IS THE CANADA-MEXICO-U.S. RELATIONSHIP AT A CROSSROADS? Earl H. Fry Presentation to the Triumvirate: The North American Model Legislature Montreal May.

IS THE CANADA-MEXICO-U.S. IS THE CANADA-MEXICO-U.S. RELATIONSHIP AT A RELATIONSHIP AT A

CROSSROADS?CROSSROADS?

Earl H. FryEarl H. Fry

Presentation to the Triumvirate: The North Presentation to the Triumvirate: The North American Model LegislatureAmerican Model Legislature

MontrealMontrealMay 27, 2008May 27, 2008

WHAT IS NORTH AMERICA?WHAT IS NORTH AMERICA?

Arctic Ocean to isthmus of PanamaArctic Ocean to isthmus of Panama Central America and Caribbean part of North Central America and Caribbean part of North

AmericaAmerica 24.5 million sq. kilometers, third largest continent 24.5 million sq. kilometers, third largest continent

after Asia and Africa and covers 4.8% of earth’s after Asia and Africa and covers 4.8% of earth’s surfacesurface

fourth largest continent in population after Asia, fourth largest continent in population after Asia, Africa, and EuropeAfrica, and Europe

largest free trade area in worldlargest free trade area in world among largest economies in world—2007--US among largest economies in world—2007--US

$13.8 trillion, Canada C$1.5 trillion, Mexico $840 $13.8 trillion, Canada C$1.5 trillion, Mexico $840 billion (#1, 8, and 14 in world)billion (#1, 8, and 14 in world)

WHAT IS NORTH AMERICA?WHAT IS NORTH AMERICA? U.S. population 304 million, Mexico 108 million, Canada U.S. population 304 million, Mexico 108 million, Canada

33 million33 million 3-way trade in 2007 $920 billion vs. $298 billion in 19933-way trade in 2007 $920 billion vs. $298 billion in 1993 3-way direct investment in 2006 $337 billion vs. $88 3-way direct investment in 2006 $337 billion vs. $88

billion in 1993billion in 1993 3-way travel 63.0 million people in 2007 vs. 54.4 million 3-way travel 63.0 million people in 2007 vs. 54.4 million

in 1993in 1993 All 3 economies have grown by about 50% since end of All 3 economies have grown by about 50% since end of

19931993 superpower, middle power, and emerging marketsuperpower, middle power, and emerging market alliances or lack of alliancesalliances or lack of alliances America’s dominant and controversial historical role in America’s dominant and controversial historical role in

the regionthe region

WHAT IS NORTH AMERICA?WHAT IS NORTH AMERICA?

– NAFTANAFTA– FTAAFTAA– CAFTACAFTA– illegal immigrationillegal immigration– illicit drug traffickingillicit drug trafficking– border securityborder security– North American perimeter? Schengen agreement?North American perimeter? Schengen agreement?– documentation for those crossing borderdocumentation for those crossing border– environmental protectionenvironmental protection

WHAT IS NORTH AMERICA?WHAT IS NORTH AMERICA?

– Northwest Passage and global warming?Northwest Passage and global warming?– waterwater– agricultureagriculture– energy—interdependence and potential shortages—energy—interdependence and potential shortages—

challenges facing Pemexchallenges facing Pemex– remittances--$24 billion but down 7% since end 2007remittances--$24 billion but down 7% since end 2007– transportationtransportation– communicationscommunications– cultural sovereigntycultural sovereignty

WHAT IS NORTH AMERICA?WHAT IS NORTH AMERICA?

– federalismfederalism– foreign direct investment (FDI)foreign direct investment (FDI)– specter of U.S. protectionismspecter of U.S. protectionism

CROSSROAD ISSUESCROSSROAD ISSUES Growing divergence in values and practices (Michael Growing divergence in values and practices (Michael

Adams’ Adams’ Fire and IceFire and Ice plus thickening of both borders) plus thickening of both borders) Accelerated economic integration—NAFTA-Plus, Accelerated economic integration—NAFTA-Plus,

monetary union, customs union, unimpaired movement monetary union, customs union, unimpaired movement of labor, common market, European Union-style political of labor, common market, European Union-style political and economic cooperationand economic cooperation

North America vs. the World—regional competition North America vs. the World—regional competition (dollar zone) or even regional animosities (Fortress (dollar zone) or even regional animosities (Fortress North America)North America)

Two-track or two-speed continental integration—Two-track or two-speed continental integration—decoupling Canada-U.S. agreements from U.S.-Mexico decoupling Canada-U.S. agreements from U.S.-Mexico agreementsagreements

CROSSROAD ISSUESCROSSROAD ISSUES

Canada and Mexico embracing Trudeau’s Third Option Canada and Mexico embracing Trudeau’s Third Option because of divergence or the gradual decline of the because of divergence or the gradual decline of the United States (Fry’s end-of-superpower thesis)United States (Fry’s end-of-superpower thesis)

The nightmare or “Ahmed Ressam” scenario—major The nightmare or “Ahmed Ressam” scenario—major terrorist attack on US launched in whole or part from terrorist attack on US launched in whole or part from Canadian or Mexican soil—the border thickensCanadian or Mexican soil—the border thickens

Issues of illegal immigration, illicit drug trade, energy Issues of illegal immigration, illicit drug trade, energy interdependence, and U.S. “dominance”interdependence, and U.S. “dominance”

Adaptivity and fluidity—episodes of divergence and Adaptivity and fluidity—episodes of divergence and convergence, and periods of bilateral tensions and convergence, and periods of bilateral tensions and bilateral cooperation in a world setting characterized by bilateral cooperation in a world setting characterized by globalization, unprecedented technological change, and globalization, unprecedented technological change, and creative destructioncreative destruction

Central African Republic

Portugal

Finland

Libya

Croatia

Netherlands

Denmark

Costa Rica

Haiti

Dominican Republic

Lebanon

Cape VerdeNiger

If Canadian Provinces and Territories were Nation-States, Year 2005

Poland

Tunisia

Saudi Arabia

Libya

Serbia

Malaysia

Italy

Romania

New Zealand

Greece Kazakhstan

Greece

Sri Lanka

Serbia

Kazakhstan

Hungary

Colombia

Brazil

Greece

Israel

Iran

Luxembourg

Morocco

Portugal

Venezuela

PeruGreece

S. Africa

Iran

Sweden

TurkeyNetherlands

Brazil

Switzerland

Malaysia

Switzerland

IndonesiaChile

Morocco

PeruSouth Africa

Vietnam

Turkey

Thailand

Angola

Switzerland

Morocco

Oman Libya

© 2007 Earl H. Fry

IF U.S. STATES WERE NATIONS 2006

Netherlands

Kuwait

Australia

CANADA-U.S.-MEXICO ECONOMIC CANADA-U.S.-MEXICO ECONOMIC INTEGRATIONINTEGRATION

11,368 km common border between the 11,368 km common border between the U.S. and Canada, with roughly 200 U.S. and Canada, with roughly 200 million 2-way border crossings each million 2-way border crossings each year— 3,169 km border between U.S. year— 3,169 km border between U.S. and Mexico with 250 million annual and Mexico with 250 million annual crossingscrossings

Over 21% of total U.S. exports of goods Over 21% of total U.S. exports of goods to Canada in 2007 and 12% to Mexicoto Canada in 2007 and 12% to Mexico

16% of total U.S. imports from Canada 16% of total U.S. imports from Canada and 11% from Mexicoand 11% from Mexico

$235 billion in U.S. FDI in Canada 2005 $235 billion in U.S. FDI in Canada 2005 providing almost 1.1 million Canadian jobs providing almost 1.1 million Canadian jobs

Canadian FDI in U.S. $159 billion in 2006, Canadian FDI in U.S. $159 billion in 2006, providing nearly 400,000 U.S. jobs (2005 stats)providing nearly 400,000 U.S. jobs (2005 stats)

Mexican FDI in US $6.1 billion in 2006 providing Mexican FDI in US $6.1 billion in 2006 providing nearly 60,000 jobs (2005 stats)nearly 60,000 jobs (2005 stats)

U.S.-owned companies in Mexico provided 1.04 U.S.-owned companies in Mexico provided 1.04 million jobs in 2005million jobs in 2005

Affiliates of U.S. companies accounted for 10% Affiliates of U.S. companies accounted for 10% of Canada’s GDP at beginning of decadeof Canada’s GDP at beginning of decade

Roughly 70% of U.S. merchandise trade with Roughly 70% of U.S. merchandise trade with Canada is intrafirm—role of MNCsCanada is intrafirm—role of MNCs

Canada and Mexico #1 and #2 Canada and Mexico #1 and #2 sources of foreign tourists for U.S., sources of foreign tourists for U.S., and U.S. #1 source of foreign tourists and U.S. #1 source of foreign tourists for Canada and Mexicofor Canada and Mexico

Canada #1 and Mexico #2 petroleum Canada #1 and Mexico #2 petroleum suppliers to the U.S.suppliers to the U.S.

Canada #1 destination for exports Canada #1 destination for exports from 36 U.S. states 2007from 36 U.S. states 2007

IN AN ERA OF INCREASING IN AN ERA OF INCREASING GLOBALIZATION, THE UNITED GLOBALIZATION, THE UNITED

STATES EXPORTED MORE STATES EXPORTED MORE GOODS TO CANADA IN 2007 GOODS TO CANADA IN 2007

THAN TO THE 27 NATIONS OF THAN TO THE 27 NATIONS OF THE EUROPEAN UNIONTHE EUROPEAN UNION

($249 BILLION VS. $247 BILLION)($249 BILLION VS. $247 BILLION)

33 MILLION PEOPLE VS. 494 33 MILLION PEOPLE VS. 494 MILLION PEOPLEMILLION PEOPLE

In 2007, the United States In 2007, the United States exported more to Mexico ($137 exported more to Mexico ($137 billion) than to China and Japan billion) than to China and Japan

combined ($128 billion)combined ($128 billion)

108 million people vs. 1.4 billion 108 million people vs. 1.4 billion people people

AMERICA’S ECONOMIC AMERICA’S ECONOMIC STRENGTHSSTRENGTHS

World’s largest national economyWorld’s largest national economy World’s largest trading nationWorld’s largest trading nation World’s largest foreign direct investorWorld’s largest foreign direct investor World’s major portfolio investorWorld’s major portfolio investor World’s 3World’s 3rdrd most populous nation most populous nation World’s 4World’s 4thth largest nation territorially largest nation territorially World’s leader in technological innovationWorld’s leader in technological innovation

World’s leader in job creationWorld’s leader in job creation World’s most affluent nationWorld’s most affluent nation World’s most dynamic and diversified World’s most dynamic and diversified

economyeconomy 1 of 3 leading nations in resources and 1 of 3 leading nations in resources and

energyenergy Very stable political systemVery stable political system Very stable economic systemVery stable economic system

AMERICA’S ECONOMIC AMERICA’S ECONOMIC CHALLENGESCHALLENGES

Government indebtedness--$9.5 trillion June 2008--$5.5 Government indebtedness--$9.5 trillion June 2008--$5.5 trillion publicly-held debttrillion publicly-held debt

External debt—approaching $3 trillion—borrowing over External debt—approaching $3 trillion—borrowing over $650 billion per year from abroad—equal to 80% of total $650 billion per year from abroad—equal to 80% of total world savings in 2004 world savings in 2004

Trade deficits—$838 billion in goods 2006, ranks behind Trade deficits—$838 billion in goods 2006, ranks behind Germany as leading merchandise exporter in 2006 Germany as leading merchandise exporter in 2006 ($1.11 trillion vs $1.04 trillion)($1.11 trillion vs $1.04 trillion)

Foreign direct investment in U.S.--$2.1 trillion 2006; Foreign direct investment in U.S.--$2.1 trillion 2006; $16.3 trillion in foreign assets in US $16.3 trillion in foreign assets in US

InterdependenceInterdependence Consumptionitis—household sector debt 87% GDP 2004 Consumptionitis—household sector debt 87% GDP 2004

vs. 65% 1994—U.S. negative savings rate 2005 & 2006vs. 65% 1994—U.S. negative savings rate 2005 & 2006

Entitlements—SS, Medicare, MedicaidEntitlements—SS, Medicare, Medicaid Health care—over 16% GDP but 1 in 3 Health care—over 16% GDP but 1 in 3

Americans goes without insurance for Americans goes without insurance for some part of a 2-year period—47 some part of a 2-year period—47 million without health insurance 2005million without health insurance 2005

Development of human capitalDevelopment of human capital Distribution of wealth and income—top Distribution of wealth and income—top

1% households control 34% of private 1% households control 34% of private wealth in 2004—more than the bottom wealth in 2004—more than the bottom 90% controls—top 10% control 71% of 90% controls—top 10% control 71% of assets—new Gilded Ageassets—new Gilded Age

2005—top 1% of individuals garnered 2005—top 1% of individuals garnered 21.8% of income, double 1980 proportion; 21.8% of income, double 1980 proportion; top 10% 48.5%--highest concentration top 10% 48.5%--highest concentration since 1928since 1928

Corporate myopiaCorporate myopia LitigiousnessLitigiousness Beltway anticsBeltway antics

resources

environment

energy

conflictweapons proliferation

crime

economics cyberspace

immigration

religion and ideology

culture

INTERNATIONAL EVENTS ARE INTERNATIONAL EVENTS ARE TRANSFORMING LIFE IN NORTH AMERICATRANSFORMING LIFE IN NORTH AMERICA

INTERNATIONAL SECTOR

NORTH AMERICAN NORTH AMERICAN CITIES AND CITIES AND

NEIGHBORHOODSNEIGHBORHOODS

terrorism

sports and entertainment

disease

CROSSROAD ISSUESCROSSROAD ISSUES

New administration in Washington January 2009New administration in Washington January 2009– Barack ObamaBarack Obama– Increased Democratic majorities in both House and SenateIncreased Democratic majorities in both House and Senate– Still problem of gridlockStill problem of gridlock

More multilateralismMore multilateralism– Iraq pulloutIraq pullout– More attention to AfghanistanMore attention to Afghanistan– Listen more intently to alliesListen more intently to allies

Protectionism?Protectionism? America in a funk?America in a funk? Navel-gazing and turning inwardNavel-gazing and turning inward

CROSSROAD ISSUES CROSSROAD ISSUES

Future of NAFTAFuture of NAFTA Returning rationality to the borderReturning rationality to the border Canadian challengesCanadian challenges Mexican challengesMexican challenges More question marks concerning global stability in More question marks concerning global stability in

post-unipolar worldpost-unipolar world Trilateral ties will remain relatively strong, although Trilateral ties will remain relatively strong, although

periodic disputes will arise in much more fluid periodic disputes will arise in much more fluid global and regional settingglobal and regional setting