firms to compete. Firms may be chasing a number of objectives such as exploiting cheap labour, securing access to other markets or utilizing economies of scale. Governments remain responsible for economic growth, responsive to business views and engage in "beauty contests" to attract multinational investment. Region building is an area where business and state elites can cooper- ate for mutual benefit. Multinationals can secure increased mobility, diversity of cheap inputs (including labour) and large markets, while states hope to create wealth by enticing global firms to locate production in their territory.74

It is this key struggle for investment and profit that binds state and economic elites together in the regional building project. However, integration on the basis of elite state-firm accommodation neglects issues of democratic accountability and public concern. The bargains created by such bilateral arrangements reduce the ability of social groups to influence the manner in which they live and work. The possibilities for future integration projects will be determined not by state- to-state bargains, but by the struggle between neoliberal transnational forces and those groups seeking to safeguard values other than economic efficiency.

Returning to the approaches reviewed in the first section, a few preliminary comments may be made. Neofunctionalists were correct to identify the importance of elite decision makers and the significance of spillover. Elites, however, are only part of the picture. Countervailing forces are in place, and a great deal of conflict has emerged between elite-designed plans and more popular groups. In some cases it is the labour unions, environmental or women's movements which have tried to mitigate the liberal nature of the project. In other cases, the response has been from right-wing populists such as Jean-Marie Le Pen in France or Ross Perot in the United States. Here the appeal is to a crude and dangerous nationalism.

The concept of spillover has limited usefulness in drawing attention to links between economic sectors and what is seen to be separate

74 For a general discussion of the possibility of overlapping interests in the state- firm relationship, see John H. Dunning, "Governments and Multinational Enter- prises: From Confrontation to Co-operation?" Millennium 20 (1991), 225-44. Strategies for the state in this environment can be found in Robert Reich, The Work of Nations (New York: Vintage Books, 1992); John Stopford and Susan Strange, Rival States, Rival Firms (Cambridge: Cambridge University Press, 1991); and Michael Porter, The Competitive Advantage of Nations (New York: Free Press, 1990).



722 ROBERT O'BRIEN

economic and political domains. In Western Europe, pressure has mounted to move from a common market to an internal market to a monetary union. In North America, there is also talk of moving to further stages of integration which might include fixing exchange rates. However, this seems to be more a reflection of the continuous need of the capitalist system for larger and deeper markets than of regional integration itself. It would be more accurate to draw parallels between this movement on the regional level and the movement at GATT to liberalize new areas such as agriculture and services.

Doubts were raised in the first section about the necessity of link- ing economic with political spillover. The NAFTA example should strengthen these doubts. In North America, the continued existence of national-border obstacles to things such as labour and the lack of stand- ard rules may be beneficial to business and state elites because it weak- ens particular sectors of society. Labour in particular is disadvantaged by such an arrangement, and the power of transnational corporations to play one jurisdiction against another is strengthened. Political spillover would require powerful backers, but these are lacking in the North American case.

An interstate bargaining perspective has something to contribute to an understanding of regional integration, but its scope is severely restricted. Regional agreements are formally made between states, but states are not the primary determinants of the final product, nor of its success or failure. Whereas in the EU a case can be made that intergovernmental bargaining goes some way to explaining what has hap- pened, such an explanation does not seem appropriate to NAFTA. As mentioned earlier, negotiators were more often engaged in combat with their domestic opponents than with those from other states. The deal was struck between the representatives of states, but conflict and the fate of the negotiations was determined within states, not between them. Even in Europe, one could argue that the Maastricht Treaty's failure was threatened, not because Britain and France could not agree to terms, but because many British and French people did not approve of the elite-brokered deal.

A global political economy perspective is useful because it highlights the dominant systemic forces driving the integration process. It also draws attention to the main area of contention, which is the division between elites and non-elites. Explanation for the specific regional response is rooted in state structures and the balance of social forces within and across particular states. For example, the prominent role of the US state and the relative weakness of organized labour can be con- trasted with more embedded social democratic forces in Western Europe and the lack of such a dominant member. The nature of future arrangements will be decided by struggles on these levels to a greater degree than interstate bargains. The degree that the EU is neoliberal




will be more a reflection of the power of left-wing organizations across European states rather than the bargaining between France and Britain. In North America, NAFTA has encouraged new political alliances between groups such as labour, women and environment, and has forced them to organize on a transnational basis.

At this point, the article's argument forces us to confront basic questions about the nature, purpose and impact of social theory. Although there has been an attempt to do justice to the various approaches discussed, it may be discerned that the argument flows from a global political economy approach informed by scholars working in what has become known as the Gramscian school.75 Some of the four factors noted as being central to North American integration may not have been visible to those starting from a neofunctionalist or intergovernmental perspective. What we see is partially a result of where we look, and the theories discussed above have a large role in influencing where we the look in the field of regional integration. As has been pointed out elsewhere, "theory is always for someone and for some

purpose."'76 The purpose here has been to explore the possibilities of understanding the move to increasingly deeper and formalized, yet distinct forms of integration in North America and Western Europe, and to develop the implications of such activity.

In discussions of regional integration, neofunctionalism and intergovernmentalism on the one hand and global political economy on the other are utilized for two quite different purposes. Neofunctionalism and intergovernmentalism have been used to explain specific decisions- for example, explaining why there was agreement on the Single European Act or why the Social Charter has taken the form it has.77 In this, they resemble nothing so much as an attempt at explaining and perhaps predicting decision making. Excluded from view is an analysis of the content of particular decisions, and the implications of these decisions for citizens of various states. Equally absent from view is the degree to which these decisions are transforming both the nature of politics and the nature of the states within these regions. Intergovern- mentalism takes the world as given and focuses on how decisions are made in the existing order. Neofunctionalism contains a transforma- tive project, but takes integration as an unquestioned goal. Since these decisions are precisely about changing the nature of the existing order

75 See Stephen Gill, ed., Gramsci, Historical Materialism and International Rela- tions (Cambridge: Cambridge University Press, 1993).

76 Cox, "Social Forces," 207. 77 Moravcisk employs intergovernmentalism in "Negotiating the Single European

Act," Mutimer turns to neofunctionalism in "1992 and the Political Integration of Europe: Neofunctionalism Reconsidered," while Huelshoff tries to model state and domestic levels using the Social Charter as a case study in "Domestic Politics and Dynamic Issue Linkage."



724 ROBERT O'BRIEN

to controversial ends, a more reflective theoretical approach would be helpful. Regional integration initiatives call into question basic values and methods of organizing society, such as the degree to which the state should intervene to protect cultural industries. The problem- solving nature of many integration theories is especially inappropriate in a context of reworking regional and global orders when fundamental questions need to be asked and answered. Academic analysis of regional integration should focus on helping people understand what is happening to them and around them, rather than viewing outcomes uncritically. Unfortunately, the dominant theories' positivist approach serves to buttress present integration projects, shutting down consideration of alternative scenarios.78

This article has tried to broaden the debate about regional integration and the theoretical tools that can be used to understand its evolution and implications. Critics of the present approach might fault it for not proposing a scientific, testable model or for straying to issues outside the concern of the international relations discipline. Yet, for those concerned about the causes and direction of regional integration on both sides of the Atlantic in the past decade and a half, an approach which highlights systemic factors and local reactions as outlined above may prove more fruitful for understanding and for action than neofunctionalism or intergovernmentalism.

78 This criticism is similar to that levelled at positivist international relations theory by Mark Neufeld in "Interpretation and the 'Science' of International Rela- tions," Review of International Studies 19 (1993), 39-62.



north american integration and international relations theory

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