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North American Linkages

Under the NAL project, the PRI examined three specific policy challenges for Canada:

International Regulatory Co-operation

There is growing concern within Canada that the potential benefits of the NAFTA are not being realized fully, as a result of undue costs of complying with both domestic and American regulations. In view of such concerns, it is important to identify the differences in regulatory frameworks that may be having a detrimental impact on trade and investment. The objective of such a review should be to maximize the compatibility of regulations between the two jurisdictions without compromising the protection of the environment and the health and safety of Canadians.

The International Regulatory Co-operation project will provide:

• an assessment of priority areas where regulatory differences between Canada and the US have significant impacts on trade, innovation, and investment, and an evaluation of potential costs and benefits of eliminating those differences; and
• a critical assessment of proposed options for enhanced regulatory cooperation with the US, considering socio-political issues, international experiences, and institutional issues.

Moving Toward a Customs Union

The move towards a customs union offers the potential of further reducing impediments to trade and investment, capturing further benefits associated with trade, while enhancing security efforts at the border. A customs union would require a harmonized Canada-US external tariff towards the rest of the world, the elimination of the NAFTA rules of origin requirements for Canada-US trade, a revenue sharing agreement between Canada and the United States, and harmonization of policy and procedures in several additional areas. Preliminary estimates suggests that the benefits from the elimination of rules of origin, and from harmonizing our external tariff with the United States, may provide gains of up to 2 percent of GDP. However, Canada and the United States would have to share a common trade policy toward other countries, with the potential loss of control for Canada over some trade policy levers.

This project included a study of international experiences to assess the potential lessons coming out of the development of other customs unions and common markets. Also included is the production of a general equilibrium model simulation estimating the likely effects of a Canada-US customs union, and a report assessing the potential impacts of rules of origin based on an analysis of trade data and a survey of exporters.

The Emergence of Cross-Border Regions

Research on North American economic integration has focused primarily on national economic dimensions such as the nature and intensity of international trade flows, and the evolution of industrial structures in the three NAFTA countries. Only limited attention has been paid to the sub-national dimensions of North American economic integration, and particularly to the emergence of cross-border regions. The impact of these regional phenomena could pose significant challenges to Canada's sectoral policies (e.g., natural resources, infrastructure, agriculture), intergovernmental relations, regional development policies, and even national identity.

The PRI has undertaken:

• to analyze major traits of the territorial and sectoral recomposition of economic activity within North America, and to identify the determinants of economic development, employment creation, and productivity in metropolitan areas;
• to provide an assessment of the similarities and differences of social values, between affected provinces and states; and
• to examine and assess the many sub-national government agreements, understandings, exchanges or institutional contacts that may affect federal policies on each side of the border.

For more information, please contact us at questions@prs-srp.gc.ca