Biggest NAFTA move you didn’t hear about

While much of the media focus surrounding the meeting last late month between NAFTA leaders President Barack Obama, Canadian Prime Minister Stephen Harper and Mexican President Felipe Calderone was on issues of security and the Trans Pacific Partnership, it appears much more important trade work was going on behind the scenes. Quietly, the leaders’ three trade ministers hammered out a reduction in expensive bureaucratic paperwork.

Photo: Getty Images

Since NAFTA was enacted in 1994, trade among the three North American countries has more than tripled to $1 trillion or $2.7 billion in goods traded per day.

The biggest barrier to even more trade is the vast layers of red tape between the three countries. Forms upon forms are demanded of exporters in what is supposed to be a largely barrier-free North American trading zone. But agreeing on what to eliminate or reduce is difficult. And such nitty gritty details don’t command the headlines of, say, Mexico’s crime issues or Canada’s desires to enter the Trans Pacific Partnership (TPP).  (The TPP is emerging as a smaller but more powerful surrogate for the stalled Doha round of the World Trade Organization talks launched 11 years ago).

Because the three NAFTA countries developed their own laws and regulations over the past centuries on everything from public health to customs forms at the border, they have moved slowly — and reluctantly — to align rules that would help exporters and importers move goods back and forth seamlessly.

Meanwhile, elements of North American industry have become increasingly integrated on their own, despite old rules seemingly designed to prevent that. A classic example is the North American steel industry. Steel, in a variety of processed forms, flows in both directions across the Canada-U.S. border. But Canada’s regulations stipulate that virtually every shipment of steel heading north has to have its own import permit. That creates a mountain of unnecessary and expensive paperwork.

Of the total 450,000 import permits issued by Canada every year, the steel industry is issued about 270,000 permits — at an annual cost the industry pegs at about $10 million. Imports of steel to Canada were worth about $8.5 billion in 2010.

So, at last month’s meeting, the three trade ministers – U.S. Trade Minister Ron Kirk, Canada’s International Trade Minister Ed Fast and Bruno Ferrari, Mexico’s Secretary of the Economy, agreed to reduce those 270,000 import permits to just one general permit a year.

Yet few people noticed, other than a very relieved Canadian steel industry.

“These new measures to streamline regulations and reduce the cost of import permits help improve the efficiency of North American supply chains and enhance manufacturing competitiveness in Canada,” said Ron Watkins, president of the Canadian Steel Producers Association.

Still, there is a long way to go before cross-border regulations among the NAFTA countries catch up to today’s dynamic supply chains. The three leaders and their trade ministers agreed in March to “continue to contribute meaningfully to both the bilateral and trilateral initiatives, with a view towards facilitating trade and reducing unnecessary administrative costs.”

Eliminating unnecessary paperwork is a complex task that appears to take much time. But it would go a long way to streamlining trade across North American borders.

Noted one senior trade official after the leaders meeting: “Without government, there would be no need for the word ridiculous.”