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72nd Annual Summer Conference, August 7–10, 2003

Governor Dodge: Economic Integration in North America

Summary by Lindsay Higgs

In his keynote speech on the opening night of the Couchiching 2003 Conference, Governor Dodge clearly laid out the background information necessary for the discussions that would take place in the days to come. He first reviewed the general benefits of economic integration. Governor Dodge explained that barriers to trade reduce economic welfare in all countries because of the principle of comparative advantage that dictates countries will increase their national income by focusing on production in areas where they are relatively efficient. Opening borders leads to greater global competition thereby prompting businesses to become more efficient.

Governor Dodge went on to review the progress Canada has made regarding the free movement of goods and services, capital and labour and the benefits we have received. He emphasized the fact that Canada has received many benefits as a result of greater economic integration but noted that there have also been adjustment costs. It is in the short run that these costs are felt most severely and it is important that these costs be shared; as some firms are pushed out, others will expand to take advantage of the new markets. He acknowledged that the FTA and the NAFTA were initially viewed with skepticism but by the latter part of the 1990’s it became clear that free trade in North America was bringing major benefits to Canada. Our entrepreneurs have risen to the challenges presented and have become leaders in the world. Exports have flourished and consumers are benefiting from greater choice and lower cost.

He went on to explain that though there is now much freer trade in manufactured goods, there are still areas that are in need of attention and currently present impediments to further integration - agriculture is one example, as is labour mobility. Governor Dodge noted that in North America, freeing capital flows is not part of formal agreements but rather this is largely a domestic endeavor and integration proceeds as fast as we can reduce domestic impediments. Currently, labour is restricted because of immigration and licensing laws and it is a very important market that is often neglected.

In terms of where Canada should go in the future regarding economic integration, Governor Dodge said we should work toward the removal of multilateral barriers to trade. Though this should ultimately be a global in scale it needs to begin within Canada and then within North America. We need to harmonize our regulations governing trade and this means recognizing that the American see border security as an important element of integration. It is key for Canada to reduce its border risk and work towards a North American security perimeter and there are four areas that must be addressed to achieve this:

  • Create and implement common external tariffs, custom union and border practices for goods coming from overseas
  • Harmonize trade and commercial policies and regulations
  • End the use of trade remedies within North America and replace it with normal domestic practices
  • Create uniform policy with respect to federal, state, and provincial subsidies

Governor Dodge asserted that it would be very beneficial to Canada if agreements could be reached whereby the NAFTA would be deepened and broadened. He recognized that reaching consensus on further integration is a slow, uphill battle but maintained that he sees free world trade is the ideal and we need to seize the opportunity to move towards this large-scale goal.

He briefly addressed the topic of monetary union but said that it could only be realistically considered once a single North American market can been achieved as it is very much dependent on the convergence of Canada’s, Mexico’s and the United States’ industrial structures and currently they are quite different.

Governor Dodge concluded by stating that from the purely economic perspective from which he was speaking, he feels that barriers to trade must be torn down, not only at the North American, though it must start here, but also globally. There are costs associated with this process but economic theory and our experience thus far indicates that the benefits of greater economic integration in North America and the world will far outweigh the costs.