The document discusses the economic implications of the renegotiation of NAFTA, focusing on the historical benefits and challenges of this trade agreement for North America since its inception in 1994. It highlights how NAFTA has fostered significant trade, investment, and job creation in the region, particularly for Mexico and Canada, while also considering the potential negative impacts and the need for balanced trade reforms. Additionally, it emphasizes the relationship between foreign direct investment, regional economic growth, and industrial shifts in North America due to economic integration.

1. “ Regional Economic Growth in North America: the Effects of the Renegotiation of the NAFTA Agreement” Alejandro Díaz-Bautista, Ph.D. Professor of Economics and Researcher at Colegio de la Frontera Norte (COLEF) Visiting Research Fellow , Center for U.S.-Mexican Studies, UCSD. adiazbau@hotmail.com March 13, 2009, 11:15 - 11:45 Universidad Autonoma Metropolitana, Mexico City.

2. Introduction to NAFTA The North American Free Trade Agreement (NAFTA) was signed in 1994. It's known as TLCAN in Mexico and ALENA in the French-speaking parts of Canada. NAFTA eliminated most tariffs or import taxes on goods moving from one of the three countries to another. Most economists believe this has been good, overall, for the economies of all 3 countries. But like all trade agreements, NAFTA has hurt some industries and sectors.

3. Renegotiation of NAFTA President Barack Obama pledged in the campaign, that if he was elected President, he would rewrite the rules of trade set out in the North American Free Trade Agreement (NAFTA). Contrary to public opinion, since its inception NAFTA has generated significant gains for North America. Canada and Mexico constitute America's largest trade partner, accounting for about 83 percent of all merchandise trade between the U.S. and our FTA partners and 29 percent of all U.S. merchandise trade in 2007. Each day during 2007, NAFTA countries conduct roughly $2.2 billion in trilateral trade. This trade supports North American jobs, bolsters productivity, and promotes investment. If the U.S. demands to reopen NAFTA as a means to pull back from previous market access commitments in North America, then it is fair to expect that America's trade partners, Mexico and Canada will retaliate with protectionist demands of their own. During the renegotiation, all three countries need to explore alternate economic and trade models, while considering the emerging economic crisis and collapse scenarios which will severely limit and conscribe future economic growth and trade in North America.

4. Economic Integration: Classical Theory Old trade theory and trade creation Improved allocation of resources through exploitation of comparative advantage (Ricardo, Heckscher-Ohlin-Samuelson).

5. HOS Model: Gains from Trade

6. CGE Models: Gains from Trade Many single-country and global CGE trade models. Faithful representations of HOS model. Widely used to evaluate trade reform. Results HOS efficiency gains from trade liberalization. Magnitudes are small, much smaller than gains indicated from historical analysis.

8. CGE NAFTA Studies Comparable studies that attempted to predict NAFTA's effects produced widely divergent results because of minor differences in assumptions. At that time, a wide variety of computable general equilibrium (CGE) studies appeared, purporting to estimate NAFTA's impact. They shared many of the questionable assumptions found in the Brown-Deardoff-Stern model. Brown (1992) surveyed the projections made for income and wages in Mexico in four of these NAFTA studies. Every study predicted a rise in Mexico's GDP, ranging from negligible to almost 7%, attributable to NAFTA. The most widely circulated of these studies, Hinojosa-Ojeda and Robinson, predicted wage gains from about 4.9% to 9% for some sectors of the Mexican Economy.

9. Trade Creation Krueger (1999), “Trade Creation and Trade Diversion Under NAFTA”. Aggregate and more micro data on trade between the U.S., Canada, and Mexico are used to attempt to assess the early effects of Mexican entry into NAFTA. Although the fraction of Mexican trade with the U.S. and Canada has risen sharply, a number of factors have contributed to this result. Mexican reduction of tariffs and quantitative restrictions and the Mexican alteration of exchange rate policy at the end of l994 were both important. Based on early returns, the impact of NAFTA over its first years does not appear to have been large relative to the effects of these other events.

10. Introduction to Economic Integration Theory of customs unions (Viner – Meade - Balassa). Economic integration is best viewed as a spectrum with the various integrative agreements in effect today lying in the middle of this spectrum. The level of integration defines the nature and degree of economic links among countries.

11. Levels of Economic Integration Trading bloc: preferential economic arrangement among a group of countries. Trading blocs may take various forms: Free trade area Customs union Common market Economic union

12. Arguments Surrounding Economic Integration A number of arguments surround economic integration. These arguments center on: Trade creation The effects of integration on import prices, competition, economies of scale, and factor productivity. Always considering the benefits of regionalism versus nationalism.

13. European Integration Economic integration from 1948 to the mid 1980s: Organization for European Economic Cooperation (OEEC) European Steel and Coal Community Treaty of Rome – ambitious integration European Community European Free Trade Association (EFTA) Common agricultural policy (CAP)

14. European Integration The European Union Maastricht Treaty and European Union (EU) Monetary Union & € Growth and Stability Pact Single undertaking in security and foreign policy Consensus

15. Economic Integration in Europe Economic integration has been reflected in a marked increase in intra-euro area trade in goods and services. Financial integration enhances the efficiency of economic mechanisms, strengthens competition and raises the potential for stronger economic growth in all countries.

16. Economic Integration Literature in Europe Research suggests a currency union may result in gains over the long term (20-30 years). Andrew Rose (2003) Tested to see whether a currency union induces trade using 1970-1990 data from 186 countries, dependencies, territories, and colonies. Found that: A currency union creates trade, increasing it between members by amounts ranging from 10-100%. Two countries in a trade union will trade three-times more than countries that do not share a currency. These increases in trade also increase income Raising GDP anywhere from 10%-25% in Europe. Other recent research Found that even during this short time, it has had positive effects on trade and growth for the existing members. The degree of synchronisation between the different cyclical positions across the euro area countries increased since the beginning of the 1990s. In other words, a large number of euro area economies now share similar business cycles. In addition, current inflation and output growth differences among euro countries are relatively limited compared with the past.

17. European Union The European Union (EU) is a political and economic community of twenty-seven member states, located primarily in Europe. It was established in 1993 by the Maastricht Treaty, adding new areas of policy to the existing European Community. With almost 500 million citizens, the EU combined generates an estimated 30% share of the world's nominal gross domestic product (US$16.8 trillion in 2007). The EU has developed a single market through a standardised system of laws which apply in all member states, guaranteeing the freedom of movement of people, goods, services and capital. It maintains a common trade policy, agricultural and fisheries policies, and a regional development policy. Fifteen member states have adopted a common currency, the euro.

18. North American Economic Integration Although the EU is undoubtedly the most successful and well-known integrative effort, economic integration efforts in North America have gained momentum and attention. North American integration has an interest in purely economic issues and there are no constituencies for political integration.

19. Economic Integration in North America The economic relationship between Mexico and the U.S. is evident in the evolution of some of their economic indicators since 1993. For example, it is apparent that, since 1993, Mexico's GDP shares its trend behavior with the U.S. GDP. Nevertheless, during the 1980s and the beginning of the 1990s the synchronization of the real sectors of both economies was unclear.

20. Economic Synchronization Between Mexico and the U.S. Castillo, Fragoso Pastrana and Diaz-Bautista (2004) studied the synchronization between the economies of Mexico and the United States with special reference to the manufacturing sector. The authors examined the dependency between the assembly plant industry for export in Mexico and the performance of the economy of the United States. Herrera (2004) found also synchronization of GDPs in Mexico and the U.S. became evident with the implementation of the NAFTA.

21. North American Economic Integration and Industry Location Hanson (1998) discussed the recent academic literature on whether the movement towards free trade in North America has influenced the spatial organization of production in Canada, Mexico, or the United States. In Mexico, closer economic ties with the United States appear to have contributed to a contraction of employment in the Mexico City manufacturing belt, a rapid expansion of manufacturing employment in northern Mexico, and an increase in the wage premia paid to skilled workers. The effects of economic integration on industry location in Canada and the United States seem to have been much weaker. Krugman and Livas (1996) examined Mexico through the lenses of the new economic geography, attempting to explain why so much industry was concentrated in Mexico City. Used the Dixit and Stiglitz monopolistically competitive market structure.

22. FDI and Regional Economic Growth considering the Distance to the Northern Border of Mexico Diaz-Bautista (2006) reviewed different studies to explain the effects of the NAFTA agreement in regional FDI and regional economic growth. An empirical econometric model was used to analyze the relation between the FDI and economic growth at the regional level in Mexico, with an approach of the new economic geography and endogenous economic growth.

23. FDI and Regional Economic Growth The impulse caused by the opening of the economy and the signing of NAFTA in 1994 had a positive effect in the growth of regional northern border economies of Mexico and FDI in the northern border, where the maquiladora sector is one of the main motors of economic growth on the Northern Mexican Border. In almost all the regions of the Northern Border, a process of economic growth is observed, and the impulse due to the commercial opening is apparent. The exporting sector being one of the most dynamic sectors of the Mexican economy.

24. FDI and Economic Growth By the year 2000, the companies that exported more than 80% of their production, paid 62% higher wages than other types of companies. In that same year, the maquiladora sector had wages 5 times greater than the average national minimum wage. Similarly, Mexico has diversified its export base. By the year 2000, companies producing manufactured goods accounted for 87 % of Mexico’s export sales. In one decade, the liberalization of trade and the macroeconomic policies in Mexico have increased exports from 41 trillion USD, in 1990, to 166 trillion USD in 2000. Similarly, Mexico increased its imports by 310% between 1990 and 2000.

25. Puyana Mutis, Alicia (2007), “Mexican Economic Reforms. The Project, the Realities.” FLACSO-México Working Paper Series. The opening of the Mexican economy took place into two stages: the first (1985-1987) where liberalization was unilateral leading to the entry to GATT. The second (1994-2008), the NAFTA period with rapid growth in exports.

26. NAFTA increased Trade in North America Since 1994, commercial trade between the member countries of NAFTA increased at an annual average rate of 11.8%, whereas the worldwide annual average rate of growth in trade was around 7%. The opportunities of trade for both Mexico and Canada within NAFTA have increased in the last few years. Mexico became the fourth most important commercial partner for Canada, whereas the bilateral commerce between Mexico and Canada tripled, reaching 12 trillions USD in 2000. The integration of the intra industry trade is extremely high within NAFTA and shows how the region integrated not only in commercial terms but also in terms of the region’s productive systems.

27. Source: BANXICO Billon Dollars 250.3 60.9 +311% Mexico’s Total Exports (billion Dollars) The leading exporter in Latin America and the third largest exporter to the US

28. FDI in the NAFTA Region The NAFTA region has created new opportunities of investment and trade for the companies of all 3 countries, and 50 % of FDI in NAFTA is between trade partners. For Mexico, the United States is the main source of FDI. FDI is of great importance the Northern Border Mexican Region, and by the year 2004, FDI in the Northern Border States of Mexico represented 18.7% of total FDI at the national level. The Northern Border States that are considered in this study are Baja California, Sonora, Chihuahua, Coahuila, Nuevo Leon and Tamaulipas.

29. In 2006, approximately 38% ($3.9 billion) of U.S. investment in Mexico was directed to the 6 Mexican border states.

30. Foreign Direct Investment in Mexico 3 billions annual USD 10.731 annual billions USD Before NAFTA (1993) After NAFTA (2003) 25% in the Border FDI Growth of 266% FIRST FDI RECEPTORS DEVELOPING COUNTRIES 2003 1ST CHINA 57 BILLION USD 2ND HONG KONG 14.3 BILLION USD 3ER MEXICO 10.731 BILLION USD SOURCE : World Economic Situation and Prospects 2004

31. Source: BANXICO Flows of Foreign Direct Investment (FDI) into Mexico. S econd largest in the world amongst developing countries. Mexico’s FDI Period 95-00 01-06 FDI Total 77.0 111.8 FDI Average 12.8 18.9

33. Economic Growth The economics of growth in Mexico has come a long way since it regained center stage for economists in the last few years. The early focus of economic growth in Mexico was based upon theoretical models that generated self-sustaining growth, but newer models of economic growth have been applied to Mexico, which have increasingly replaced older models, with an attempt to shed light on the factors affecting economic growth in Mexico. On the empirical front, the search for determinants of growth has gone from basic economic growth variables (such as physical and human capital) to newer determinants of economic performance such as trade and institutions.

34. Economic Growth Models A Major weakness of the neoclassical growth model has been detected by economists around the world and has not been overlooked in Mexico. Long-run growth in that model is exogenous. Recent empirical studies have found a correlation between the rate of growth of FDI and economic growth. The direction of causality between the rate of growth of investment and the rate of economic growth has been analyzed by Carrol and Weil (1994), Blomström, Lipsey and Zedjan (1996) and Barro (1997), and found that the causality was from FDI to economic growth.

35. New Growth Theory In the endogenous growth models the increases in investment during a period of time, increases the rate of economic growth in the long run. In the endogenous growth models, FDI can affect growth endogenously if it generates increasing returns in production via externalities and productivity spillovers. Moreover, policy changes might induce permanent increases in output growth by providing incentives to host FDI. Specifically, FDI is thought to be an important source of human capital accumulation and technological change. Helpman (1984) and Helpman and Krugman (1985) are also an important part of the analysis of FDI in the new growth theory. In those models, distance to the export market is an important determinant of economic growth and FDI.

36. Center Periphery and distance Krugman (1997) uses the model developed by Dixit and Stiglitz (1977) to have a unified spatial economic structure which is described by the new economic geography. Fujita, Krugman and Venables (1999) assume that factors of production are less mobile between countries than between different regions of the same country,and analyzed the spatial order resulting from differing transport costs.

37. Derivation of the Model with FDI and Regional Economic Growth We assume a regional production function in the following form:Y = F(K, L, F, X) (1) where Y is the product, K is capital, L is human capital, F is FDI and X denotes the vector of observable variables that can affect the regional economic growth and the FDI. A Cobb Douglas function is used to obtain the logarithms in time that gives us the following expression: gy= ζgk+ ψgf+ γgL+ θgx (2) The relation shows the empirical relationship between regional economic growth (gy) and the presence of FDI (gf), with other explicative factors (gx). From the conventional model of growth, the empirical model is developed using the economic growth ∆yjt in region j for time t, with the FDI represented by F, human capital represented by L, and other variables (X) like distance and urban agglomerations. The empirical model has the following form: ∆ Yjt = β0+ β1Ljt+ β2Fjt+ β3Xjt+ ujt (3)

38. Sources of Information The sources of information for the study are varied. Distance is measured by the number of kilometers on the road from the capital of a state to the nearest border crossing with the United States. Another distance variable is included and constructed by the number of kilometers on the road from the capital of a state to Mexico City. The density per kilometer squared in each state of Mexico measures the level of cluster agglomeration in the economy. Another variable is constructed by the number of businesses in the commercial, services or manufacturing sector per state. The migration variable is measured by the net balance migration per state in Mexico provided by INEGI. The human capital variable is an indicator of the educational characteristics of the population in each state. It includes the percentage of the population 15 years of age or older that have more than elementary studies in each state of Mexico. The regional economic growth is measured by the percentage annual increase in income per capita in the period 1994-2000. The initial level of income used in the study is the one provided by INEGI in 1994. Foreign direct investment is constructed from the data provided by the Ministry of Economy in Mexico from1994 to 2000. The econometric technique must take into account the endogeneity argument.

41. Econometric Results The results of the econometric analysis of the regional economic growth with the new economic geography perspective shows that the agglomeration variables are non significant, while the distance from the border is statistically significant, which is evidence in favor of the agglomeration models and the NEG models. The distance from the border shows the importance of transport costs and trade to the United States in explaining regional economic growth in Mexico. The migration variable is also important, showing the importance of migration in determining regional economic growth, due to repulsion and attraction forces that affect regions and agglomerations in Mexico. On the other hand, the human capital variable, which is one of the most important variables is the endogenous growth models is non significant in the regression.

42. Econometric Results In the empirical study, the importance of the distance to the Northern Border of Mexico as a determinant of regional economic growth in Mexico is shown. The commercial trends in the agglomeration of industry in the Mexican Northern Border and the transportation technology costs to the border region (which are proxied by the distance to the border) are an important factor driving Mexico first to regional concentration and then to regional dispersion of economic activity. The production of manufactures is subject to increasing returns to scale if the production activities take place in a single site close to the border and the selling market. The recent advances in the field of NEG have increased our understanding of spreading and agglomerating forces in the Mexican economy.

43. Griswold (2004) “After 10 Years, NAFTA Continues to Pay Dividends”, Cato Institute The 10th anniversary of the controversial NAFTA was viewed as a great international public-policy success. For one thing, it has delivered on its principal promise of increasing trade. Since 1993, the year before the agreement took effect, two-way commerce between the United States and Mexico roughly tripled, from $81 billion to $232 billion. For another, NAFTA has helped speed Mexico's dramatic economic and political transformation. The trade agreement marks a major milestone in Mexico's turn away from a closed, centrally directed economic system, to an open and dynamic market democracy.

44. Agustín Escobar y Susan Martin (Coords.), Mexico - U.S. Migration Management: A Binational Approach (2008). Forthcoming. Contrary to what officials heralded, however, experts predicted that NAFTA would lead to a migration hump, in which migration pressures would increase in the short to medium term before reducing in the long term. Ten years after the agreement was implemented, Mexican exports have risen very rapidly, and migration has also reached unprecedented levels. As predicted, while trade, financial and service integration has undoubtedly accelerated, this has not led to sufficient economic and social convergence between the U.S. and Mexico, and migration has thus far continued at historic levels.

45. 10 AÑOS. DEL TLCAN Economists in the Northern Border of Mexico at Colef also examined the NAFTA agreement in its 10th anniversary. Diaz-Bautista (2003) examined the positive effects of NAFTA in the Northern Border States of Mexico using an economic growth model based on the Methodology developed by Mankiw (1992) and Barro and Sala i Martin (1995). While Mendoza and Diaz(2003) analyzed the case of the transportation sector during the NAFTA era.

46. NAFTA’s Impact on Mexico at 14 Mexican growth has underperformed expectations. Since 1994, Mexico’s GDP has increased at an average annual rate of 2.7 %, below the average growth rates of 3.3 % and 3.6 % in the United States and Canada, respectively. Mexican exports to the United States have quadrupled since NAFTA’s implementation, from $60 billion to $280 billion per year. U.S. exports to Mexico have also increased sharply, more than tripling as Mexico’s economy has grown. Some critics single out Mexico’s farm industry, saying NAFTA has crippled Mexican farming prospects by opening competition to the heavily-subsidized U.S. farm industry.

47. Secretaría de Agricultura, Ganadería, Desarrollo Rural, Pesca y Alimentación Mexico’s Border Market Geography Geography: 10 border states 2,000 miles of border Population: 92 million

48. Secretaría de Agricultura, Ganadería, Desarrollo Rural, Pesca y Alimentación Market Integration Agrifood Products Since NAFTA: Mexican agrifood exports to US have increased 129% US agrifood exports to Mexico have increased 189%

49. NAFTA’s Impact on Canada at 14 Canada is the leading exporter of goods to the United States, and has experienced postive economic growth since NAFTA’s implementation. Canada’s GDP has grown at a faster rate than either Mexico’s or the United States’ since 1994. Between 1994 and 2003, Canada’s economy showed average annual growth rates of 3.6 %. Canadian employment levels have also shown steady gains in recent years, with overall employment rising from 14.9 million to 15.7 million in the early 2000s. Even Canadian manufacturing employment held steady. Canada is the leading importer of U.S. agricultural products and U.S. agricultural exports to Canada roughly doubled between 1994 and 2003.

50. NAFTA at 14 The SPP complements the success of the North American Free Trade Agreement (NAFTA), which has helped to triple trade since 1993 among our three countries to a projected $1 trillion in 2008. NAFTA has offered our consumers a greater variety of better and less expensive goods and services, encouraged our businesses to increase investment throughout North America, and helped to create millions of new jobs in all three countries. NAFTA is key to maintaining North America's competitive edge in an increasingly complex, fast-paced and connected global marketplace.

51. Nafta’s Economic Impact at 14 As we have seen it is difficult to quantify NAFTA’s economics impacts precisely. NAFTA was designed to promote economic growth by spurring competition in domestic markets and promoting investment from both domestic and foreign sources. It worked since North American firms are now more efficient and productive. They have restructured to take advantage of economies of scale in production and intra-industry specialization.

52. Nafta’s Economic Impact at 14 In 2003, the CBO attempted a full-scale examination of NAFTA’s economic consequences to date. The report came to three main conclusions: U.S. trade with Mexico was growing before NAFTA’s implementation, and would likely have continued to grow with or without the agreement. The direct effect of NAFTA on U.S.-Mexico trade is fairly small, and thus the direct impact on the U.S. labor market is also small. Overall, the NAFTA deal has expanded U.S. gross domestic product (GDP) slightly, and has had a similar effect, both positive and small, on the Canadian and Mexican economies.

55. Nafta’s Economic Impact at 14 In contrast to the advanced economies of Canada and the U.S., Mexico is an emerging market. Mexico's GDP per capita is 27.86 percent that of the U.S. and 33.23 % Canada's using the IMF 2007 estimated of the 2008 world economic outlook. On the other hand, with a population of about 106,000 million in 2007, with new economic reforms (like the proposed energy reforms), there is a new economic dynamism in Mexico.

56. Economic comparison of output (NAFTA and the EU) Levesque (1997) compared the economic output of the NAFTA bloc and the EU. The NAFTA bloc accounted for almost 44 % of the total OECD output in 1995 in real terms, compared to about 37 % for the EU.

58. NAFTA at 14 The second largest trade bloc in the World in terms of production, behind the European Union Rank Country GDP (millions of USD / Using PPP / Source: IMF ) — World 54,311,608 — European Union 16,830,100 _ NAFTA 15,857,000 (behind the European Union in 2007) 1 United States 13,843,825 2 Japan 4,383,762 3 Germany 3,322,147 4 China 3,250,827 5 United Kingdom 2,772,570 6 France 2,560,255 7 Italy 2,104,666 8 Spain 1,438,959 9 Canada 1,432,140 10 Brazil 1,313,590 11 Russia 1,289,582 12 India 1,098,945 13 South Korea 957,053 14 Australia 908,826 15 Mexico 893,365

59. NAFTA’s Trade Impact at 14 In terms of trade, Canada, Mexico, and the United States have broadened substantially since NAFTA’s implementation, though researcher and trade experts disagree over the extent to which this expansion is a direct result of the deal. Trade with NAFTA partners now accounts for more than 80 % of Canadian and Mexican trade, and more than a third of U.S. trade.

60. NAFTA Trade Since NAFTA was implemented in 1994, agricultural trade between the U.S. and Mexico has risen dramatically. Mexico’s agricultural exports to the U.S. have expanded by nearly 10% per year, growing twice as fast as they did before NAFTA. At the same time, U.S. exports to Mexico have grown by about 8% per year, reflecting the mutually beneficial outcomes NAFTA has provided to the agricultural sectors in both countries.

61. NAFTA’s impact on the U.S. labor market The labor impacts are also not a straightforward exercise, and researchers and analysts disagree on how to gauge NAFTA’s effects. The USTR claims a broadly positive influence, showing an increase in overall U.S. employment of 24 percent since NAFTA’s inception, as well as declining unemployment rates. Inflation-adjusted U.S. wages rose 19.3 percent between 1993 and 2007, as compared to only 11 percent in the fourteen years prior (1979-1993).

63. NAFTA’s impact on the U.S. labor market The Economic Policy Institute, mentions in a policy paper on NAFTA that the trade agreement agenda has served to widen U.S. trade deficits and has indirectly pushed some U.S. workers into lower-paying jobs. Griswold at the Center for Trade Policy Studies at the Cato Institute mentions that job losses are part of a structural shift of the U.S. economy away from a focus on heavy manufacturing and toward a focus on light manufacturing and high-end services.

66. Mexico’s Maquila Balance with China Furthermore, since NAFTA, the Mexican total merchandize trade deficit with China has gone from $342 million in 1993, the year NAFTA was passed, to $14 billion in 2004. Over the same time period the U.S. merchandize trade deficit with China went from $23 billion to $162 billion. NAFTA has functioned as a back door for Chinese goods to enter the United States, as 98% of Mexico’s maquiladora exports go to the U.S., and the maquiladora trade balance with China has gone from roughly even in 1993 to a $12 billion deficit in 2005.

67. U.S. Unemployment during NAFTA In the 14 years before NAFTA, the U.S. average unemployment rate was 7.1 percent. From 1994 to 2007, the average was 5.1 percent. U.S. manufacturing has grown at nearly 4 percent annually since NAFTA was enacted, nearly double that of the previous 14 years.

68. Economic Integration in North America The governments of Mexico, Canada and the United States must think about the future of NAFTA. Do they want to keep their trilateral relationship focused on economic matters or are they interested in integrating more? Do we need to start a process to build a North American Community similar to the European Union?

69. Aspe et al. (2005), “Building a North American Community” Sponsored by the Council on Foreign Relations in association with the Canadian Council of Chief Executives and the Consejo Mexicano de Asuntos Internacionales. North America is vulnerable on several fronts: the region faces terrorist and criminal security threats, increased economic competition from abroad, and uneven economic development at home. In response to these challenges, a trinational, Independent Task Force on the Future of North America has developed a roadmap to promote North American security and advance the well-being of citizens of all three countries. The Council-sponsored Task Force applauds the announced “Security and Prosperity Partnership of North America,” but proposes a more ambitious vision of a new community by 2010 and specific recommendations on how to achieve it.

70. Security and Prosperity Partnership The Security and Prosperity Partnership of North America (SPP) was launched in March of 2005 as a trilateral effort to increase security and enhance prosperity among the United States, Canada and Mexico through greater cooperation and information sharing. This trilateral initiative is premised on our security and our economic prosperity being mutually reinforcing. The SPP recognizes that our three great nations are bound by a shared belief in freedom, economic opportunity, and strong democratic institutions. The SPP provides the framework to ensure that North America is the safest and best place to live and do business. It includes ambitious security and prosperity programs to keep our borders closed to terrorism yet open to trade.

71. SPP Timeline The Heads of State launched the SPP on March 23, 2005 Commerce hosted a series of private sector roundtables to engage industry and identify deliverables Working groups and work plans created Ministers reported to Heads of State on progress made and released public report on June 27, 2005

73. NAFTA at 15: Requires a New North American Model The current economic crisis requires that a new economic development model be put in place in North America. The role of deregulation has proven to be a failure. In fact, it is one of the principal causes of the current economic crisis, as admitted by none other than the former president of the Federal Reserve of the United States. A new role of the state as a regulator of the market should be put in place. A new trade model between the three North American countries is needed. The new trade model, must promote economic relations based on human rights, social justice and national sovereignty, while focusing on sustainable economic development.

76. Container Traffic Increase The flow of container traffic through the Mexican land bridge under NAFTA has increased. The data from the Mexican Secretary of Communication (SCT) and Transport, reflects the dramatic increase of container units through the Pacific ports of Mexico after the treaty went into effect. More than 450 %.

77. President Obama on NAFTA President Obama supports the existence of NAFTA, but call for its reform and renegotiation. Clinton and Obama have been insistent that North America Free Trade Agreement (NAFTA) will be renegotiated around labor and environmental concerns.

78. More Dialogue on the Future of NAFTA Pastor, Rozenthal, and Beatty encourage greater dialogue among the three governments and their citizens, as well as more systematic thinking among policymakers and citizens about the promise and challenges of further North American integration.

79. Conclusions On its 15 anniversary, NAFTA is facing trouble in terms of trade, economic growth and employment. Dramatic decreases in trade and investment have been seen in Mexico since 2008. The global economic crisis had a great impact in all 3 NAFTA countries. The tragedy of September 11, 2001, and the Global Economic Crisis created new security challenges for North America. To achieve greater economic integration, new ideas have to be turned into achievable goals for a fresh initiative that will give North American integration renewed momentum. The U.S. withdrawal from the North American Free Trade Agreement after 15 years would affect the North American communities in the next few years.

80. Conclusions: Mexico and Canada’s Position Mexican President Felipe Calderon has mentioned that changes in the North American Free Trade Agreement would cause considerable damage on the economy and would condemn North America as a region to compete from a position of backwardness in today's world. President Calderon also said that NAFTA was creating jobs and economic growth and "decreasing the flow of immigration." Calderon and Canadian Prime Minister Stephen Harper responded in defense of NAFTA in 2008. When asked if Canada would consider renegotiating HAFTA, Prime Minister Harper said, "We would be ready to do anything that one of our partners wants to do. If one of our partners wants to renegotiate NAFTA, we'll renegotiate”.

81. Conclusions Quitting NAFTA would send economic signals throughout the world. The North American model is increasingly economic integrated as seen by the current economic crisis. An economic downfall in the U.S. has a contemporary economic impact in Mexico. Withdrawing from NAFTA would affect the economies in the U.S. border communities, and rip apart North American supply chains and information systems, and devastate North American exporters. In short, it would cause incredible damage to the economies of North America in the long run.

82. Conclusions With the current economic crisis, national governments should include more development and social policy tools, many of which are prohibited under the competition and privatization terms of NAFTA. Some of the most important areas that should be included in the renegotiation are energy, agriculture, role of the state, financial services, foreign investment, employment, migrants, environment, intellectual property, and dispute settlement.

83. “ Regional Economic Growth in North America: the Effects of the Renegotiation of the NAFTA Agreement” Alejandro Díaz-Bautista, Ph.D. Professor of Economics and Researcher at Colegio de la Frontera Norte (COLEF) Visiting Research Fellow , Center for U.S.-Mexican Studies, UCSD. adiazbau@hotmail.com March 13, 2009, 11:15 - 11:45 Universidad Autonoma Metropolitana, Mexico City.

84. References Castillo, Ramon, Díaz-Bautista, Alejandro y Edna Fragoso (2004), "Sincronización entre las Economías de México y Estados Unidos: El Caso del Sector Manufacturero", en Revista Comercio Exterior de Bancomext, Vol. 54, paginas 620-627. Díaz-Bautista, Alejandro (2003), “ El TLCAN y el Crecimiento Economico de la Frontera Norte de Mexico ”, en “10 años del TLCAN”, Revista Comercio Exterior de Bancomext, Diciembre. Díaz-Bautista, Alejandro (2003), “The Determinants of Economic Growth: Convergence, Trade and Institutions” (“Los Determinantes del Crecimiento: Convergencia, Instituciones y Comercio Internacional”) 164 pages, june. El Colegio de la Frontera Norte, México y Editorial Plaza y Valdes. Díaz-Bautista, Alejandro (2006) “Foreign Direct Investment and Regional Economic Growth considering the Distance to the Northern Border of Mexico” in Analisis Economico, UAM, Number 46, Vol. XXI, 2006. NAFTA Website http://www.nafta-sec-alena.org http://www.spp.gov/