Enhancing Competitiveness In Canada, Mexico, and the United States: Private

Initial Recommendations of the North American Competitiveness Council (NACC)

February 2007

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Executive Summary

Since 1993, the North American Free Trade Agreement (NAFTA) has contributed significantly to the economic competitiveness of Canada, Mexico, and the United States. Economic competition, however, has continued to intensify globally as emerging powers such as China and India transform patterns of trade and investment worldwide. Within this context, North American companies are experiencing intense pressure to remain competitive. It is vital to ensure that the necessary focus since 2001 on increasing security does not undermine the economic efficiencies created by the NAFTA.

To address this critical strategic challenge, the Leaders of Canada, Mexico, and the United States in 2005 launched the Security and Prosperity Partnership of North America (SPP); and at their summit in Cancún in March 2006 they agreed that greater private sector engagement would help the three governments in their efforts to enhance North American competitiveness through the SPP. The creation of the North American Competitiveness Council (NACC) reflects the recognition that private sector involvement is a key step to enhancing North America's competitive position in global markets and is the driving force behind innovation and growth.

The trilateral NACC was given a mandate to propose concrete recommendations on issues of immediate importance as well as strategic medium- and long-term advice to security and prosperity ministers and to the Leaders.

Following extensive consultations with hundreds of companies, sectoral associations, and local chambers of commerce, members of the trilateral NACC have offered suggested priorities and initial recommendations for the SPP in the following areas: border crossing facilitation, standards and regulatory cooperation, and energy integration. This document discusses the challenges and opportunities in each of these three areas and offers recommendations for action that can be accomplished in the short, medium, and long term.

The first priority, improving the secure flow of goods and people within North America, is essential to the global competitiveness of enterprises in all three countries. Because production patterns within North America have become so closely integrated, any tightening of the borders between Canada, Mexico, and the United States threatens to erode the North American advantage created by the NAFTA. Goods imported into North America from overseas face customs inspection only once; goods produced and sold within the region, however, typically must cross borders many times as value is added to raw materials that eventually become finished goods.

Every measure that adds to the cost or time to cross borders within North America is in effect a tax on enterprise, a tax on investment, or a tax on jobs across the region, which ultimately results in incremental costs for the consumers in all three countries. Through the SPP, government Leaders have recognized that ensuring the safety and prosperity of the citizens of all three countries requires us to work together, and to the greatest extent possible, ensure that decisions about security and about economic policy are mutually reinforcing rather than conflicting. The members of the NACC from all three countries agree that it is possible to achieve real progress in helping the North American economy work better as a whole while strengthening the security and well-being of citizens.

The section on border crossing facilitation makes recommendations for action in the following areas: emergency management and post-incident resumption of commerce, expansion and improvements to border infrastructure, the movement of goods, and the movement of people. These recommendations are focused on actions that could be taken to make concrete improvements to the efficiency of commercial exchanges within North America.

The SPP recognized that another key element to expanding economic opportunity for the people of North America is to cut red tape and give consumers better access to safe, less expensive, and innovative products. Although regulatory policy in Canada, Mexico, and the United States is often driven by similar goals, the regulations themselves often differ in ways that impede the efficiency and competitiveness of businesses in all three countries. While potentially significant cost savings make regulatory cooperation desirable, the need to increase North American competitiveness is making it imperative. Minimizing minor differences between standards and regulations in all three countries would remove wasteful duplication and reduce costs for businesses, consumers, and governments.

The section on standards and regulatory cooperation therefore supports the intention of governments to work toward a framework for trilateral regulatory cooperation in 2007. This framework is an essential tool for ensuring the compatibility of new regulations. It also provides a foundation for efforts to reduce unnecessary differences in existing rules and standards. In considering the path forward in North America, this section also suggests the critical need for regulators and businesses alike to engage actively in the development of global technical standards. The standards and regulatory cooperation section then makes recommendations for specific action in the short term in three sectors—food and agriculture, financial services, and transportation—as well as for enhanced cooperation in the protection of intellectual property rights, which is the critical foundation of competitiveness in today's knowledge-based economy.

The section on energy integration addresses a third vital issue of competitiveness related both to economic opportunity and to security. The prosperity of the United States relies heavily on a secure supply of imported energy. Canada's vast oil sands, now that technological innovation has made this a competitive energy source, have given that country the second-largest conventional reserves in the world after Saudi Arabia. Mexico, while blessed with abundant reserves, faces major challenges in attracting capital and developing the human capacity needed to realize the potential of its resources for the benefit of its people. All three countries face a range of common challenges as well, such as the development and deployment of clean energy technology.

The energy section includes recommendations for trilateral action that focus on enhancing the security of energy supply through effective integration of cross-border energy distribution systems, development of human resources (both skilled trades and degreed professionals) in the energy field, joint development of efficient and clean energy technologies, and further cooperation among public and private stakeholders and experts in the sector. This section also includes recommendations that could help accelerate Mexico's development of its energy resources. The NACC acknowledges that given the strategic importance and nature of the Mexican energy sector, Mexicans should set and lead the initiatives that will increase the competitiveness in their energy sector.

The NACC has chosen to focus its initial work and recommendations on practical suggestions for rapid improvements to North American competitiveness. However, we suggest that to make the most of the diverse strengths that the three North American partners bring to the table, a range of broader and more strategic issues deserve serious consideration in the years ahead.

As an ongoing initiative, the NACC will meet regularly with ministers responsible for both security and prosperity in all three countries and will make recommendations to the Leaders annually. The regular meetings between ministers, senior officials, and the NACC, complemented by ongoing consultations with other interested stakeholders, will help ensure that the SPP remains a solid foundation for the expansion of collaborative efforts to increase investment and create more and better jobs in communities across North America.

In addition, while the NACC was expected to develop recommendations focused primarily on issues to be addressed by the governments, it was also challenged to provide suggestions on how the private sector might itself be able to assist in promoting North American competitiveness as part of the solution. With this in mind, the priority for now is to ensure that governments and the private sector work together effectively in strengthening the competitive position of enterprises operating in Canada, Mexico, and the United States.

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