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After a bitter debate in the United States, the North American Free Trade Agreement (NAFTA) came into effect among Canada, Mexico, and the United States on January 1, 1994. The agreement provides a detailed framework for the conduct of trade among the three countries. But its objectives are much more expansive than trade alone: The agreement is designed to remove barriers to investment among the three countries, permit the free flow of services, and enable expeditious settlement of trade disputes. NAFTA is an economic agreement that should influence where and how goods are produced and how services are provided in North America; the words "free trade" in its title are a form of shorthand for a much broader understanding.
The text of the North American Free Trade Agreement (NAFTA), as voluminous as it is, essentially provides a framework to which content must be added. Many decisions are required now that the agreement is in force. The choices made can lead to a superficial, and hence unstable, enterprise or ensure that NAFTA will develop into a significant endeavor deepening the relationships among the three member countries. NAFTA can remain a closed "club of three" -- Canada, Mexico, and the United States-or it can grow into a hemispheric enterprise and potentially extra-hemispheric as well. It can develop into an example of "strong" integration that goes beyond simple trade and investment preferences, or it can be simply a "weak" integration that is only skin deep.
If NAFTA works as its supporters posited, it should have a positive effect on income and employment in each of the three member countries. These effects should be greatest in Mexico, the least developed of the three. If there are not mutual benefits, then the agreement is unlikely to endure. The gains, however, depend on adding content to the framework provided by the agreement. This deepening must necessarily involve, among other things, more efficient customs procedures, understandings on common or compatible standards for industrial goods, working out sanitary requirements for food and pharmaceutical products, enhanced environmental protection, and consistent standards for trucks that in due course will have the right to carry freight anywhere in North America.
Deepening deals primarily with relations among the three NAFTA countries. NAFTA, if it works as contemplated, inevitably will also be a magnet for other countries. The potential widening of NAFTA was given much stimulus by the U.S. proposal for Western Hemisphere free trade from Alaska in the north to Tierra del Fuego off the southern tip of Chile. Chile, in fact, already has indicated its desire to accede to NAFTA.
But there are profound differences between widening to the southern tip of the hemisphere and economic integration within a contiguous region. Production, transportation, environmental, and customs problems are vastly different between the United States and its two land neighbors from what they are between North and South America. There can thus be tension between the two phenomena that are in play-the deepening of NAFTA within the North American region and the widening of the agreement to new and more geographically distant countries.
One other major theme must be considered. Latin American and Caribbean countries during the last decade have made a radical change in development philosophy. From what earlier had been a policy of promoting domestic industry behind high import barriers, the region shifted to more open markets. This was largely done unilaterally -that is, without seeking reciprocity. The motive was to encourage exports, particularly of manufactured goods with a high valued-added content. The philosophic change was prompted by severe economic problems during what the Latin Americans refer to as the lost decade of the 1980s.
Regional integration arrangements have been reinvigorated throughout the hemisphere. Earlier integration agreements were designed to widen sub-regional markets behind high barriers; the new version is intended to encourage efficiency under what is known as "open integration." These sub-regional economic integration agreements now exist in the Southern Cone of South America, among the Andean countries, in Central America, and in the Caribbean. In addition to the potential incompatibilities between the deepening and widening of NAFTA, there is considerable tension as to which should take priority -- the deepening of sub-regional agreements throughout the hemisphere or the goal of hemispheric free trade through rapid accession of countries to NAFTA.
There is greater mutuality of interest between the United States and the rest of the hemisphere than has existed at any time in the recent past. Most Latin American and Caribbean countries are now democracies. Their development philosophy placing greater stress than before on the workings of the market and opening their own markets to import competition dovetails well with that of the United States. North America as well as other hemispheric sub-regions are seeking greater economic integration behind low barriers against outsiders. Under their new philosophy, what other countries of the hemisphere most want is assurance of access to the markets of each other and the United States for their competitive goods and services. This common thinking is what makes the present a most propitious moment for hemispheric cooperation.