[CTC] "The Promise of a North America-European Union Free Trade Agreement"

[Manuel Perez Rocha]

[image: Inter-American Dialogue]
<http://www.thedialogue.org/page.cfm?pageID=32&pubID=3289&s=&mode=print&mode=print>

The Promise of a North America-European Union Free Trade Agreement

*By Carla A. Hills, Jaime Serra, and Michael Wilson*
*El Financiero April 15, 2013*

The United States and the European are discussing the possible launch of
negotiations to create a U.S.-EU Trade Agreement.  Enlarging the proposed
negotiations to include all three North American nations, Canada, Mexico,
and the United States would create a unique, historic and much larger
opportunity that has the potential to give a real boost to the economies of
all of the nations involved as well as to the global economy.

The United States’ economy is tightly linked with those of its two
neighbors. As a result of geographic proximity, supply chain integration,
cultural bonds, and the certainty of rules laid out two decades ago by the
North American Free Trade Agreement (NAFTA), the North American region has
become highly integrated economically and one of the most competitive in
the world.

An integrated supply chain has developed among the three nations that is
truly unique. Canada, Mexico and United States not only sell things to one
another, they make things together.  For every dollar Canada and Mexico
export to the United States, there is 25 cents worth of American content in
the Canadian goods and 40 cents in the Mexican goods.  By comparison in the
case of Chinese and Japanese exports, the U.S. content is 4 cents and 2
cents respectively.

The time that technology transfers take to increase labor productivity has
been substantially shortened. Firms have been investing in research and
development centers across borders.

Since the NAFTA was enacted, intraregional trade flows have increased
nearly 400 percent particularly in manufacturing and foreign investment
flows in the region have increased by almost 500 percent both in
manufacturing and services.

As a result the economic cycles of the three nations have become strongly
correlated. Interest rates have converged and the volatility of exchange
rates of the Canadian dollar and the Mexican peso with respect the American
dollar under the free float regime have become strikingly similar.

This extraordinary economic integration makes it clear that America,
Canada, and Mexico are stronger when acting together as a region than when
acting separately.

In addition a Free Trade Agreement involving the three North America
nations and the European Union would capture valuable efficiencies that
would be lost if the regional platform is ignored.  Mexico already has a
free trade agreement with the European Union, and Canada is in the final
stages of its negotiations with the EU.

A single agreement across the Atlantic would greatly reduce transaction
costs of three separate agreements in terms of rules of origins, customs
measures and border red tape which would be of enormous benefit to
entrepreneurs on both sides of the Atlantic. The lower costs would be
especially beneficial to and multiply the opportunities for small and
medium size businesses, the backbone of job creation.

In short a Trans-Atlantic Free Trade Agreement that included Canada,
Mexico, and the United States would strengthen the North American region by
expanding market access, creating jobs, reducing transaction costs, and
eliminating distortions that accompany different tariffs and rules of
origins.

Not to be overlooked is the fact that a negotiation of a North
American-European Union Trade Agreement has the potential to create the
largest free trade area in the world.  In 2011 the two regions together
represented more than half of world GDP.  History suggests that such a
major trade agreement could have very positive effects on global trade
negotiations.  Some will remember that after the Uruguay Round of
Multilateral Trade Talks collapsed in 1990, the NAFTA negotiations were
announced in 1991, completed in 1992, and approved in 1993.  Within months,
the members of the World Trade Organization returned to the bargaining
table and completed the Uruguay Round negotiation to the great benefit of
global economy.  A broadened Trans-Atlantic Agreement just might have a
similar effect on the now stalled Doha Round.

The future of the North American region is very bright and can be even
brighter.  Building on the benefits made possible by the NAFTA, the three
North American governments working together to achieve a free trade
agreement with the European Union could create new and exciting
opportunities that could generate very substantial additional benefits for
their citizens.  It is an ideal time.  Our governments should not let this
opportunity pass.

    ______________________________________________________________
**Carla A. Hills served as U.S. Trade Representative 1989-1993; Jaime Serra
Puche served as Mexico’s Secretary of Trade and Industry (1988-1994);
Michael H. Wilson served as Canada’s Minister of International Trade
1991-1993.  The three were the lead negotiators of the NAFTA.

Inter-American Dialogue
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Phone: 202-822-9002, Fax: 202-822-9553


Manuel Pérez-Rocha
Associate Fellow
Institute for Policy Studies
*Celebrating 50 years of turning ideas into action! *
Cel. 240-838-6623
www.ips-dc.org
www.justinvesment.org
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