Trading up: the prospect of greater regulatory convergence in North America

Through the North American Free Trade Agreement (NAFTA), Canada, the United States, and Mexico have succeeded in achieving the benefits of shallow integration, removing the final vestiges of traditional market segregating policies. Changes in the nature of production, however, in part the product of market integration arrangements such as NAFTA, suggests that further steps may be needed to reap the full benefits of economic integration. This paper explores the role of earlier trade liberalization and market responses in shaping the emerging trade agenda in North America. It draws on experience in Europe in forging a more integrated market to point to the benefits that would accrue to Canadians, Americans, and Mexicans from taking deliberate steps to reduce the impact of border administration, to promote greater regulatory convergence, and to forge the necessary institutional infrastructure to govern deepening cross-border integration. To that end, the paper concludes by pointing to a series of modest steps the three governments can take to accelerate the trilateral integration agenda, and points to areas of further research required to achieve this agenda.