March 26, 2008 / 1:23 AM / in 10 years

NAFTA spat unwelcome in Great Lakes region: report

TORONTO (Reuters) - U.S. presidential candidates threatening to pull the plug on NAFTA are dragging the “Great Lakes economy,” including Central Canada and key U.S. swing states, into the industrial past, the main author of a policy report warned on Tuesday.

<p>Traffic backs up at the Detroit-Windsor Ambassador Bridge in Detroit, Michigan November 10, 2005. REUTERS/Rebecca Cook</p>

John Austin, director of the report by the Washington-based Brookings Institution, said U.S. political leaders have failed to articulate what will help the Great Lakes states transform “from an industrial hegemony to success in a knowledge economy.”

“They want to change it backward as opposed to change it forward,” he said of critics of the North American Free Trade Agreement, during a speech before a small audience at the University of Toronto.

U.S. Democratic presidential hopefuls Barack Obama and Hillary Clinton said while campaigning last month they could opt out of the 14-year-old trade pact if Canada and Mexico refuse to strengthen labor and environmental provisions in the three-nation agreement.

The candidates first floated the idea of renegotiating NAFTA while addressing concerns that it has caused U.S. job losses in Ohio, one of 12 U.S. states and two Canadian provinces included in the Great Lakes Economic Initiative report by the Brookings policy research group.

The report, released this week, calls for co-operative research and innovation among the Great Lakes region’s colleges and universities, federal investment in border crossings, and wide-scale cleanup of the massive fresh water reserves.

It notes Canada and the United States have the world’s largest binational trade relationship, at $1.8 billion a day.

About two-thirds of that is centered on the Great Lakes region -- ranging from Minnesota and northern Ontario in the west to New York and Quebec in the east -- whose economic output is larger than that of Japan.

The report repeatedly presses the idea of a single economic region where workers can easily cross the border.

“And since 9/11, measures to tighten border security have complicated and slowed the flows across what once was the world’s most open border,” the 27-page report says.

With NAFTA, Mexican, U.S. and Canadian tariffs were phased out and trade, especially that of oil and natural gas, has increased on the continent.

“The mutual benefits of NAFTA and free trade outweigh the downside,” said Austin, a Democrat on the Michigan board of education. However, he acknowledged the pact has “restructured” manufacturing in the Great Lakes region, especially in the auto and steel sectors.

The U.S. National Association of Manufacturers estimates that although U.S. manufacturing jobs increased during the first years of NAFTA, 3 million jobs have been lost since 2000, with some factories moving to Mexico.

“The deal that makes it all work is if you harvest some of the winnings to subsidize those who are losing their jobs ... so they can transition,” Austin said.

“We see too much of the pandering to the nostalgia and fear of change” in the U.S. presidential campaign, he said.

($1=$1.02 Canadian)

Reporting by Jonathan Spicer; editing by Rob Wilson

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