NARP commentary to USTR on upcoming NAFTA negotiations

June 12, 2017
United States Trade Representative

Re: Commentary by the North American Research Partnership re: Requests for Comments: Negotiating Objectives Regarding Modernization of North American Free Trade Agreement with Canada and Mexico

While the Request for Comments from the USTR understandably focuses on tariff-related barriers to modern trade between the United States, Canada and Mexico, we believe that a number of barriers to North American trade are not directly tied to tariffs yet are significant and should therefore be included in the upcoming negotiations. In particular, the U.S.-Mexico border as it exists today presents numerous obstacles to expanded and more just trade between the three countries, and these obstacles without a doubt adversely affect economic development in U.S. border communities. We have identified and expanded upon these in several recent works, including The U.S.-Mexico Border Economy in Transition (2015) and Competitive Border Communities: Mapping and Developing U.S.-Mexico Transborder Industries (2015), both written in collaboration with the Mexico Institute of the Woodrow Wilson International Center for Scholars in Washington, DC.

As discussed in Competitive Border Communities, from the standpoint of U.S. border communities, the trade-facilitation approach of border management, while understandable from a macro standpoint as beneficial for the North American economy, has had a high cost for these communities in terms of foregone economic ties to their Mexican sister cities’ economies, which are generally more robust and built largely on advanced manufacturing.

Yet the economic vision of the border embedded in such a trade-facilitation approach can be limiting. The border essentially becomes little more than a point of friction in an otherwise seamless binational economy. Border communities aspire to be more than a node on a transportation network, more than what many of them have titled a “pass-through economy,” one in which too little value is added locally to the billions of dollars of commerce passing through its corridors each year.

In other words, U.S. border communities have a large federal security footprint, a tremendous amount of north-bound trade passing through their ports of entry, and not much to show for it in terms of local economic development.

As such, we present several recommendations below (many of which are from Competitive Border Communities) that touch upon these obstacles below for the USTR’s consideration. We believe that these are relevant to the upcoming discussions in that they are (a) “Relevant barriers to trade in services between the United States and Canada and Mexico that should be addressed in the negotiations,” and (b) “Issues of particular relevance to small and medium-sized businesses that should be addressed in the negotiations,” and (c) “Relevant environmental issues that should be addressed in the negotiations,” all important points in USTR’s Request for Comments.

The United States and Mexican federal governments must play an especially important role in cross-border economic development efforts. Given the fact that border economies have an international boundary running through the middle of them, stakeholder engagement efforts that build partnerships between federal agencies and local communities are invaluable in this process. U.S. and Mexican consulates can serve an expanded facilitating role in these cross-border economic development efforts.

However, given the enormous geographical expanse of the U.S.-Mexico border region and the numerous state and local jurisdictions along the international boundary, improved management of crossborder trade is really a multi-level, multi-jurisdictional task that includes the federal governments, bilateral organizations, state, regional and local governments as well as universities and the private sector. Based upon this understanding, we have the following recommendations.

1. Continue to support and grow the role of the North American Development Bank. The North American Development Bank (which was brought into being from one of the NAFTA side agreements) is one of the only institutions that we have that is specifically focused on infrastructure for the well-being of the border region. Many of the projects that it has funded have helped to mitigate the adverse environmental impacts of trade and underdevelopment in the U.S.-Mexico border region. As such, the bank plays an outsized role in the overall development of U.S border communities, some of which are among the poorest in the United States. In order to continue this important work, the bank needs to be recapitalized by the U.S. and Mexican federal governments, and the U.S. and Mexican federal governments need to continue to work together to find areas in which to utilize the banks resources and expertise.

2. Border communities should actively utilize cluster-based economic development, with its focus on collaboration among government, industry and educational institutions, as an opportunity to engage federal officials managing the border as partners in a joint effort. Too often, outreach efforts by border officials can be summed up as a process of receiving complaints from the local community.

3. Link up economic development organizations along the border through a variety of formal and informal mechanisms. As noted in previous work, the U.S.-Mexico border region is an enormous geographic space; this has, over time, served to make border-wide communication difficult. An annual meeting of border region economic development professionals and a robust online directory of individuals and organizations working in the field are two practical steps toward the sharing of best practices as well as addressing shared challenges and opportunities that could over time greatly enhance the capacity and awareness in the area. An annual advocacy day in each of the national capitals might also strengthen coordination among border communities while clearly communicating to federal officials that there are commonalities (albeit also differences) among the needs of the border subregions.

4. Minimize crossborder travel restrictions for university faculty, staff and students. University systems’ restrictions on faculty, staff and student welfare too often fail to reflect the actual risk inherent in crossborder travel. These concerns need to be weighed against their potential to hinder development of key faculty and student contacts, professional development, intercultural competency, and language skills; as well as the development of innovation ecosystems that are critically important to cluster development. University systems, state governments, and the U.S. Department of State (which issues travel warnings) must all work together to overcome this challenge and to lessen the formidible administrative costs associated with bringing students and workers across the border for even short-term student exchanges and internships. We found some border universities resistant to processing the substantial paperwork required in case of less-than-semester-long programs.

5. The two federal governments need to further harmonize (and localize) data collection across the border. This would allow better analysis of the crossborder economies of the southwest United States and northern Mexico, and it would improve the ability of border communities to communicate to potential investors their full range of assets and market size.

6. Update and streamline specialist, worker and student internship NAFTA visas to foster mobility. The NAFTA visa continues to be underutilized but could play a key role in building robust binational industry clusters. Firms and universities that want to develop internship programs utilizing the new binational Memorandum of Understanding on internships could benefit from a more useful NAFTA visa.

7. Create binational cluster councils with public, private and education sectors all at the table. Clusters need some level of organization in order to successfully employ cluster-based economic development strategies. This includes organization within a cluster or industry group and, potentially also the creation of a broader platform, or cluster council, through which the private sector, governments and universities pursue strategies to foster the development of a number of key industries (similar to the organizational structure currently used in Nuevo León). Creating binational cluster councils could foment the coming together of industry leaders and related cluster participants to create cluster-specific groups.
Furthermore, the role of mega regions should be encouraged to monitor the growth of emerging binational industries that could be good candidates for cluster-based economic development. A number of small industries—while not yet major employers— performed well enough between 2009 and 2013 in terms of percentage employment growth to warrant ongoing attention from mega regions. Subregional economic development organizations and government should keep close track of such emerging and dynamic industries, engaging them and exploring what they (the industry, not the individual companies) need to foster further growth.

See pp. 14-15 in Competitive Border Communities: Mapping and Developing U.S.-Mexico Transborder Industries.

We thank you for the opportunity to submit comments for these important negotiations.