North America's Second Decade

A FIRST DRAFT

The North American Free Trade Agreement (NAFTA) went into effect on January 1, 1994, amid fears of job loss in the United States and cries of revolution in the south of Mexico. Yet, in a single decade, the three nations of North America have built a market larger than, and almost as integrated as, the 15-nation European Union. Trade and investment have nearly tripled, and the United States, Mexico, and Canada have experienced an unprecedented degree of social and economic integration. For the first time, "North America" is more than just a geographical expression.

In 2000, the election victories of George W. Bush, Vicente Fox, and Jean Chretien raised hopes still further that the promise of a trilateral partnership might be fulfilled. Four years later, however, relations among the three governments have deteriorated. No leader refers to "North America" in the way that Europeans speak of their continent. Indeed, anti-NAFTA name-calling has surfaced again in debates among U.S. presidential candidates. After ten years, it is time to evaluate what NAFTA has accomplished and where it has failed and to determine where it should go from here. What should be the goals for North America's second decade, and what must North American leaders do to achieve them?

NAFTA was merely the first draft of an economic constitution for North America. It was a deliberately lean document, intended only to dismantle barriers to trade and investment. Its architects planned neither for its success nor for the crises that would confront it. Although NAFTA fueled the train of continental integration, it did not provide conductors to guide it. As a result, two setbacks -- the Mexican peso crisis of 1995 and the terrorist attacks of September 11, 2001 -- have threatened to derail the integration experiment.

The peso crisis was a blow to the Mexican economy and to U.S. and Canadian faith in integration. NAFTA's authors had assumed that eliminating restrictions on the movement of capital and goods would, by dint of the market's magic, lead to unalloyed prosperity. No clause in the agreement established a mechanism to anticipate or respond to market failures. Whereas the EU had created too many intrusive institutions, North America made the opposite mistake: it created almost none.

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