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Strengthening North American Competitiveness

March 23, 2005

As President Bush meets with his counterparts from Canada and Mexico in Texas today, he has a significant opportunity to begin a dialogue leading to improved North American competitiveness in the global economy. Such a dialogue is timely: the emergence of China, India and others in the global marketplace makes the task of rethinking competitiveness a matter of U.S. economic and strategic security.

We face a huge challenge from Asia. As our gaze has been averted continuing to fight the last trade and economic war – NAFTA – we have steadily lost ground to others who do not have the same hang-ups with international economic expansion. Our fear should not be that jobs and investment are moving to Mexico (in the aggregate, NAFTA has created more jobs than have been lost), but rather that jobs are moving from North America to China and India.

Ironically, Mexican maquiladoras specifically set up to take advantage of proximity to the U.S. market have actually lost some 250,000 jobs since 2000, in part because firms have moved to Asia to take advantage of Chinese price and labor competitiveness.

Rather than fighting geography, we should let proximity work to our collective advantage, working with Mexico and Canada as critical partners toward a more fully integrated marketplace. A Compact for North American Competitiveness would begin to address these issues over time.

At the heart of the compact would lie a grand bargain: the United States and Canada will work closely with Mexico to mobilize additional public and private sector resources to advance Mexico's development. In exchange, Mexico will commit to a robust program of second-generation reforms in regulatory harmonization, the rule of law and infrastructure improvements including education that will create conditions necessary to attract the long- term domestic and direct foreign investment that ultimately drives development. Within this general framework, specific areas for concentration would, at a minimum, include border security and efficiency, energy security and increasing labor mobility.

Why should the United States and Canada care about Mexican development? The answer is simple to articulate, but difficult to achieve. If the United States and Canada plan to compete with China and other emerging economies by the time Asia reaches greater economic maturity in 2020 or 2030, both nations will have to put in place the economic and commercial frameworks to take full advantage of economic efficiencies that would naturally accrue with creation of a larger internal North American market.

In order to work effectively, this paradigm requires increased development in Mexico. Put another way, Mexico's development directly impacts our own national strategic objectives. Both national security and economic security require our southern neighbor to be democratic and politically stable, economically healthy and increasingly willing to see its own interests aligned more fully with ours. Canada faces similar realities, if less intensively. It is in each of our interests to find ways to work more fully together so that, in the global economy, we will be able not just to survive, but to flourish.

We cannot meet the looming challenge from Asia absent greater North American integration, or without more rapid Mexican development. These are literally two sides of the same coin. As U.S., Canadian and Mexican leaders once again engage the North American dialogue today, competitiveness must be at the very top of their mutual agenda. There really is no additional time to lose.

Farnsworth is vice president of the Council of the Americas in Washington. From 1995-98 he served in the White House as the senior advisor to the special envoy for the Americas.