Just as war tests battle plans, a crisis tests systems.
And, in the past few months, the system that governs more than $1 trillion in annual trade between Canada, the U.S. and Mexico has been tested savagely. There have been casualties.
Until last March, we were all pretty chuffed with our trilateral arrangement. Our trading bloc is the most successful on Earth. We have stability and rules for dealing with disputes, and, since the establishment of the original free trade agreement 32 years ago, our governments have tended the deeply integrated continental economy with special care.
In fact, the upgraded and updated version of NAFTA, approved by legislators of all three national capitals, came into force July 1. Mexico’s president, Andres Manuel Lopez Obrador, visited the White House Wednesday to celebrate it.
It’s a good system. At least until it runs into something it was never designed to cope with, which is exactly what happened in March.
Suddenly, sovereign governments discovered how unprepared our open, free-market societies were for an opportunistic virus that relentlessly exploits regulatory gaps and human behaviour.
In their rush to cope, all three countries do deserve great credit for pausing early to protect vital trade and supply lines. Even as the gates on our land borders swung closed, our federal governments passed regulations explicitly exempting essential traffic.
But of course there are not just three governments in North America. There are hundreds. Mexico has 32 states, America has 50, and Canada has 13 provinces and territories, to say nothing of city mayors. All have significant authority to deal with a pandemic, and most exerted it without much concern for domestic, let alone international, co-ordination.
Businesses with extensive cross-border interests, struggling with market disruptions, suddenly had to accommodate competing regulatory authorities and executive orders.
An example: One of our members at the Association of Equipment Manufacturers makes parts for heavy industrial equipment. It has six plants in the U.S., as well as its largest facility, in Monterrey, Mexico. It serves customers across Canada.
The U.S. locations were quickly designated essential. The plant in Monterrey, though, was shut down by authorities in the state of Nuevo León. And because the company’s production is integrated, the Mexican shutdown disrupted its U.S. operations and Canadian operations.
But it’s even more complicated.
That company supplies another big American firm that makes forklifts and other material handling equipment, which in turn supplies some of the most essential industries in the country: ports, railroads, steel mills, oil and gas, and forest product companies.
The shutdown in Mexico ultimately forced the second U.S. firm to suspend fabrication of whole product lines, furloughing parts of its American workforce. All because of a state-level shutdown order in Mexico.
The lesson from all this is obvious: in an economy as integrated as ours, a shutdown anywhere in the supply chain has instant, unintended consequences in the other two countries. And because the authority of state and provincial governments is often constitutionally guaranteed, it’s not an issue that can be solved by tweaking a treaty like the new Canada-U.S.-Mexico (CUSMA) deal.
We must agree, though, that businesses facing possibly mortal threats to their operations should not be forced to shop from one level of government to another, hoping someone will listen.
We believe the solution is much deeper co-operation and communication. Everybody needs to talk to everybody else.
We want to propose a networked equivalent of the fabled hotline between Moscow and Washington during the Cold War; something that would give different levels of government the ability to pick up the phone and warn international companies of imminent actions that might disrupt supply lines, and allow them, if possible, to appeal the decision.
It would also work in reverse. A company facing a catastrophic rupture in its operations would be able to quickly and efficiently advise relevant authorities.
We are rebounding from this pandemic, and it would be foolish not to apply lessons learned.
That’s why both of our organizations and more than 100 others have signed on to the North American Rebound campaign.
We encourage everyone to join us. We’ll all be better off if we do what we have to do together.
Dennis J. Slater is the President of the Association of Equipment Manufacturers. Maryscott Greenwood is the CEO of the Canadian American Business Council.