Con el mundo occidental creciendo cada vez más dividido y mirando hacia el interior, y los poderes como Rusia y China avanzando asertivamente normas políticas que privilegian la preservación de la soberanía estatal sobre las preocupaciones humanitarias, ahora es un momento oportuno para Canadá para comenzar a contribuir más a la estabilización de Orden internacional. Como Richard Gwyn lo puso recientemente en el Toronto Star. Nunca antes tuvimos una oportunidad tan clara de ser lo que queremos ser. Como un país, tendemos a reaccionar a los eventos en lugar de anticiparlos. Nos unimos a coaliciones internacionales después de haber sido creadas. No contamos con una gran estrategia canadiense para tratar con los acontecimientos mundiales, más allá de la política comercial. Lo que necesitamos ahora es un plan de región por región, década por década, en el cual enfocamos nuestros limitados recursos para poder crecer a través del tiempo. En otras palabras, tenemos que pensar por nosotros mismos, y tenemos que pensar estratégicamente. El analista de asuntos internacionales Ian Bremmer llama el período de G-cero de hoy en día en el cual el liderazgo global está en gran parte ausente debido a las preocupaciones de las grandes potencias. Los acontecimientos de hoy se están desarrollando rápidamente, y su resultado final podría ser cualquier cosa que va desde el aumento de la preeminencia americana a un mundo más pluralista que tiene varios centros de poder político. Frente a esa incertidumbre, el plan inmediato de Canadas debe ser asegurar una base de poder que ayude a aumentar nuestra influencia internacional, con el objetivo final de convertirse en un contribuyente sustantivo y respetado en un mundo post-G-cero, cualquiera que sea la forma que el mundo pueda tomar. Como nuestro peso material es actualmente limitado, nuestra búsqueda de una base de poder debe centrarse en las dos regiones en las que ya somos una superpotencia de tipo: el Ártico y América del Norte. Nuestras acciones en ambos teatros no solo nos enseñarán el valor de la promiscuidad estratégica, sino que también ayudarán a estabilizar los fundamentos del orden mundial liberal. El principal crítico del orden político internacional dirigido por Occidente es Rusia. Si bien es posible que Canadá no pueda tener un impacto tangible en la seguridad euroatlántica, tenemos, junto con Rusia, la abrumadora mayoría de la costa del Ártico y, por lo tanto, tenemos la capacidad de dar forma a esa agenda regional. El Consejo del Ártico se creó en los años noventa, poco después de la victoria de las Américas en la Guerra Fría y los sucesivos sucesos del triunfalismo ideológico de Washingtons que causaron que muchos en Occidente predijeran que la competencia geopolítica en los asuntos internacionales había llegado a un final permanente. No es de extrañar, por lo tanto, que la organización haya excluido deliberadamente las cuestiones políticas y de seguridad de su mandato. Pero los tiempos han cambiado y las rivalidades internacionales han sido desgraciadamente renovadas. Una institución más fuerte para gestionar los asuntos del Ártico, que se ocupa de cuestiones geopolíticas y avances en la concienciación intercultural, implicaría la creación de un foro de alto nivel en el que Rusia sea tratada como un socio más bien que como un socio menor. Esto eliminaría uno de los irritantes más importantes en las relaciones de posguerra fría entre Moscú y Occidente. El advenimiento de una especie de unión mejorada del Ártico ayudaría a evitar el conflicto internacional y comenzaría a rehabilitar a Rusia como parte del sistema internacional. Occidente sería capaz de abordar con mayor fiabilidad lo que parece ser la lenta erosión del orden mundial liberal. La organización más integrada también podría servir como plantilla para estabilizar las relaciones entre Estados Unidos y China a largo plazo. Las órdenes liberales han adoptado formas diferentes a lo largo de la historia, pero generalmente han presentado un sistema basado en reglas, una cooperación internacional institucionalizada, un libre comercio y un centro de poder formado por estados de mentalidad liberal. Una mayor cooperación del Ártico ayudaría a asegurar los fundamentos del orden internacional liberal actual mediante la profundización de la cooperación institucional global y la estabilización de esta región geográfica que bordea muchos países democráticos liberales. Una mayor integración norteamericana fortalecería sus bases ideológicas. A diferencia de la mayoría de los países europeos, Canadá, Estados Unidos y México poseen un tejido multirracial. Mientras que la cuestión de la migración plaga a la Unión Europea, tenemos la capacidad de aportar el talento que queremos de todo el mundo debido a nuestra geografía y nuestra historia impulsada por la inmigración. Toda una serie de cuestiones internas en cada país pueden impedir que se produzca una visión más amplia de América del Norte, pero, como he dicho en otro lugar, hay sin embargo una base sólida sobre la que construir. Por ejemplo, el recientemente anunciado caucus norteamericano podría convertirse en una comisión de tiempo completo, que podría proponer regularmente formas en las que nuestros tres países podrían armonizar sus políticas nacionales y globales. Dentro de una década, podríamos ver una mayor movilidad laboral entre Canadá, Estados Unidos y México, así como un mecanismo común de reducción de emisiones de gases de efecto invernadero en todo el continente (que podría ampliarse también a otros países). Las rivalidades geopolíticas existen en todas partes en Eurasia en la región europea, donde la UE y Rusia están actualmente en desacuerdo, y en la región de Asia y el Pacífico, donde está evolucionando un complejo equilibrio de poder. En este contexto global, una América del Norte más fuerte y unida podría ser un pivote estratégico influyente en el sistema global, así como una fuerza importante que respalda los ideales liberales de diversidad étnica y libre comercio. En esta coyuntura crucial en la era posterior a la guerra fría, debemos actuar para asegurar nuestro patio trasero estratégico, la región de descongelación a nuestro norte y el mercado masivo a nuestro sur. Hacer esto proporcionaría a nuestro país los elementos básicos necesarios para convertirse en un contribuyente sustantivo y respetado a la paz y la prosperidad internacionales, lo que a su vez abriría toda una serie de oportunidades diplomáticas y económicas para Canadá y los canadienses a largo plazo. Cuando declaramos con orgullo que el mundo necesita más Canadá, necesitamos poner nuestro dinero donde está nuestra boca. Nuestras telas sociopolíticas y económicas de nuestro país son fuertes lo que se requiere ahora es que nosotros intensifiquemos nuestro juego internacional tanto en palabras como en hechos. ¿Tienes algo que decir sobre el artículo que acabas de leer? Haz parte de la discusión sobre Opciones de política y envía tu propia presentación. Aquí hay un enlace sobre cómo hacerlo. Souhaitez-vous ragir de este artículo Joignez-vous aux dbats d Opciones de políticas y submeter su texto en estas directrices. Temas destacados TradeStrategic Trade Policy NBER Documento de trabajo No. 5020 Publicado en febrero de 1995 NBER Programa (s): ITI Este documento revisa la literatura sobre la política comercial estratégica. La política comercial estratégica se define como la política comercial que condiciona o altera una relación estratégica entre las empresas, lo que implica que la política comercial estratégica se centra principalmente en la política comercial en presencia de oligopolio. El punto clave es que las relaciones estratégicas entre las empresas introducen motivos adicionales para la política comercial, más allá de los términos de intercambio y otros efectos que surgen en todas las estructuras del mercado. Demuestro este punto general utilizando un marco teórico de juego simple, y luego expongo los principales resultados de la política comercial estratégica utilizando dos modelos: el tercer modelo de mercado, en el cual las empresas oligopolísticas de dos países exportadores exportan el bien en cuestión exclusivamente a un tercer país y el Modelo de mercados recíprocos, en el que las empresas de dos países compiten entre sí. El documento destaca el hecho de que las ligeras diferencias en la estructura del modelo pueden dar lugar a implicaciones de política comercial sorprendentemente diferentes, pero también busca enfatizar los sólidos puntos generales que surgen de la literatura. Canada8217s Opciones Estratégicas de Política Comercial e-mail Share link on - irpp. org/2eo0P4I Con las negociaciones comerciales multilaterales estancadas, la lenta recuperación en los Estados Unidos y el crecimiento resurgente en mercados emergentes como India y China, la cuestión estratégica de si enfocar la política comercial canadiense en la profundización de los lazos comerciales en América del Norte o más activamente Buscar mercados en otros lugares se ha vuelto más urgente. Algunos argumentan que la geografía y el tamaño significan que la parte del león de los beneficios comerciales vendrá inevitablemente de los Estados Unidos, mientras que otros observan que un enfoque continental ignora las tres cuartas partes de la economía global (gran parte de ella crece más rápido que América del Norte) . A pesar de las afirmaciones de ambas partes, hay relativamente poca evidencia empírica sobre la cual juzgarlas. Este estudio intenta llenar este vacío comparando los beneficios económicos de la implementación de una unión aduanera norteamericana con los de incrementar la participación de Canadá en el comercio con Europa y / o grandes economías emergentes. A diferencia de los análisis más tradicionales de la diversificación, el estudio de Patrick Georges y Marcel Merette examina el efecto potencial de las tendencias demográficas en determinados países sobre los términos de intercambio de Canadá y demuestra que este efecto es suficientemente grande como para justificar el desarrollo de la política comercial. Los beneficios de profundizar la integración continental a través de una unión aduanera (que eliminaría las costosas normas de origen y reduciría el costo de los bienes intermedios) son relativamente pequeños. La negociación de una unión aduanera a mediados de los años noventa como parte del reemplazo o la modernización del TLCAN habría incrementado el PIB canadiense en alrededor del 1 por ciento (alrededor de 15 mil millones en dólares de hoy) por año. Pero si lo hiciéramos hoy, los beneficios serían menos de la mitad, principalmente porque las reducciones arancelarias multilaterales acordadas en los años noventa han reducido los beneficios de las preferencias del TLCAN. Los beneficios económicos de la diversificación son potencialmente mayores que los de profundizar la integración de América del Norte, siempre y cuando los socios sean seleccionados cuidadosamente. Canadá debería establecer vínculos comerciales con naciones con poblaciones relativamente jóvenes para aprovechar mejoras demográficas en sus términos de intercambio así como un fuerte crecimiento económico en esas naciones. La diversificación de 10 puntos porcentuales del comercio de Canadá y Estados Unidos, por ejemplo, impulsaría el consumo interno per cápita en casi 5 por ciento en 2050 en relación con su nivel de referencia. Por otra parte, la diversificación del comercio hacia la Unión Europea podría reducir el consumo en relación con el statu quo. La pregunta difícil es, por supuesto, cómo diversificar el comercio. Georges y Merette ven esto como una proposición a largo plazo por la cual los lazos culturales, la confianza y las redes pueden allanar el camino para las misiones comerciales y eventuales acuerdos comerciales preferenciales. Como observó Head (2007), el debate de Canadá8217 sobre política comercial se centra típicamente en dos cuestiones, una estratégica y otra táctica. La cuestión estratégica es si Canadá debe diversificar su patrón comercial fuera de los Estados Unidos, o si debe perseguir una integración continental más profunda. La pregunta táctica es cómo debemos llevar a cabo nuestra estrategia elegida. Las cuestiones estratégicas y tácticas están claramente anidadas. Por ejemplo, el Canadá podría comprometerse más con el resto del mundo mediante negociaciones comerciales multilaterales, acuerdos comerciales preferenciales formales con países seleccionados, promoción comercial ad hoc (por ejemplo, misiones de equipo Canadá) o una decisión unilateral para reducir o eliminar barreras comerciales ( Helliwell 2002 Dobson 2006 Cabeza 2007). Canadá podría intentar una mayor integración con los Estados Unidos al reducir la carga de cruzar la frontera, armonizar los procedimientos y normas reglamentarias, negociar un arancel externo común y una unión aduanera, simplificar las normas de origen del TLCAN, liberalizar las restricciones restantes a la inversión directa de EE. UU. El movimiento de mano de obra y la negociación de acuerdos para frenar las leyes de los Estados Unidos en materia de medidas correctivas comerciales (por ejemplo, Dobson 2002 Harris 2003 Goldfarb 2003 Hart 2007 Mandel-Campbell 2008 Georges 2010). La Figura 1 proporciona un punto de partida conveniente para el debate estratégico de política comercial en Canadá al ilustrar el comercio con los Estados Unidos como una parte del comercio total de Canadá. Estados Unidos es el mayor socio comercial de Canadá8217s tanto como mercado de exportación como como proveedor. Las posiciones estratégicas sobre la política comercial canadiense son fácilmente previsibles a partir de esta cifra. Por un lado, algunos abogan por un enfoque casi exclusivo sobre los Estados Unidos. Por ejemplo, Hart (2007) afirma que más que nunca, el movimiento de dos vías de bienes y servicios a través de la frontera entre Canadá y Estados Unidos es la línea de vida económica de Canadá8217 (429). Dice que el compromiso con nuestro vecino del sur es el fundamento indispensable de cualquier política canadiense para maximizar los beneficios del comercio e inversiones internacionales (418-19). Por otra parte, algunos políticos y comentaristas argumentan, a menudo durante las recesiones de Estados Unidos, que la economía canadiense está demasiado expuesta al ciclo económico de los Estados Unidos, que existe el riesgo de tener tantos huevos en la canasta americana y que los mercados alternativos deben ser Desarrollado para diversificarse lejos de la economía de los EEUU. Este argumento, que sorprendentemente ganó el favor al comienzo de la recesión de Estados Unidos en 2008-09, está lejos de ser nuevo, ha habido intentos de reducir la dependencia comercial de Canadá con Estados Unidos al buscar vínculos económicos más estrechos en otros lugares. Por ejemplo, en 1957, el primer ministro John Diefenbaker anunció que Canadá cambiaría 15 por ciento de su comercio de los Estados Unidos a Gran Bretaña. En la década de 1970, el gobierno de Trudeau buscó vínculos económicos más estrechos con la Comunidad Europea. Ambas iniciativas no alcanzaron sus objetivos. Muchos participantes en este debate estratégico acerca de si o no diversificar el comercio fuera de los Estados Unidos típicamente desprecian, incluso se burlan de las propuestas de otros mientras predice enormes ganancias potenciales de su opción favorecida, sin proporcionar mucho en la forma de evidencia empírica. De hecho, la evidencia empírica es rara y, cuando existe, no necesariamente corrobora estas afirmaciones. Por ejemplo, se ha escrito mucho acerca de cómo una integración más profunda reducirá aún más el costo del comercio transfronterizo y, en teoría, debería aumentar el acceso a los mercados norteamericanos y estimular el crecimiento económico en Canadá. Sin embargo, prácticamente no hay estudios cuantitativos sobre cuánto beneficio económico adicional resultaría de la integración adicional. Pastor (2008, 94) se refiere irónicamente al juego norteamericano de Scrabble que, desde 2001, ha consistido en que los líderes de Canadá, México y Estados Unidos se reúnen periódicamente para deletrear nuevas siglas que pretenden ser iniciativas y luego descartarlas prontamente . Señala que si se mide el progreso examinando el crecimiento del comercio, la reducción de los tiempos de espera en las fronteras y el apoyo público a la integración, todas estas iniciativas han fracasado miserablemente. Lo que falta, según Pastor, es una visión norteamericana basada en la simple premisa de que cada país se beneficia de sus vecinos y cada uno de ellos se ve disminuido por sus problemas o contratiempos. Tal visión estimula una nueva conciencia, una nueva forma de pensar sobre los vecinos de uno y sobre la agenda continental para que los estadounidenses, los canadienses y los mexicanos puedan ser nacionales y norteamericanos al mismo tiempo. Según Pastor, esta visión de Norteamérica podría evolucionar de una unión aduanera y un equipo común de guardias fronterizos y aduaneros en los perímetros continentales, eliminando así las costosas y engorrosas reglas de origen y permitiendo que todos los bienes legítimos se muevan sin problemas A través de las fronteras. Para ello, los tres gobiernos tendrían que negociar un arancel externo común. Dado el tamaño y la proximidad de los Estados Unidos, las cuestiones bilaterales siempre estarán en la agenda política canadiense. Sin embargo, como señala Head (2007, 446), la cuestión importante con respecto a la cuestión estratégica y la mejor asignación de los recursos de negociación comercial se refiere a nuestro esfuerzo al margen: ¿La asignación de más recursos a una integración más profunda con los EE. UU. Beneficios netos marginales que una asignación de recursos similar dirigida a una integración más amplia con el resto del mundo. En su opinión, Canadá no puede maximizar sus beneficios del comercio internacional al desvincularse de las tres cuartas partes de la economía global que está fuera de los Estados Unidos. Helliwell (2002) también cree que, si se enfrenta con una opción entre una política orientada a nivel mundial y una que tiene su enfoque principal en continuar los esfuerzos para armonizar las políticas con las de los Estados Unidos, la decisión es obvia, La economía mundial está destinada a encogerse. En respuesta a esta perspectiva estratégica, los enfoques tácticos de la política comercial en el último decenio han sido escasamente difundidos en las negociaciones comerciales multilaterales en las negociaciones comerciales bilaterales o regionales de la Organización Mundial del Comercio (OMC) y en las misiones de Team Canada para promover el comercio Y la inversión en todo el mundo. Sin embargo, las reclamaciones relativas a los beneficios de tales esfuerzos para diversificar el comercio fuera de los Estados Unidos rara vez están respaldadas por rigurosos análisis empíricos. Este estudio intenta llenar este vacío estimando los beneficios económicos de la implementación de una unión aduanera norteamericana y comparándolos con los beneficios de incrementar la participación de Canadá en el comercio con Europa y / o grandes economías emergentes. A diferencia de los análisis más tradicionales de la diversificación del comercio, nuestro trabajo examina el papel potencial de los cambios demográficos en los términos de intercambio de Canadá y muestra que son lo suficientemente grandes como para justificar la consideración en el desarrollo de la política comercial. Antes de emprender el análisis empírico, será útil proporcionar los fundamentos teóricos básicos de las principales opciones estratégicas para la política comercial de Canadá y su posible impacto en la diversificación del comercio. En términos generales, existen tres opciones: reducir las barreras comerciales en un amplio espectro de países (multilaterales) profundizar el actual Tratado de Libre Comercio de América del Norte (TLCAN) y reducir las barreras comerciales con un grupo seleccionado de países para fomentar la diversificación fuera de los Estados Unidos. Diversificación del comercio a través de negociaciones comerciales multilaterales Tal vez el principal factor impulsor del comercio en el período posterior a la Segunda Guerra Mundial ha sido la disminución constante de los aranceles negociados a través de los Acuerdos Generales sobre Aranceles y Comercio (GATT) y su sucesor, la OMC. Estas negociaciones multilaterales para reducir las barreras comerciales en un amplio espectro de países siguen siendo, en teoría, la mejor manera para que Canadá (y todas las otras naciones comerciales) maximicen los beneficios del comercio. Además, siguen siendo una buena táctica para que un país utilice para diversificar a sus socios comerciales, ya que estas negociaciones pueden ser vistas como una forma de contrarrestar los efectos de desviación de comercio creados por los PTA, incluyendo el TLCAN. Los efectos perniciosos de las PTA, que incluyen acuerdos de libre comercio regionales y bilaterales como el TLCAN y las uniones aduaneras, como la primera encarnación de la Unión Europea en los años sesenta, buscan reducir o eliminar las barreras comerciales entre los países miembros pero mantenerlos para los no miembros . Las opiniones sobre estos PTAs han evolucionado a lo largo del siglo XX. Durante la década de 1930, algunas naciones usaron el comercio exterior para tratar de aumentar su poder, haciendo que otras naciones dependieran más económicamente de ellas. Hirschman (1945) da el siguiente ejemplo: El país B puede tener una ventaja comparativa en la producción de un determinado producto con respecto al país A, pero no con respecto a los países C, D, E, etc. Inducido B a producir este producto para la exportación, A se convierte en el único mercado de B8217s, y la dependencia de B sobre A puede valer a A el costo económico involucrado en no comprar en el mercado más barato. (31-2) El establecimiento de la cláusula de nación más favorecida (NMF) en el GATT, y luego la OMC, que automáticamente extiende a cada país miembro el arancel más bajo extendido a cualquier miembro, tenía la intención de frenar la capacidad de los países más poderosos Mercado para crear dependencia política de sus concesiones comerciales. Como señaló Heidrich y Tussie (2010), al adoptar la no discriminación como pilar, el sistema del GATT fue visto como un medio para erosionar la dependencia comercial de las potencias imperiales, al mismo tiempo que se protegen los intereses de las naciones más pequeñas restringiendo la capacidad de los países Países más poderosos para amenazar la suspensión de las preferencias comerciales. Según Bhagwati (2008), las APCs desde la Segunda Guerra Mundial no han sido motivadas por estas sórdidas opiniones del pasado, sino que reflejan un profundo malentendido de la diferencia crítica entre las preferencias comerciales regionales o bilaterales y una verdadera liberalización del comercio no discriminatoria incorporada en la OMC. Para Bhagwati, la actual corriente de PTAs ha sido el resultado de políticos erróneamente, y de manera no coordinada, que persiguen acuerdos de libre comercio porque piensan (erróneamente) que están persiguiendo una agenda de libre comercio (11). Cuando se forma una PTA y se eliminan las barreras comerciales entre los miembros, el resultado es, por supuesto, un comercio más libre. Pero si los países miembros mantienen las barreras externas, entonces aumenta la desventaja que sufren los no miembros en los mercados de los países miembros. 3 Por lo tanto, las PTA son fundamentalmente discriminatorias, lo que lleva a Bhagwati a sugerir que en la actual pandemia de acuerdos preferenciales debemos llamar más apropiadamente al arancel NMF en la OMC la tarifa de nación menos favorecida Bhagwati cree que la cura para la pandemia PTA es reducir progresivamente la Los aranceles NMF a cero, lo que eliminaría efectivamente las preferencias en los ACP, y por lo tanto los haría inútiles. Georges (2010) ha demostrado que la eliminación multilateral de los aranceles NMF aumentaría permanentemente el PIB real de Canadá en al menos un 1% (y probablemente considerablemente más). Todo esto sugiere que Canadá no debe descuidar la importancia de las rondas multilaterales de negociación en la OMC. La continua liberalización del comercio multilateral aumentaría el comercio entre los países industrializados (incluido el Canadá) y las economías emergentes, dado que los primeros generalmente tienen aranceles NMF mucho más bajos que los últimos. Por lo tanto, las reducciones arancelarias multilaterales obviarían la necesidad de que las PTA entre Canadá y las economías emergentes estimulen la diversificación. Sin embargo, dado el estancamiento estructural en la Ronda de Doha, esta táctica puede resultar difícil, si no imposible. El problema es la falta de voluntad política y el apoyo de cabildeo. En primer lugar, Hart (2007, 414) señala que Canadá se ha encontrado en gran medida al margen de las negociaciones de la OMC, incapaz de contribuir de manera constructiva, en parte porque los políticos canadienses de todas las ramas, convencidos del peso político del lobby de la Gran Bretaña, El Canadá hace todo lo posible para reducir las barreras comerciales y los subsidios a las exportaciones de Canadá, pero no a expensas de la gestión de la oferta y la comercialización monopolística del trigo y la cebada. Segundo, como lo dice Bhagwati (2008, 87), los lobbies proporcionan a los soldados de infantería en las batallas para abrir el comercio. Parafrasearlo, el lobbying del dinero que usted gasta en abrir el mercado indio a través de un acuerdo bilateral, si tiene éxito, consigue el mercado indio abierto a usted. Pero si usted gasta ese mismo dinero en Ginebra, abriendo el mercado indio en forma multilateral, los beneficios para usted serán diluidos por los jinetes de otros países que no han gastado dinero en apoyo de este objetivo. Por lo tanto, el dinero se gasta mejor en acuerdos bilaterales. Una unión aduanera entre el Canadá y los Estados Unidos, el TLCAN eliminó los aranceles para el comercio continental, pero cada país miembro mantiene sus políticas de comercio exterior y aranceles externos con respecto a los Estados no miembros. Esto incentiva a las empresas de no miembros a exportar sus bienes al país miembro con los aranceles externos más bajos y luego el transbordo al destino final para aprovechar el trato preferencial del NAFTA8217s. Para evitar esa desviación del comercio, el TLCAN (y de hecho todos los TLC) tienen reglas de origen que están diseñadas para restringir los beneficios del trato arancelario preferencial a los productos fabricados total o sustancialmente dentro de la zona de la PTA. Esto asegura que los bienes que simplemente están siendo transbordados o que sólo experimentan transformaciones menores en un país miembro no serán considerados originarios de ese país y no recibirán trato preferencial cuando se reexporten a otro país miembro. Mientras que un TLC requiere reglas de origen preferenciales para evitar la desviación del comercio, una unión aduanera no lo hace. Los elementos centrales de una unión aduanera son la negociación de un arancel externo común con respecto a los no miembros, un acuerdo de reparto de ingresos para los derechos de aduana recaudados en la frontera exterior y las políticas armonizadas de comercio exterior. La armonización de los obstáculos al comercio exterior con respecto a los no miembros elimina el incentivo para la deflexión y el transbordo del comercio, lo que hace innecesarias las normas de origen: los movimientos de mercancías dentro de una unión aduanera no se basan en su carácter originario sino en el principio de libre circulación. 4 Las reglas de origen son complejas y costosas de cumplir. En el TLCAN existen tres pruebas de origen: el cambio en la prueba de clasificación arancelaria (utilizado con mayor frecuencia), el ensayo de contenido de valor y la prueba del proceso de producción específico. 5 El capítulo 4 y el anexo 401 del TLCAN contienen unas 200 páginas que tratan sobre las normas de origen y la interpretación de estas reglas, ya que se aplican a determinados productos. Muchos estudios han demostrado que las normas de origen, al tiempo que eliminan la deflexión del comercio, también distorsionan los flujos comerciales y reducen la eficiencia en el proceso de producción. Por ejemplo, las normas de origen del TLCAN alientan a las empresas a sustituir los productos intermedios (es decir, las partes y componentes necesarios para producir un producto acabado) originarios de la zona para obtener materiales no originarios menos caros para obtener un trato comercial preferencial (véanse, , Krishna 2005 Georges 2008a). Esto implica que las reglas de origen del TLCAN tal como están diseñadas actualmente pueden impedir que las empresas norteamericanas aprovechen al máximo las cadenas de producción globales. La eliminación de las normas de origen serviría así para fomentar la diversificación geográfica de las cadenas de suministro. Un problema relacionado con las normas de origen es que la fragmentación de las cadenas de suministro amplifica la complejidad de asignar origen a un solo país, ya que muchos bienes utilizan factores primarios propiedad de residentes de países distintos de aquél en el que se produce el bien o etapa Principalmente con la inversión extranjera directa y, en menor medida, con el movimiento internacional de mano de obra). En tal caso, el origen de los bienes comercializados se vuelve ambiguo, ya que está dividido entre los factores de propiedad de los residentes de una serie de países (Lloyd 1993). En una sección posterior de este estudio se evaluarán numéricamente los efectos y las ganancias potenciales del cambio a una unión aduanera con los Estados Unidos que también liberalizarían las reglas de origen del TLCAN. Pero es la opción técnica o políticamente factible El primer desafío técnico importante con la negociación de una unión aduanera norteamericana implica la armonización de la política comercial. Esto no sólo requeriría la selección de un arancel externo común o la liberalización de las normas de origen del TLCAN. Como afirman Meilke, Rude y Zahniser (2008), uno de los temas más espinosos sería los diferentes TLC que los países de América del Norte han negociado por separado (véase la figura 3). Una unión aduanera de América del Norte completa podría requerir la conciliación eventual de las reglas de origen utilizadas en cada TLC (excluyendo el TLCAN, por supuesto, ya que las reglas preferenciales de origen del TLCAN ya no existirían) en un proceso similar al de 1997 - Sistema europeo de acumulación diagonal aplicado por la Unión Europea. Por lo tanto, debe buscarse y alentarse a las investigaciones de Augier, Gasiorek y LaiTong (2005) sobre la acumulación de normas de origen, y de Cornejo y Harris (2007) sobre un régimen general de origen como mínimo indispensable para interconectar efectivamente los TLC existentes. Mejor medir el desafío técnico de hacer esta reconciliación. La segunda consideración es que pasar a una unión aduanera haría que las reglas de origen fueran redundantes sólo si el objetivo de las reglas era eliminar verdaderamente la deflexión del comercio. Pero esa interpretación, por común que sea, es algo inconsistente con la observación de que Estados Unidos es el miembro del TLCAN que insistió en reglas de origen estrictas, mientras que también es el miembro con los aranceles NMF más bajos. Por consiguiente, la desviación del comercio beneficiaría a los Estados Unidos, no a México ni al Canadá, en términos de ingresos arancelarios. Esto sugiere que la verdadera razón de tener reglas de origen en el TLCAN (y en cualquier TLC, en este caso) podría ser actividades de búsqueda de rentas por grupos de interés en lugar de una preocupación genuina por la desviación del comercio. De hecho, las coaliciones transfronterizas e intranacionales de industrias que respaldaban el acceso libre de impuestos a cambio de reglas estrictas de origen eran probablemente el factor principal detrás del éxito de las negociaciones del TLC en los años 80 y 90 (Destler 2006). 6 La implicación lógica parece ser que estos grupos inevitablemente ejercerán presión en contra de la liberalización de las reglas de origen y, por lo tanto, contra cualquier agenda para una unión aduanera norteamericana. Sin embargo, este argumento en contra de la viabilidad política de una unión aduanera puede ser exagerado, ya que la economía política que apoya reglas estrictas de origen ha ido erosionando y continuará erosionándose debido a las nuevas cadenas de suministro internacionales. Por ejemplo, según Baldwin (2009, 40), es posible que las reglas de origen de las ROOs ahorren empleos en la industria, pero cuyo argumento nacionalista para ROO tiende a hacerse borroso. Por otra parte, si la desagregación resulta en una multiplicación de empresas, dificultará la organización política. La diversificación del comercio fuera de los Estados Unidos a través de acuerdos comerciales bilaterales y preferenciales Según Helliwell (2002, 86), Norteamérica está destinada, a través de las fuerzas conjuntas de demografía y de recuperación tecnológica, a ser cada vez más pequeña en la economía mundial . Enfocar el énfasis en la parte más pequeña del pastel mundial puede parecer atractivo durante los tiempos de auge en la economía de Estados Unidos, pero sería una estrategia miope. Aunque la tesis de Helliwell es extensa y no se limita a las relaciones comerciales, ilustraremos el discurso que esta noción típicamente genera en el contexto de la política comercial. En primer lugar, la diversificación comercial no debe entenderse en términos de empleos netos adicionales que el comercio de Canadá con socios no norteamericanos pueda generar. Los empresarios y los políticos tienden a pensar que un aumento de las exportaciones canadienses a mercados de rápido crecimiento aumentará el empleo. Sin embargo, lo que podría ser de sentido común para determinadas empresas no es necesariamente cierto para un país en su conjunto (Krugman 1996), en este caso porque existe un límite eventual a la baja tasa de desempleo sin crear una inflación inaceptable. If Canada8217s economy were to experience a large surge in exports to, say, China and India, the Bank of Canada would eventually need to offset the expansionary effect of the exports by raising interest rates, and an increase in export-related jobs would be more or less matched by a loss of jobs in interest-rate-sensitive sectors of the economy. Second, trade diversification away from the United States is often construed as an insurance policy for Canada and Canadian exporters against US recessions. In other words, trade diversification would reduce the risk of having all of one8217s eggs in the same basket and therefore reduce the volatility of the incomes of Canadian exporters. Clearly, this view requires that recessions in the rest of the world be unsynchronized with those in the United States if all markets are subject to the same business cycles, then there may be little benefit to diversification in this regard. More fundamentally, welfare gains in standard trade models are derived from specialization in production and trade flows, not from diversification per se. So, the cost of greater income risk must be set against the benefit of specialization. In other words, there might be a trade-off between the gains from specialization derived from deep integration with the United States and the income volatility that the lack of market diversification affords. Goldfarb (2006) has analyzed this portfolio-type argument that the status quo delivers volatility. She argues that over the past decade, Canadian exports to the U. S. have been less volatile on average than have exports to most other regions. Where they have been more volatile, they have been accompanied by significant trade growth. Shifting exports away from the U. S. over the past decade would have increased volatility and decreased trade growth, making Canada worse off, assuming all else was equal (18). In the same vein, Beaulieu and Emery (2006, 269) argue that incomes from trade can be expected to be high and low depending on demand for Canada8217s exports, but total income over time will presumably be maximized by Canada specializing in its comparative advantage and exporting to the highest price buyer8230This will mean that we remain highly dependent on the U. S. market and subject to considerable income risk and income volatility. For them, income-smoothing tools (employment insurance, personal savings) and institutions (the Canadian Wheat Board and other price and revenue stabilization funds) are the proper instruments for addressing these issues of volatility in economic markets as a more direct alternative to a strategy of diversifying export markets. Export diversification is often dismissed from another angle by questioning the ability of governments to change trade patterns. For example, Goldfarb (2006, 2) claims that individuals, rather than governments, determine economy-wide trade patterns, which would in part explain why past efforts by governments to change trade patterns have failed. Taken at face value, this argument seems, in a slightly cavalier way, to dispose of 60 years of research on trade creation and diversion effects due to (government-negotiated) FTAs, and possibly to underestimate the current Canadian concerns with respect to (government-imposed) border security measures post-9/11. However, as Goldfarb rightly points out, for now, businesses continue to solidify their economic links in the U. S. while growing them at a faster rate outside of the U. S. as opportunities arise and relative risks fall (26). And indeed, businesses take advantage of these opportunities. For example, Cadot et al. (2010) have shown that since the early 2000s OECD markets have been diversifying their sources of supplies geographically, and that this recent trend of import diversification is broadly consistent with a quality search model where buyers screen foreign suppliers (and hence countries) for quality before deciding which suppliers should be included in cross-country supply chains. As noted earlier, figure 1 also shows a clear trend toward increased import diversification for Canada since 1998. This might suggest that import rather than export diversification, is a relevant, even if neglected, issue, and that the Canadian government should bend with the wind of marketdriven import diversification. 7 Consistent with Beaulieu and Emery (2006), the natural policy approach seems to let Canada specialize in its comparative advantage while freely importing from the lowest cost/price producers. This, of course, is also consistent with our viewpoint that further multilateral negotiations at the WTO remain important, as does further liberalization of (NAFTA) rules of origin, with the aim of giving Canadian firms full advantage of global supply chains. This also is consistent with a government-led intensification of trade flows to and from emerging markets, implemented through selected FTAs, which would enable Canada to import more intensively from low-cost sources as well as providing larger export markets. Potential Benefits of a North American Customs Union As noted previously, all FTAs have rules of origin designed to restrict the benefits of the preferential tariff treatment to products originating in the member countries. Being the gatekeepers of preferential trade, rules of origin also eliminate trade deflection by ensuring that goods that are simply being transshipped through a member country or undergoing only minor transformations there will not be deemed to originate in that country, and will not receive preferential treatment when re-exported to another member country. However, rules of origin are also costly, and to gauge these costs, the econometric literature has constructed an index of the restrictiveness of rules of origin as an independent variable in order to estimate their economic impact on bilateral trade flows, preferential tariff utilization rates and investment flows. 8 On the basis of these studies, it is now generally acknowledged that in some instances firms have decided to pay the MFN tariff rather than to incur the cost of complying with rules of origin, automatically cancelling the potential trade-creating benefits of FTAs. Also, the diversity of rules of origin across FTAs has severely limited interregional trade flows, and the restrictiveness of some rules of origin is beyond the levels that would be justified to prevent trade deflection. 9 Whereas an FTA requires preferential rules of origin to prevent trade deflection, a customs union does not. Hence, some economists have suggested transforming NAFTA into a customs union (e. g. Kunimoto and Sawchuk 2005 Ghosh and Rao 2005 Pastor 2008 Georges 2008b, 2010). Gauging the economic impact of converting NAFTA into a customs union requires estimating the joint effect of adopting a common external tariff and eliminating rules of origin, which can (roughly) be decomposed into two effects: (1) the pure effect derived from the adoption of a common external tariff, and (2) the pure effect derived from the elimination of rules of origin. Given that the two joint policies imply complex interconnections between the use of raw materials, intermediate goods and value added, Georges (2008b) proposes a general equilibrium framework to gauge the impact of moving from NAFTA to a customs union that also eliminates rules of origin. The approach uses a multicountry, multisector, dynamic general equilibrium model in which the world economy consists of seven countries/regions divided into two groups: NAFTA countries (Canada, the United States and Mexico) and non-NAFTA countries (Mercosur which consists of Brazil, Argentina, Paraguay and Uruguay the rest of Latin America Europe and the rest of the world). Each country has eight sectors of production: agriculture, natural resources, food processing, textiles and clothing, manufacturing, technology products, automotive products, and services). We set the common external tariff to the existing US external tariff (currently the lowest, on average, of the three NAFTA members), on the assumption of limited Canadian negotiation power on this score. 10 With regard to the costs of rules of origin, the modelling approach is based on the fact that they act as an implicit tax to NAFTA firms for the use of non-originating intermediate goods, but as an implicit subsidy for the use of capital, labour and intermediate goods purchased within NAFTA (see Georges 2008a for a mathematical approach to this problem and Georges 2010 for a graphical presentation). Therefore, the main impact of removing rules of origin is to reallocate efficiently the demand for factors of production in each sector of the NAFTA countries, lowering NAFTA firms8217 demand for capital, labour and NAFTA intermediate goods, but increasing the demand for non-NAFTA intermediate goods. The efficient reallocation of factors of production within NAFTA will also lower the unit cost of production in every sector of the NAFTA countries. 11 Using this modelling approach, we compare two counterfactual scenarios: (1) negotiation of a North American customs union in the mid-1990s (replacing NAFTA) (2) negotiation of such a customs union in the early 2000s. Figure 4 shows the results of the simulations and decomposes the sources of the gains into those due to the common external tariff, those due to eliminating rules of origin, and those due to a cross effect of both factors. 12 The first observation is that the benefits of a customs union tend to decrease over time. The benefits would have been much larger had a customs union been negotiated as part of replacing or upgrading NAFTA in the mid-1990s. This would have led to a permanent increase of nearly 1 percent of Canadian GDP (about 15 billion per year in today8217s dollars). If we had waited a decade to negotiate such an agreement, the benefits would have been only about half as large. The likely reason why potential benefits have declined since the 1990s is that multi-lateral tariff reductions agreed to in 1994 during the Uruguay Round (which were gradually implemented over the following decade) have reduced the relative advantage of NAFTA (i. e. MFN) tariff preferences. As a result, it became more common for North American firms to pay non-NAFTA tariffs for intracontinental exports rather than bearing the costs of complying with rules of origin. This pattern provides empirical confirmation of the notion that PTAs lose their value with declines in MFN tariffs agreed during multilateral rounds (Bhagwati 2008), as discussed earlier. The second important point is that elimination of rules of origin matters to Canada more than a common external tariff. Figure 4 shows that elimination of rules of origin accounts for the vast bulk of economic benefits. Therefore, the main motivation for advocating a North American customs union should be rules-oforigin liberalization and not the establishment of a common external tariff. In terms of effects on specific sectors, negotiating a customs union would have had the strongest impacts on the natural resources, automotive products and technology products sectors (figure 5). Recalling that the removal of NAFTA rules of origin eliminates the implicit subsidy on North American intermediate goods and lowers the costs of final goods, then, sectors of production should be negatively affected by this shock when their production is used as intermediate goods, and positively affected when their production is for final uses. All sectors of the economy use natural resources intensively as an intermediate good. Therefore, the removal of rules of origin induces strong substitution of nonNAFTA resources, which has a negative impact on the Canadian resources sector (-6.6 percent in figure 5). The automobile and technology products sectors intensively use intermediate goods, and they gain from rules-of-origin liberalization (13.4 percent and 3.3 percent), as they are in position to buy cheaper intermediate goods from the rest of the world, which improves their efficiency (see Georges 2010 for further details). 13 In conclusion, the idea that a North American customs union and elimination of rules of origin hold large aggregate economic benefits for Canada is not borne out by quantitative analysis. The economic effects are positive, but they have decreased over time, and will continue to decrease to the extent that multilateral tariffs continue to fall. We estimate that negotiating a customs union with the United States and Mexico would increase Canadian output by about 0.5 percent annually, or 7 billion in today8217s dollars. Potential Benefits of Diversifying Trade Away from the United States: The Demographic Dimension As noted earlier, arguments in favour of diversifying trade away from the United States to other parts of the world are not new. Some of them, such as the notion that diversification would reduce the volatility of Canada8217s trade flows, are not supported by recent data on economic volatility (Goldfarb 2006). Others, such as the notion that Canada should seek to spur trade ties to fast-growing emerging markets, are actually being borne out to varying degrees as a result of market forces. For example, Canadian exports to countries outside the OECD increased from 8 percent in 2004 to 15 percent in 2009, while the US share decreased from 84 percent to 74 percent. Here we examine a demographic argument in favour of trade diversification. The link between demographic change and trade patterns A typical framework (see, for example, Foot 2007) used to discuss the impact of population aging on GDP per capita decomposes this ratio into five terms productivity, effort, employment rate, labour force participation and the ratio of adults to total population: The literature generally suggests that population aging might tend to reduce the first four ratios to the extent that older workers are less productive, they choose to work fewer hours, they are discriminated against owing to their age, or they decide to retire early and leave the labour force entirely. It is thus generally thought that aging societies are at risk of economic slowdown relative to more youthful nations. Trade fits into this framework indirectly at best, to the extent that international trade tends to enhance productivity (see Lopez 2005 for a survey of the trade-productivity literature). However, the impact of trade flows can be more clearly understood if we look at how the terms of trade affect the relationship between real gross domestic income and real gross domestic product. In a closed economy (with no tax), these quantities are identical, because the price index for produced goods is the same as the price index for purchased goods. But in the presence of international trade, the price indices for produced and consumed goods need not be the same, and variations in the ratio (known as the terms of trade) can have a strong impact on consumption (and therefore economic well-being), as illustrated in the following equation: where real consumption (per capita) is defined as real disposable income minus real private saving, and the term of trade is given by the ratio of PQ (the price of the domestically produced goods) over PCON (the consumer price index defined as a weighted average of the price of the domestically produced goods and the foreign produced goods). An example is Canada8217s experience in the 2000s. Thanks to a commodities boom that increased the prices paid for Canada8217s raw materials exports (combined with relatively stable consumer prices), Canada8217s terms of trade improved dramatically. From 2003 to 2008, Canada8217s real gross domestic product grew by 2.5 percent annually, but real gross domestic income increased by 3.9 percent annually. The extra purchasing power was due to improvements in the terms of trade. While the impact of demographic change on GDP per capita is well understood, it is also true that global demographic shifts can have marked effects on the terms of trade. As a nation8217s population ages, the supply of the goods it produces falls while their prices increase, hence improving its terms of trade relative to younger nations. Clearly, a relatively closed economy could not benefit from improvement in terms of trade. But an open economy with some market power, such as Canada, could potentially mitigate the adverse economic impact of an aging domestic population by selecting younger (and faster-growing) trade partners. This would result in stronger downward pressures on Canada8217s consumer price index (as consumers and firms import more from countries with relatively falling producer prices owing to their young population and fast growth), thus improving further its terms of trade. (Note that some degree of specialization and thus market power in production is essential for the terms of trade effects we describe here. 14 ) To examine this demographic dimension of trade diversification, we draw on work by Georges, Merette, and Seckin (2009), which uses a multicountry overlapping-generations model that is fully described in Merette and Georges (2010). The model economy is made up of seven regions. North America is disaggregated into the United States and Canada, to distinguish the impacts of aging on a relatively closed economy from those on an open economy. Europe is aggregated into one region: the EU-15. 15 Asia is disaggregated into three countries: Japan, a developed country with an already aging population and China and India, emerging countries with very different demographic projections. The rest of the world is aggregated into one residual region. International trade is modelled by assuming that each region in the model produces a single good that is an imperfect substitute for the good produced in any other region. Therefore, households in each region consume a basket of all the goods produced in all regions of the world. Demographic projections and simulation results Population aging results from a combination of factors, the most important of which are rising life expectancy and declining fertility rates. Table 1 provides the assumptions behind the medium variant scenario of the United Nations demographic projections in each region of the world, including the effects of international migration. The demographic assumptions contained in table 1 can be used to project the impact on the old age dependency ratio (population aged 65 and over as a ratio of the population aged 15 to 64) as given in figure 6, for each region of the world, over the period 2000-60. As can be seen, Japan is by far the fastest aging country, with the elderly dependency ratio rising from 28 percent in 2000 to 70 percent by 2040. The EU-15 has the second-highest ratio, followed by Canada, whose elderly dependency ratio is expected to rise from 18 percent in 2000 to about 43 percent in 2040. In contrast, the United States has a more moderate increase in the elderly dependency ratio, which is projected to move from 19 percent in 2000 to 32 percent in 2040, in part because it has a much higher total fertility rate than most industrialized countries. The Chinese elderly dependency ratio follows a quite different pattern than that in the other regions. In 2000, China had one of the lowest ratios (about 10 percent). However, the drastic fall in the fertility rate starting in the 1979 as a result of the one-child policy, combined with net out-migration will lead to a sharp increase in the dependency ratio over the next several decades, reaching 30 percent in 2040 and continuing to rise. Finally, India has a relatively young population, and its elderly dependency ratio is expected to rise only modestly from 10 percent in 2000 to less than 20 percent in 2040. As noted earlier, population aging will lead to a reduction in labour force growth, which will put downward pressure on GDP growth. Figure 7 illustrates the impact of population aging in our multicountry model on real GDP per capita through 2060, abstracting from technical progress (that is, total factor productivity growth). For ease of comparison across regions, variables are normalized to 100 in 2000. As expected, among all regions, Japan and the EU-15 are the most negatively affected by population aging, with an earlier and sharper decline than the others in real GDP per capita. Aging has already begun to exert a negative effect on real GDP per capita in both Japan and the EU-15, although this effect has been delayed somewhat in other regions. Population aging in Japan and the EU-15 is projected to reduce real GDP per capita by about 15 percent between 2000 and 2050. Soon, North America will also be negatively affected by aging. Demographically driven real GDP per capita for Canada and the United States peaks in 2010, but population aging will lead to declines thereafter. The impact of aging on Canada is much more pronounced, with a fall of 11 percent between 2000 and 2050 as opposed to 6 percent for the United States over the same period. Looking at the other side of the aging spectrum, India has a relatively young population and strongly benefits from the demographic changes as its real GDP per capita increases until 2030 and then stabilizes thereafter at that level. Finally, the impact of aging in China is stunning. The Chinese economy has an abundant workforce at the turn of the twenty-first century, and this has supported real GDP per capita until now. Soon, however, as the demographic shock in China resulting from the one-child policy starts to kick in, the labour supply falls dramatically and contributes to lower real GDP per capita. By 2050, the fall in real GDP per capita (of close to 15 percent with respect to 2000) is similar to the one Japan is likely to experience. It is important to recall that technical progress and innovation, which contribute to long-term growth in GDP, have been excluded from these forecasts, and in that sense the figures reaffirm the need for aging societies to adopt policies to accelerate productivity growth. In Canada, for instance, these projections imply that total factor productivity growth must increase by at least 13 percent over the next 40 years just to prevent GDP per capita from declining, let alone continuing to grow at rates to which Canadians are accustomed. Although the demographically driven downward pressure on GDP per capita will contribute to lower consumption per capita, globalization through international trade can help offset some of this through favourable terms of trade effects. To the extent that population aging reduces the relative supply of a country8217s good with respect to that in other regions, the relative price of its good will increase, and older countries should see an improvement in their terms of trade. Table 2 illustrates this by showing the projected terms of trade for the seven regions included in our model, and confirms that the fastest-aging nations have the largest increases in their terms of trade. An improvement in the terms of trade means that countries can import more than before for a given amount of exports, thus allowing domestic real consumption to increase. Figure 8 shows projected changes in per capita real consumption driven by demographic change (and the resultant changes in terms of trade) for the seven regions, and the patterns are quite different from those for per capita GDP. Real consumption per capita in Japan tends to fall because of the strong fall in GDP per capita shown in figure 7. Although Japan does see strong aging-related improvement in its terms of trade, the economic benefits are negligible because international trade is a relatively small share of its economy. In contrast, the more open economies of Canada and the EU-15 strongly benefit from the terms of trade appreciation. Indeed, for Canada this effect offsets the negative effect of aging on GDP per capita shown in figure 7, allowing real consumption per capita to increase until 2020, after which it declines until 2050 by roughly 3 percent. While the United States outperforms Canada in terms of demographically driven GDP per capita, Canada8217s per capita consumption does not fall below its 2010 level for most of the twenty-first century, whereas the United States remains below its 2010 level for most of the following decades. This reflects the fact that Canada has a more open economy and its terms of trade are likely to improve more. Because Canada8217s consumption per capita will move in the opposite direction to GDP per capita until 2020, the Canadian economy will experience an enriching decay, that is, the improvement in the terms of trade is large enough to outweigh the negative impact of aging on domestic economic growth. This situation is the opposite of the famous immiserizing growth scenario described by Bhagwati (1958). India gets a strong boost in real consumption per capita, despite deterioration in its terms of trade, as a result of a strong positive GDP per capita effect. This effect is itself stimulated by capital deepening in India, as its advantageous demographic position increases the productivity of capital and attracts foreign investment (Merette and Georges 2010). The case of China is again striking, especially when observing the diametrically opposite directions taken by China and India8217s real consumption paths from 2000 on. For China, both GDP and terms of trade effects contribute to reinforce the negative impact on real consumption per capita. Indeed, the timing of the one-child policy makes the Chinese economy a (still) relatively young country with respect to OECD countries but also an old one with respect to India and other parts of the world. Being caught between younger and older countries, the Chinese economy does not benefit from terms of trade appreciation occurring in the older, more open OECD countries, nor does it strongly benefit from capital deepening through net foreign capital inflows (Merette and Georges 2010). Economic effects of trade diversification away from the United States The foregoing projections have assumed that Canada pursues no explicit policies to diversify trade away from the United States. However, by examining alternative scenarios in which trade shares are modified from their baseline values, we can estimate the effect of trade diversification away from the United States on Canada8217s real consumption per capita. Figure 9 shows how Canada would gain or lose in terms of real consumption per capita if it diversified its trade away from the United States in favour of specific trade partners. For these experiments, we reduced the US share in total Canadian imports by 10 percentage points, a 2.5 percentage point increment every decade for 40 years, while successively increasing the share of other partners (see table 3 for details on alternative scenarios). Our results indicate that, relative to the baseline case of unchanged US trade dependence, Canadians would benefit from a diversification scheme with India the improvement in terms of trade would be large enough to boost Canadian consumption per capita by almost 4 percent relative to 2010 and to a lower degree with China. In sharp contrast, a diversification scheme with the EU-15 or with Japan would actually reduce real consumption per capita slightly. For example, if Canadian firms and consumers increased the share of Indian goods in their imports by 10 percentage points, this would offset the negative impact of aging by propping up the real consumption per capita along a slowly upward-sloping path above its 2020 level. Therefore, between 2020 and 2050, real consumption per capita in Canada would increase by about 1.9 percent instead of falling by 2.8 percent, and would stand at roughly 4.7 percent above its baseline level in 2050. Diversifying to the EU-15 instead of India would cost Canadians roughly 6 percent of real consumption per capita by 2050. Figure 10 shows the results for diversification schemes to mature industrialized economies and emerging economies. In the mature markets, the shares of Japanese and EU-15 goods each increase by 5 percentage points in total Canadian imports, while the US share falls by 10 percentage points. The emerging markets diversification scheme represents a weighted average of the previous diversification schemes to China, India and the rest of the world the 10 percentage point share increase is spread equally between the three regions. The rest of the world is a composite of all remaining countries/regions of the world, such as Russia, Africa, Brazil and South America, Oceania, the Arab countries, Turkey and the Central Asian countries. Figure 10 illustrates that, according to our simulations, emerging-market diversification schemes may prop up Canadian real consumption per capita, whereas mature-market diversification schemes would amplify the expected burden associated with population aging in Canada. The broad strategic choice of diversifying to mature markets instead of emerging markets would cost Canadians roughly 5 percent of real consumption per capita by 2050. Caveats regarding our models We need to be very explicit about what our modelling exercise does and does not do. Our focus has been on the impact on real consumption of an exogenous change in trade shares that would diversify our trade pattern away from the United States, and not on the mechanism that might lead to a change in these shares. The size, composition and direction of trade flows result from the decisions of millions of private producers and consumers. Government policy may have an influence on these decisions, but bringing about a large and rapid shift of trade shares might require strong policy measures. 16 When Prime Minister Diefenbaker announced in 1957 that Canada would switch 15 percent of its trade from the United States to Great Britain, his plan would have required a doubling of UK exports to Canada, a willingness by Canadians to shun the many desirable goods they were buying from the United States while substituting less desirable goods from the United Kingdom, and the capacity of UK customers to double the value of their Canadian purchases (Hart 2002). Diefenbaker8217s policy was blurred by nostalgia for Canada8217s historic ties to Britain and by a lack of appreciation of commercial realities. Bearing his example in mind, we stress the importance of supplementing our analysis with studies of policies and institutions, such as bilateral trade agreements, that might be used to bring about endogenous changes in trade shares. A related but more subtle caveat asks whether we should even consider changing the baseline shares of the model. These trade shares are presumably already optimally chosen on the basis of the exogenous variables and parameters in the model. If we change the shares, we change consumer preferences so that we cannot make meaningful comparisons. 17 But are these baseline shares truly optimal Existing trade shares reflect all sorts of distortions in the economy, and the presence of social capital (trust, networks) or its lack may still prevent Canada from establishing deep economic ties with India, China or Brazil, even if these ties are desirable. Another caveat is the reliance of our model on a trade structure that assumes some degree of imperfect substitution between goods of different geographical origins, so that the law of one price does not hold. This assumption has been crucial in the economic literature (Helpman and Krugman 1985) in explaining some robust features of international trade, such as substantial two-way trade in similar products (intrasectoral trade) between countries. However, it also implies that each country has market power (and thus faces a downward-sloping export demand curve), so that quantity adjustment by producers to diverse shocks is somewhat muted by the lack of direct competition between regional producers, while terms of trade effects are greater as larger price changes are necessary to clear markets. 18 This assumption could be relaxed in future multisectoral analyses, depending on the nature of the goods (i. e. differentiated manufactured goods versus homogeneous primary goods that would follow the law of one price). Policy Implications We believe that the bilateral and regional trade agreements, which have proliferated in recent years a phenomenon referred to as the spaghetti bowl of PTAs are termites in the trading system that undermines true multilateral free trade (Bhagwati 2008). These agreements have become a way for the United States and the European Union to impose all sorts of trade-unrelated issues, cynically called trade-related issues in treaties. These include intellectual property protection, domestic environmental issues and labour standards, the last two presented as if they were altruistic measures aimed at benefiting foreign workers, even when they mask self-interest and new forms of protectionism. Multilateral trade liberalization negotiations at the WTO, which avoid quests for preferential access, remain the best strategy for countries seeking to take advantage of the international specialization of labour. 19 They permit countries to diversify trade partners by eliminating or mitigating trade preferences and their distortions. In consequence, the WTO model should be embraced by those in Canada who advocate trade diversification away from the United States. Given the political impasse at the WTO, Canadian policy-makers would be wise to consider second-best strategic options. This study has examined two possibilities: enhancing and deepening continental trade by negotiating a North American customs union, and attempting to diversify trade away from the United States to other regions of the world. The main benefit of a continental customs union would be the elimination of NAFTA rules of origin, which would reduce compliance costs and eliminate implicit subsidies and taxes on North American and foreign raw materials, intermediate goods and value added. Canadian firms could thus purchase intermediate goods where they are the cheapest, lowering production costs and enhancing competitiveness, which would induce further exports elsewhere in the world. Hence, paradoxically, deepening continental integration via a Canada-US customs union is another strategic direction, one that could also contribute to diversification of trade away from North America. If Canada is in search of a policy measure that might reconcile opponents and proponents of increased regionalism, this might be the one. Trade resources could be allocated away from the failed acronymic initiatives of the 1990s and 2000s (shown in figure 1) in order to pursue this option. However, our quantitative analysis shows that the long-term economic benefits are small about 0.5 percent of GDP annually (7 billion in current dollars) and will continue to get smaller to the extent that MFN tariffs continue to fall. With regard to the second strategic option, the economic benefits of diversifying trade away from the United States appear potentially larger than those of deepening North American integration, so long as trading partners are selected carefully. To date, however, Canada has adopted a scattershot approach, as shown in the box. As a general rule, Canada should negotiate agreements with relatively youthful nations (such as India, Brazil and, to a lesser extent, China) to take advantage of demographically driven improvements in its terms of trade as well as strong economic growth in these nations. Trade diversification to India, for example, would increase Canadian real per capita consumption by 2050 by nearly 5 percent relative to the scenario with no diversification. A more general effort to diversify trade to emerging markets outside North America and the EU-15 would result in a 3 percent increase in per capita consumption. From a demographic perspective, it would be unwise for Canada to try to diversify trade to Japan and Europe, notwithstanding the current government8217s intention to move ahead with negotiations for a comprehensive economic and trade agreement with the European Union. Our simulations show that this would actually reduce real consumption per capita relative to the scenario with no diversification. Canadian trade policy-makers might well reconsider the wisdom of pursuing these talks at the expense of other trade negotiations. Although the growth potential of China has attracted much attention, an analysis that takes into account demographic factors shows that India is an even more promising market in the twenty-first century. It may achieve its potential if it pursues its efforts to integrate the world economy through liberalization of both trade and capital flows, while accelerating the movement of its workforce out of agriculture and into the unskilled-labour-intensive industry of the organized sector (Panagariya 2006). Factors other than demographics clearly go into making a country an attractive trading partner for Canada. The most important of these are innovation and productivity, which serve not only to spur faster economic growth in our potential export markets, but also allow the fruits of foreign innovation to spill over to Canadian firms via foreign direct investment. Indeed, one of the great advantages of having such close trade ties to the United States is privileged access to the many innovations that originate there. While forecasts of global innovation are beyond the scope of this study, it is clear that China and India are both striving to transform their economies into innovation leaders, and their efforts only strengthen the argument for developing deeper Canadian trade ties with them. Their transformation into innovation leaders would also reinforce the favourable terms of trade effects. The tough question is, of course, how to diversify trade. As noted earlier, trade patterns are the result of millions of individual decisions made in the context of an existing set of tariffs and preferences. Past efforts to significantly change Canada8217s trade patterns largely failed to meet their goals. Policy-makers must see this diversification strategy as a long-term proposition by which cultural and nonbusiness ties, trust and networks can pave the way for trade missions and an eventual preferential trade agreement with countries such as India, Brazil and China. India is a promising candidate, because in addition to India8217s advantageous demographics and other circumstances, Canada8217s large Indian diaspora has already helped build cultural ties between the two nations, which also share a history as former possessions of Great Britain. As Dobson (2006, 20) suggests, India8217s demography and economic momentum argue for greater Canadian policy attention she argues that an FTA negotiation would send a powerful signal of commitment8230to Canadian businesses interested in penetrating the Indian market and using India as a platform for Asian operations. The key point here is that the positive influence of export lobbying would offset the negative lobbying of the import-competing interests and could thus accelerate negotiations. The United States is India8217s obvious strategic priority in the Western hemisphere, but a recent analysis of the feasibility of a comprehensive USIndia bilateral FTA concluded that neither country was ready for such an agreement (Bery, Bosworth, and Panagariya 2005). The recent announcement of trade negotiations between Canada and India is a significant strategic signal of India8217s potential importance to the North American economies and will serve Indian interests beyond the Canadian market. By engaging in the three-quarters of the economy outside the US, as Head (2007) puts it, Canada has the opportunity to broaden the trade-driven growth that is essential to its economic well-being while continuing to reap the benefits of its geographic and economic proximity to the United States. In the same spirit, Acemoglu and Ventura (2002) emphasize the role of terms of trade for world income distribution. Since Adam Smith, the argument in favour of free trade has lain in specialization and the international division of labour. The case for free trade has often been questioned by non-economists, but also by great economists such as John Stuart Mill, John Maynard Keynes, Gottfried Haberler, Paul Krugman, and Jagdish Bhagwati. However, as clearly established by Bhagwati and Ramaswami (1963), these criticisms are based on the presence of economic distortions. In the context of a small open economy, the case for free trade is restored once an appropriate policy is adopted to neutralize the existing domestic distortion. This, of course, contrasts the trade creation versus trade diversion effects underlined by Viner (1950). Since Viner, the development of the literature can be seen as an attempt to identify particular circumstances in which the formation of PTAs will provide net economic benefits that is, when the effects of trade creation more than offset those of trade diversion. The European Union, for example, does not impose preferential rules of origin among its members, as it is a customs union. Of course, it does have rules-of-origin regimes with countries external to the union and which have signed FTAs with it. According to the change in tariff classification test, goods produced in one or more of the three countries with nonoriginating materials may be freely traded (i. e. exempted from tariff) when, after the manufacturing process, all such materials (excepting a de minimis amount) undergo a change in tariff classification based upon the Harmonized Tariff System. According to the value content test, some goods must also contain a minimum regional value content defined as the transaction value of a good minus the value of non-originating materials which, when expressed as a percentage, must be at least 60 percent in order to free trade the goods under NAFTA. Alternatively, there is also a net cost value method, because manipulation of prices in transfers among corporate affiliates might otherwise take advantage of NAFTA8217s transaction value method. In this case, the relevant percentage is 50 percent. Finally, the specific production process criterion specifies that for some goods there might be a particular production process that must be employed. Coalitions can be international or intranational coalitions, and are typically between intermediate-good sectors and final-good producers. For example, Mexican tomato paste producers may lobby for tomato ketchup to be included in the Mexican list of duty-free goods if this gives a tariff preference to US ketchup producers that is sufficiently large to induce them to fulfill the rules of origin by switching from cheaper Chilean to Mexican tomato paste. The gain for Mexicans is a new export market for their tomato paste, while the US ketchup producers can export duty free to Mexico. Mexican ketchup producers who have traditionally used (protected) Mexican tomato paste (and therefore who are already satisfying rules of origin) might tolerate the inclusion of ketchup in the Mexican duty-free list even if they are likely to lose from tariff removal, because a strict rules-of-origin regime will raise the costs of their US rivals more than their own. The emphasis on import trade shares instead of export shares or export diversification might be more relevant to the case of trade diversification, at least in a long-term perspective. According to classical trade theory, higher exports are not an end in themselves (at the macro level of the economy, not necessarily at the micro level of the individual firm), and the main objective of international trade is (and the ensuing gains from trade for a country as a whole come from) the possibility of importing some goods at a relatively lower price than the opportunity cost of producing them with domestic resources. This view has been best described by Krugman (1993), where he says that the need to export is a burden that a country must bear because its import suppliers are crass enough to demand payments. Of course, this view is debatable, especially in the short run. In a situation of economic slack and recessions, one can consider exports as an incentive to employment and national income, and imports as leakages that, to a certain degree, prevent the working of this incentive. In this case, the real benefit arising from trade lies in exports rather than imports, and the danger of losing a market if political or economic conditions deteriorate makes for as much concern as the danger of losing supplies. See, for example, Estevadeordal (2000) Estevadeordal and Suominen (2008) Cadot, Estevadeordal, and SuwaEisenmann (2006) Carrre and de Melo (2004) Kunimoto and Sawchuk (2005) and Esteavadeordal, Lopez-Cordova, and Suominen (2008). These econometric studies are not without problems, however, because the use of preferential access in an FTA (and the concomitant rules-of-origin compliance) is an option, not an obligation, so that Estevadeordal8217s index of ex ante rules-of-origin restrictiveness is less relevant than the ex post restrictiveness, or efficiency cost, of these rules. See Georges (2010) for a review of some proposals on simplification or harmonization of rules-of-origin between sectors or across FTAs, and see Lloyd (1993, 2002) for an interesting proposal for a rule-of-origin criterion based on multiple (instead of single) originating countries (as several countries typically contribute to the value added of the traded goods). It seems reasonable enough to suggest an across-the-board standard instead of the current heterogeneous rules across sectors (e. g. the NAFTA triple transformation test in the textile/apparel sectors and the 62.5 percent test in the automobile sector). In practice, however, as argued by Destler (2006), harmonization across sectors would be difficult to achieve on a large scale simply because these rules resulted from hardly disputed sector-specific negotiations and their current settings matter a great deal to producers. Rules of origin should not be viewed as a deal between nations but instead as a deal between private business interests and governments that needed to obtain businesses8217 support in the legislative battle. Even a common external tariff set equal to the US MFN is likely to generate much lobbying, negotiation and opposition. Industries where Canadian or Mexican MFN tariffs have to be reduced to US levels are likely to oppose such a move. Furthermore, foreigners are likely to oppose the (less common) cases of upward adjustment of Canadian or Mexican external tariffs to US levels, which would violate article 24 of the WTO (in cases where actual external tariffs are at their WTO bound levels) and trigger retaliation or require compensation. Note that moving from NAFTA to a customs union is not necessarily welfare-improving according to the general principle known as the theory of the second best, which states that, in a system with several distortions, the removal of any one of them cannot be presumed to be welfare-improving. Indeed, Georges (2008a) shows that NAFTA countries might potentially suffer from a deterioration in its terms of trade because the additional demand for non-NAFTA intermediate goods will increase the international price of these goods. This suggests an analogy with the theory of optimal tariff and reflects the fact that North American firms, taken together, constitute a significant share of the world demand for intermediate goods, and hence have the potential to affect world prices. Thus, the net effect of the removal of NAFTA rules of origin on welfare is ambiguous in theory and requires empirical analysis to verify. The full impact of adopting a customs union also includes cross effects. The removal of NAFTA rules of origin per se modifies trade patterns between NAFTA and non-NAFTA countries. Therefore, second-order effects measure the impact that the adoption of a common external tariff might also have on the new pattern of trade when rules of origin are removed, with repercussions on all variables in the model. As these cross effects are relatively small, we will not discuss them further. The sectoral results must be interpreted with extreme caution. Most rules of origin are legislated at highly disaggregated levels and differ across industries within the eight broad sectors in our model, which makes interpreting these aggregate results difficult. This warrants further, more detailed, sectoral analyses. This assumption has proved to be crucial in explaining robust features of international trade, such as the substantial two-way trade in products of similar factor intensities. Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, and the United Kingdom. It is clear that that there is and will always be an asymmetry in a regional agreement between Canada and the United States. Transposing Hirschman8217s case study (1945) of Germany and Bulgaria to the United States and Canada, we see that trade with Canada represents roughly 16 percent of total US trade for both imports and exports, while trade with the United States represents about 61 percent and 75 percent of Canada8217s total imports and exports, respectively. It would be much more difficult for Canada to shift trade with the United States to other countries than it would be for the United States to replace Canada as a market and a source of supplies. As one of this paper8217s referees nicely put it, If people could be made to like water better than wine, then welfare would go up, since water is cheaper to produce than wine. But if the utility function can be changed at will, then any level of welfare is attainable. Note, however, that we report preand post-real aggregate consumption levels, not strictly a welfare level (which, in an overlapping generations model, is cohort-based). See Lloyd and Zhang (2006) and Zhang (2006) for papers on the effects of this assumption, here modelled using the Armington (1969) trade framework. Furthermore, despite the precedent set by the agreement on intellectual property rights, Trade Related Aspects of Intellectual Property Rights (TRIPs) at the WTO, demanded by the United States, weaker countries could better resist the pressures of the United States and the European Union by the sheer force of numbers. Acemoglu, D. and J. Ventura. 2002. The World Income Distribution. Quarterly Journal of Economics 117: 659-94. Armington, P. S. 1969. A Theory of Demand for Products Distinguished by Place of Production. IMF Staff Papers 16: 159-76. Augier, P. M. Gasiorek, and C. Lai-Tong. 2005. The Impact of Rules of Origin on Trade Flows. Economic Policy 20 (43): 567-624. Baldwin, R. 2009. Integration of the North American Economy and New-Paradigm Globalization. Working paper 049, Policy Research Initiative, Government of Canada. Beaulieu, E. and H. Emery. 2006. Stay the Course or Find a New Path Canada8217s Reliance on the U. S. as an Export Market. In Nafta 10, edited by J. Curtis and A. Sydor. Ottawa: Foreign Affairs and International Trade Canada. Bery, S. B. Bosworth, and A. Panagariya. 2005. The India Policy Forum 2004. Washington, DC: The Brookings Institution. Bhagwati, J. 1958. Immiserizing Growth: A Geometrical Note. Review of Economic Studies 25 (3): 201-5. 821282128212821282128212. 2008. Termites in the Trading Systems How Preferential Agreements Undermine Free Trade. Oxford: Oxford University Press. Bhagwati, J. and V. K. Ramaswami. 1963. Domestic Distortions, Tariffs, and the Theory of Optimum Subsidy. Journal of Political Economy 71 (1): 44-50. Cadot, O. C. Carrre, M. Kukenova, and V. Stauss-Kahn. 2010. OECD Imports: Diversification and Quality Search. Policy Research working paper WPS 5285, World Bank. Cadot, O. A. Estevadeordal, and A. Suwa-Eisenmann. 2006. Rules of Origin as Export Subsidies. In The Origin of Goods: Rules of Origin in Regional Trade Agreements, edited by O. Cadot, A. Estevadeordal, A. Suwa-Eisenmann, and T. Verdier. Oxford: Oxford University Press. Carrre, C. and J. de Melo. 2004. Are Differential Rules of Origin Equally Costly Estimates from NAFTA. Discussion paper series no. 4437, CEPR. Cornejo, R. and J. Harris. 2007. Convergence in the Rules of Origin Spaghetti Bowl: A Methodological Proposal. Working paper no. 34, INTAL-INT, Inter-American Development Bank. Destler, I. M. 2006. Rules of Origin and US Trade Policy. In The Origin of Goods: Rules of Origin in Regional Trade Agreements, edited by O. Cadot, A. Estevadeordal, A. Suwa-Eisenmann, and T. Verdier. Oxford: Oxford University Press. Dimaranan, B. and R. McDougall, eds. 2005. Global Trade, Assistance, and Production: The GTAP 6 Data Base. West Lafayette, IN: Center for Global Trade Analysis, Purdue University. Dobson, W. 2002. Shaping the Future of the North American Economic Space: A Framework for Action. Commentary no. 162, The Border Papers, C. D. Howe Institute. 821282128212821282128212. 2006. The Indian Elephant Sheds Its Past: The Implications for Canada. Commentary no. 235, C. D. Howe Institute. Estevadeordal, A. 2000. Negotiating Preferential Market Access: The Case of the North American Free Trade Agreement. Journal of World Trade 34 (1): 141-66. Estevadeordal, A. J. E. Lopez-Cordova, and K. Suominen. 2008. How Do Rules of Origin Affect Investment Flows Some Hypotheses and the Case of Mexico. In Gatekeepers of Global Commerce: Rules of Origin and International Economic Integration, edited by A. Estevadeordal and K. Suominen. Washington, DC: Inter-American Development Bank. Estevadeordal, A. and K. Suominen. 2008. What Are the Trade Effects of Rules of Origin In Gatekeepers of Global Commerce: Rules of Origin and International Economic Integration, edited by A. Estevadeordal and K. Suominen. Washington, DC: Inter-American Development Bank. Foot, D. K. 2007. Some Economic and Social Consequences of Population Aging. In A Canadian Priorities Agenda: Policy Choices to Improve Economic and Social Well-Being, edited by J. Leonard, C. Ragan, and F. St-Hilaire. Montreal: Institute for Research on Public Policy. Georges, P. 2008a. Liberalizing NAFTA Rules of Origin: A Dynamic CGE Analysis. Review of International Economics 16 (4): 672-86. 821282128212821282128212. 2008b. Toward a North American Customs Union: Rules of Origin Liberalization Matters More Than a Common External Tariff for Canada. North American Journal of Economics and Finance 19: 304-18. 821282128212821282128212. 2010. Dispensing with NAFTA Rules of Origin Some Policy Options. The World Economy 33 (11): 1606-37. Georges, P. M. Merette, and A. Seckin. 2009. Should Canada Diversify Its Trade Pattern An Overlapping-Generations CGE Analysis of Trade and Ageing. Working paper 2009- 06, University of Ottawa. Ghosh, M. and S. Rao. 2005. A Canada-U. S. Customs Union: Potential Economic Impacts in NAFTA Countries. Journal of Policy Modeling 27: 805-27. Goldfarb, D. 2003. The Road to a Canada-U. S. Customs Union: Step-by-Step or in a Single Bound Commentary no. 184, The Border Papers, C. D. Howe Institute. 821282128212821282128212. 2006. Too Many Eggs in One Basket Evaluating Canada8217s Need to Diversify Trade. Commentary no. 236, C. D. Howe Institute. Harris, R. 2003. North American Linkage: Opportunities and Challenges for Canada. Calgary: Calgary University Press. Hart, M. 2002. A Trading Nation: Canadian Trade Policy from Colonialism to Globalization. Vancouver: UBC Press. 821282128212821282128212. 2007. Canadian Engagement in the Global Economy. In A Canadian Priorities Agenda: Policy Choices to Improve Economic and Social Well-Being, edited by J. Leonard, C. Ragan, and F. St-Hilaire. Montreal: Institute for Research on Public Policy. Head, K. 2007. Engage the United States, Forget the Rest In A Canadian Priorities Agenda: Policy Choices to Improve Economic and Social Well-Being, edited by J. Leonard, C. Ragan, and F. St-Hilaire. Montreal: Institute for Research on Public Policy. Heidrich, P. and D. Tussie. 2010. Regional Trade Agreements and the WTO: The Gyrating Wheels of Interdependence. In Redesigning the World Trade Organization for the Twenty - First Century, edited by D. P. Steger. Waterloo and Ottawa: CIGI, IDRC and Wilfrid Laurier University Press. Helliwell, J. 2002. Globalization and Well-Being. Vancouver: UBC Press. Helpman, E. and P. Krugman. 1985. Market Structure and Foreign Trade. Cambridge, MA: MIT Press. Hirschman, A. O. 1945. National Power and the Structure of Foreign Trade. 1969. Reprint, Berkeley and Los Angeles: University of California Press. Krishna, K. 2005. Understanding Rules of Origin. Working paper no. 11150, NBER. Krugman, P. R. 1993. What Do Undergrads Need to Know About Trade AEA Papers and Proceedings, American Economic Review (May): 23-6. 821282128212821282128212. 1996. A Country is Not a Company. Harvard Business Review (January-February): 40-50. Kunimoto, R. and G. Sawchuk. 2005. NAFTA Rules of Origin. Discussion paper, Policy Research Initiative, Government of Canada. Lloyd, P. J. 1993. A Tariff Substitute for Rules of Origin in Free Trade Areas. The World Economy 16: 699-712. 821282128212821282128212. 2002. Country of Origin in the Global Economy. World Trade Review 1 (2): 171-85. Lloyd P. J. and X. G. Zhang. 2006. The Armington Model. Staff working paper, Productivity Commission, Melbourne. Lopez, R. A. 2005. Trade and Growth: Reconciling the Macroeconomic and Microeconomic Evidence. Journal of Economic Surveys 19 (4): 623-48. Mandel-Campbell, A. 2008. Foreign Investment Review Regimes: How Canada Stacks Up. The Conference Board of Canada Report on Trade, Investment Policy and International Cooperation (April). Meilke, K. J. Rude, and S. Zahniser. 2008. Is NAFTA Plus8217 an Option in the North American Agrifood Sector The World Economy 31: 925-46. Merette, M. and P. Georges. 2010. Demographic Changes and the Gains from Globalisation: An Analysis of Ageing, Capital Flows, and International Trade. Global Economy Journal, 10 (3), article 3. Panagariya, A. 2006. Transforming India. Paper presented at the conference India: An Emerging Giant, October 13-15, Columbia University, New York. Pastor, R. 2008. The Future of North America: Replacing a Bad Neighbor Policy. Foreign Affairs 87 (4): 84-98. Robson, W. B.P. 2007. Stuck on a Spoke: Proliferating Bilateral Trade Deals Are a Dangerous Game for Canada. DISCOS COMPACTOS. Howe Institute e-Brief (August). United Nations Population Division. 2008. World Population Prospects: The 2006 Revision. esa. un. org. unpp. Viner, J. 1950. The Customs Union Issue. New York: Carnegie Endowment for International Peace. Zhang X. G. 2006. Armington Elasticities and Terms of Trade Effects in Global CGE Models. Staff working paper, Productivity Commission, Melbourne. Commentary by John Curtis Patrick Georges and Marcel Mrette8217s study of Canada8217s strategic trade policy options in this era of slow US growth, rapid growth in many overseas markets and almost stalled global trade talks should reopen the debate on an important component of Canada8217s economic future. This debate, or versions of it, seems to occur whenever we are hit by an external shock such as the repeal of the Corn Laws in 1846, the Smoot-Hawley Tariff Act of 1930, the Nixon Shock of 1971 and its aftermath, or the Great Recession of 2008/09. This debate occurs because involvement in the international economy has always been a key element of Canada8217s experience, due to its colonial heritage, its location next to the world8217s largest and most innovative economy, a large surplus of natural and food resources that are in demand around the world, and a relatively small population. And in most years, trade has contributed to Canada8217s economic growth and the per capita income of its residents. Yet all this is changing. Exports and imports are increasingly fragmented into intermediate or component goods and services that are part of local or global value chains and not necessarily bought or sold as final end-products. Frequently companies will choose to establish themselves abroad through investment (creating a foreign affiliate) rather than exporting or importing from a home base, which often means individuals from the home country have to go abroad to provide know-how, after-sales service or market intelligence. Increasingly, services are becoming the predominant international activity research and development (RampD), transportation, and the creation or implementation of new ideas and management techniques reflecting changes that have already taken form in the domestic economy. The operation of the international financial system exchange rate levels and, importantly, exchange rate volatility is becoming ever more important in determining what is traded internationally and by whom. This unpredictable activity increasingly and profoundly affects the cost of trading across borders. Additional provisions for security, ranging from more physical inspections to expensive electronic measures to verify shipments, are also increasing the cost of trade, magnifying the home bias of firm and company networks, and offsetting the often alluded to traditional benefits of trade. In the broader context, power is shifting steadily from the USA and Europe to parts of Asia, Latin America and Africa, which are geographically and at times culturally and legally distant from Canada and have mostly large, young populations, as Georges and Mrette highlight. The authors state or allude to some of these changes in context or in detail. While at times their focus is too hypothetical (for example, their ill-defined Canada-US customs union could be construed as a straw-man) or too focused on one dynamic, long-term factor (demographics), their study brings to our attention the fact that the trade world is changing, and that the wider discussion and debate about choices should also change. The changes affecting and influencing Canada will require the attention of politicians and policy-makers in various ways. The standard model of a free trade agreement like the North American Free Trade Agreement will have to be broadened and adjusted to reflect the realities of how trade actually is conducted in today8217s world. Governments will have to place more emphasis on policies affecting firms, especially at home for example, assisting them in overcoming information asymmetries in foreign markets tax policies financing and hedging costs to overcome volatility in exchange rates regulatory alignment with respect to food, health, and product safety standards and licensing requirements concerning highly technical products or professional competencies. In addition, emerging issues like climate change, and social considerations as they intersect with trade, will have to be researched, debated, and integrated into the world8217s economic regime so that it appropriately reflects the importance of these issues and the perceptions and interests of emerging economic powers and less advantaged peoples. More studies like this one will thus be needed as Canadians sort out domestically and internationally how to face the world in the first few decades of the 21st century. As always, the ultimate objective of all our efforts is to enhance our prosperity and well-being in a peaceful, predictable and more equitable world. Trade with a broader focus, with the old and new instruments and based on the tried-and-tested principles of nondiscrimination, transparency and a careful balance between the domestic social contract and international needs and opportunities, will help us achieve these objectives. John M. Curtis is a distinguished fellow at the Centre for International Governance Innovation (CIGI). He was the first chief economist at the Department of Foreign Affairs and International Trade. He was also senior policy adviser and coordinator, trade and economic policy, and director of trade and economic analysis with that department. He also participated in the Canada-US free trade negotiations and the Uruguay Round of multilateral trade negotiations. Canada8217s Strategic Trade Policy Options
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