Governance failing to keep pace with continental integration

May 12, 2011, Ottawa, ON - There is a remarkable contradiction between the reality of the North American economy, which is deeply integrated and North American governance, which is weak, fragmented, and often uninformed.  That contradiction is threatening the competitiveness and indeed very future, not only of domestic auto manufacturing, but potentially of other integrated continental industries, according to a new report released today by the Macdonald-Laurier Institute (MLI).

"The auto industry is the canary in the mine for North America's integrated industries. As the premier integrated manufacturing industry in North America, autos are the test case of whether we can manage the border and shared infrastructure in such a way as to make North America succeed as a single economic bloc" commented Stephen Blank, one of the most senior and authoritative commentators on the state of North American economic integration and author of Driving Continental Integration:  Auto Manufacturing and the Future of North America.

The report discusses how many well-informed people still think of the North American auto market as three separate and distinct national markets. The reality is that Canadians, Americans, and Mexicans no longer sell automobiles to each other. Rather, they are built together in an integrated transnational system involving complicated logistical and organizational structures.

As a sign of the importance and integrated nature of the auto industry, the author points out that a quarter of the more than one billion dollars of goods that cross the U.S.-Canada-Mexico borders each day are automotive. However, the products are not finished vehicles but rather parts, components, and modules.

In addition to the challenges posed by inadequate institutions, the author also explains how border-thickening is challenging the very nature of integrated industries. "Delays and congestion at border crossings are posing enormous threats to the just-in-time (JIT) inventory and assembly systems that are a hallmark of domestic competitiveness," commented Blank.

"Post 9-11 border issues have focused almost exclusively on security with very little concern for efficiency and timeliness, which has and will continue to adversely affect cross-border, integrated industries like autos," commented Blank.

Blank concludes the paper with a challenge to policy-makers: "If North American autos, as well as electronics, pharmaceuticals, energy, and other integrated industries are to compete, governing institutions must be modernized to reflect the reality of an integrated North American economy and greater attention and resources must be allocated to border infrastructure."

Stephen Blank is a Senior Fellow at the Centre for International Governance Innovation and Senior Research Analyst at Arizona State University's North American Center for Transborder Studies.

MLI would not exist without the support of its donors. Please consider making a small contribution today.