The preceding chapters of this section have highlighted the preeminent and seemingly irreversible trend of Canadian-US interdependence. Transnational regions along the Canadian-US border are defined by very similar economic interests and, while more pronounced in Cascadia than in the Great Lakes trans-border region, similar political and social interests as well. The four analyses of the northern border regions of NAFTA and the chapter on the northern European border regions have clearly depicted how the fates of these two countries are inescapably intertwined. In fact, the signing of the NAFTA represented simply another step in the ongoing evolution of bilateral integration between the two countries. Already through the Canadian-US Free Trade Agreement (CUFTA) of 1989, both Canada and the US had effectively made their long-term development dependent on both each other and the future of the North American free trade regime. These developments have led to an increased level of cross-border interdependency, and therefore, the contemporary policy debate should no longer center around the out-dated question of whether or not NAFTA was a prudent decision. Pragmatically speaking, the time for this debate has come and gone.
It is imperative that Canada and the US focus instead on the more important and pressing issue of cooperatively moving through and beyond free trade. Canada and the US must take the lead if free trade on the North American continent is to be successful. Gregory Marchildon, in his analysis of Canadian economic interdependence with the US, illustrates that the real issue is not whether government policy should assist or stem the tide of integration, rather, "the real question is how best to manage the world's largest trading and investment relationship." Both governments need to be asking themselves where they want to take NAFTA and what form it should take in the future. Given that greater interdependence is inevitable, the US must look beyond the short-term benefits of maintaining the status quo. Rather, the central question for the US needs to be: What type of policy should be adopted in order to insure long-term sustainable development along the northern border?
While Canadian and US integration has a long and relatively benign history, mutual problems of potentially enormous proportions have not been adequately addressed. The negative symptoms of unmanaged free trade have only just begun to emerge in the northern border regions. These symptoms are repeatedly reflected in such issues as pollution in the shared waterways of the Strait of Juan de Fuca and the Great Lakes, labor displacement, painful economic restructuring, and the heightened aggressiveness of Canadian-US competition within border regions. In short, while interdependence has been increasing, efforts to collectively resolve the shared problems of integration have not. If left unresolved, these problems will steadily intensify and could erode the likelihood of future, benign Canadian-US interaction.
One cooperative means toward realizing the objective of sustainable development is to concentrate bilateral integration efforts within the border regions themselves. NAFTA has had and will continue to have dramatic effects both socio-economically and environmentally on the transnational regions of the Canadian-US border. From a trade standpoint, the economic heart of NAFTA lies along the northern border. The trade relationship between Canada and the US is the largest in the world. Through other bilateral trade agreements such as the Auto Pact agreement of 1965 and the CUFTA, most of the economic benefits from free trade were already in the process of becoming realized before the NAFTA came on line. Before NAFTA negotiations even seriously began, 90% of Canadian-US trade was either duty free or below a 5% tariff. Consequently, an extensive trade relationship had been established within the northern border regions. Furthermore, due to a longer-term trend of increasing interdependence, these regions have become fundamentally linked both socio-economically and environmentally with one another.
Two border regions in particular, Cascadia and the larger Great Lakes Basin, have become important focal points of Canadian-US trade and integration. These regions are characterized by several socio-economic similarities. Ontario and the Great Lakes states of the US represent the industrial heartlands of both countries and the region contains numerous manufacturing industries. The largest volume (roughly 80%) of bi-national trade passes through the Great Lakes region and the trade composition of goods flowing both ways across the border is strikingly similar. The Cascadia region is becoming one of the fastest developing regions on the continent, with trade between the US and Canada increasing rapidly. Another characteristic of this transnational region is the high value placed on the environmental quality of the region. In fact, the environmental appeal of Cascadia has actually instigated much of the region's rapid industrial and population growth, and environmental integrity often outweighs the importance of economic expansion in the region.
US policy for NAFTA, at the most basic level, should facilitate the successful integration and improvement of these two border regions. The success of NAFTA as a whole hinges on the ability of these two border regions to constructively and comprehensively integrate with each other. Given the amount of similarities shared within these regions and the already highly developed trade relationships, the potential for successful integration is much higher in Cascadia and the Great Lakes Basin than within other border regions on the continent. The experiences of these regions indicate that the traditional, unilateral approaches of federal governments will have to give way to more flexible, decentralized, and horizontal approaches. Greater bi-national cooperation and integration at the regional level is a necessity. Shifting the Canadian and US focus inward - towards both the strengthening of transnational regions along the border and the further development of North America as a whole - will play a key role in the creation of a sustainable free trade agreement on the continent. At this juncture, therefore, a deepening rather than a widening of the free trade regime is the most advisable policy approach.
This chapter will illustrate, first, why facilitating the further integration of the border regions is important. Second, the chapter will provide both socio-economic and environmental policy recommendations for the border regions of Cascadia and the Great Lakes Basin. Free trade has not only created a substantial adjustment burden for the border regions, but has also exacerbated many of the environmental problems of the regions, such as air and water pollution. These problems are complex and require a genuine commitment from both sides to collectively overcome the challenges. Third and finally, the chapter will argue for greater bi-national institution building at the regional level as a means of implementing policy recommendations and insuring the long-term sustainability of regional growth along the northern border. The institutional structure of the European Union has revealed the importance of regional participation in bringing about a successful integration process. Similarly, a stronger institutional framework along the Canadian-US border represents the key to achieving both economic and environmental improvements within the regions.
The idea is to go beyond the myopic vision that seeks to divorce the free-trade agreement from labor, emigration, environmental, or human rights provisions on the ground that it is only a commercial agreement. This narrow view overlooks an incontrovertible truth: flows of trade, capital, and investment bring with them social implications that cannot be divorced from their causes and have to be addressed.-Castaneda and Heredia
The deepening argument has generally raised questions about the willingness of any member of NAFTA to move beyond free trade and the potential sacrifice of national sovereignty associated with such a policy. Moreover, protecting cultural autonomy and the fragile national identity has become a fundamental concern for Canada. However, greater economic interdependence between Canada and the US may not necessarily undermine sovereignty, the political cohesiveness, or the sense of a nation-state identity of either country. This chapter will not argue for significant levels of supra-national political integration similar to what is occurring within the EU. Suggesting any substantial, EU-style pooling of sovereignty would be overly ambitious at this stage of North American integration and is not advisable given the current NAFTA context. On the contrary, the focus of the present argument is on the creation of greater sub-national, regional integration - a "bottom up" approach where cross-border regions integrate beyond current, insufficient levels. This said, certain elements of the European experience with transnational integration can still be transferred to the NAFTA context. Larry Writer's examination of the benefits of the much stronger EU institutional framework in addressing regional issues represents one example of the lessons to be learned from the European experience.
Despite an extensive bilateral trade relationship between the US and Canada, the US will play the more pivotal role in determining the nature of NAFTA policy making. Among the three countries of NAFTA, the US is the most influential as well as the least dependent country and has the most to gain from the agreement. For example, the lowering of existing tariffs will likely benefit the US most (both in relative and absolute terms) and import penetration will be lower in the US than within the other two members of NAFTA. The US has both the capacity and the willingness to assume a leadership role in determining the future of NAFTA. US policy, at least initially, will likely define the course of NAFTA. However, the US has also entrenched itself within the perpetual process of integration on the continent, and, relative to earlier levels, US dependence on the other two members of NAFTA will continue to grow. Increasing numbers of US producers are realizing that trade with Canada is often more advantageous than trade with other US regions due to the proximity to Canadian provinces. Over 80% of the Canadian population live within 100 miles of the US border. In Chapter 1 of this volume, Michelle Wolters illustrates how east-west trade flows within Canada have declined in favor of a larger trade concentration on the US markets. This alone implies a strengthening of north-south interaction in the future.
Interdependence on the continent is growing and will continue to grow. This implies that North American borders will have less and less importance in the future. Hence, there is a need now to integrate border regions effectively. In the absence of mutual cooperation and effective integration, severe problems may develop which hinder the longer-term development on both sides of the border. Put simply, deepening NAFTA through the border regions is central to achieving long-term sustainability.
Thus far, considerable attention has been given to the opportunities for significant economic gain resulting from the NAFTA. While the economic gains will not be dispersed symmetrically between the US and Canada, both countries will realize economic benefits in certain contexts. Unfortunately however, orthodox liberal economic theory often simplifies an increase in the total national income to mean that, "[the] representative consumer must be better off, and, consequently, trade reform is beneficial". Canadian-US free trade, while providing a wealth of economic opportunity and facilitating substantial benefits, will also create some negative effects. Greater economic integration will continue to create large adjustment costs such as unemployment and industrial displacement, and bring about comprehensive economic restructuring in border regions. The effects, both positive and negative, will have their greatest impact on the transnational border regions. A deepening of NAFTA helps to mitigate the negative effects of free trade and can assist border regions in transition. Without greater cooperation and stronger bi-national ties within border regions, these adjustment costs could manifest into major threats both to further cooperation and the future of the free trade regime as a whole.
The ability of Cascadia and the Great Lakes regions to integrate will become determinants of interdependent policy making for other border regions in the future. Moreover, adopting a deepening policy could facilitate an upward harmonization of standards and guidelines for NAFTA. While Canada fears a reduction of its environmental, labor and health standards to the lower US levels, the US and Canada collectively are extremely wary of the downward pressure the loosely enforced Mexican standards may exert. While NAFTA "encourages the harmonization of health, safety, and environmental standards to the highest common denominator," and the European case suggests that standards tend to converge upward rather than downward, implementing national environmental measures have been obstructed due to the agreement (especially on the Canadian side of the border). Therefore, further integration will not only help to establish mutually acceptable standards, but it would prevent existing standards from being pulled down through integration.
Successful deepening requires a greater sense of urgency. There is a need to set up the deeper framework now. First, pushing for harmonization and greater integration should occur during favorable economic circumstances. Currently Canada and the US are experiencing prosperous times. Deepening becomes easier under such circumstances. The experience of the EU reveals that the most significant steps toward achieving further integration have coincided with periods of economic growth. Second, by setting up the necessary policy framework now, the system becomes preventative rather than reactionary. This increases the likelihood of long-term sustainability in the regions. As Lynton Caldwell points out in his argument for greater regional institutional cooperation in the Great Lakes Basin, "short-term crises may occur paradoxically because long-term or continuing challenges have not been anticipated or effectively addressed."
Most importantly, through a commitment to deepening on both sides of the border, the overall socio-economic and environmental situation of the regions will improve. The absolute gains for both sides can be greatly enhanced through deeper integration and coordination. By working together and establishing regionally complementary industrial and economic policies, the northern border regions will be better off. For one, deepening will free up bi-national trade. Non-tariff barriers are likely to be reduced or become at least more coordinated between the two sides. Adopting "regional" rather than strictly self-serving "Canadian" or "American" policies will help to assure the future sustainability of the regions. Through deepening, policies become less designed to capture benefits at the expense of the other country. Finally, while economic growth is evident in both Cascadia and the Great Lakes Basin, this growth may be occurring at large costs to the environment and is, in the case of Cascadia, sometimes occurring in a conflictual context. Both the environmental costs and the conflictual nature of economic expansion between the US and Canada can be mitigated through a more thorough and deeper commitment toward increasing regional integration within the border regions. In short, deepening will enhance the overall growth of the entire transnational region.
Because deepening is necessary for the sustainability of the free trade regime, the next step is to ascertain what form the deepening process should take and where efforts should be focused. Socio-economically, these policies need to reflect the mutual interests of both countries while still promoting greater cooperation. Clearing the remaining trade obstacles between the two countries represents one means of facilitating increased coordination. Granted, tariffs have been substantially reduced between Canada and the US and are in the process of becoming completely dissolved. Yet many non-tariff barriers (NTB's) still remain between the two countries causing trade distortions and obstructions. A more effective elimination of NTB's could be accomplished through more coordinated regional regulatory systems.
Determining the origin of products is a fragmented system between the two countries. On the US side for example, the US Customs' method for determining the domestic content of imports is inadequate. Goods not entirely produced within the borders of a NAFTA country require at least a "substantial transformation" of value to take place within a NAFTA country before the goods qualify for duty free export. This "substantial transformation" varies with different product classifications and, in the case of automobiles, electronics and chemicals, differing percentages of value content requirements (value added based on materials used in the production process within a NAFTA country and/or value added from direct processing costs incurred within a NAFTA country) are necessary in addition to the "substantial transformation" requirement. While the value content requirement is determined by a set percentage depending on the product classification, there is no standard system for determining an acceptable level of "substantial transformation."
Currently, determinations made by US customs over "substantial transformation" are handled on a case-by-case basis and involve very subjective decision-making processes by customs officials. This method is too arbitrary and creates elements of uncertainty in exporting. Therefore, an export deterrent develops for foreign producers before the origin of goods can even be determined. These forms of trade obstructions are particularly harmful to small-medium sized enterprises (SME's). This is not to say that the strict rules of origin requirements need to be reduced (although this would free the flow of trade between the NAFTA countries considerably). Rather, the key is to create an acceptable, standardized system for evaluating the rules of origin, as well as implementing more harmonized, clearly defined customs procedures. It is essential to provide exporters from both sides with a common point of reference from which to evaluate the prospect of exporting. Presently exporters are not entirely sure what to expect when their goods reach the border and, because there is no common standard for measuring levels of domestic content, exporters become uncertain and trade is obstructed.
The rapidly changing nature of the global economy is putting pressure on border regions to more effectively coordinate their socio-economic development. Furthermore, international markets are placing greater demands on individual firms and requiring rapid and extremely accurate reactions to market signals and customer preferences in order to stay competitive. Regional, socio-economic policies should then respond to this challenging global environment and seek to cooperatively improve the future socio-economic position of the greater border region. The challenge is to, "think globally, but act locally."
One cooperative means toward regional improvement is to make border regions as a whole more competitive globally. Firms on both sides of the border require enhanced ways to cope with heightened competition, rapid technological changes, and the extreme uncertainty of the global market. The promotion of "networked" forms of economic activity across transnational regions should therefore be a central aim of northern border policy. "Networking" refers to resource allocation and transactions occurring through an integrated web of individual firms or institutions at the local level. Networks represent one method "by which companies can extend their knowledge base and strengthen their market position." This form of integration becomes more feasible between areas experiencing similar economic development, as is the case in the regions of Cascadia and the Great Lakes Basin.
Networking not only increases regional interconnectedness, but can also make the trans-border regions much more competitive globally. Actions within the network are designed to be mutually supportive and benefits occur through the maximization of collective competencies: "Networking capacity at its most simplistic level can be seen as the disposition to collaborate to achieve mutually beneficial ends." An underlying factor of these network relationships is mutual dependence on resources (another similar characteristic of Cascadia and the Great Lakes Basin) controlled by each actor and the mutual gains achieved through a pooling of these resources. Networking represents an attempt to "maximize resources which are otherwise wasted on futile competition." As Cooke and Morgan point out, "complementarity and accommodation are the cornerstones of successful production networks." Through networks, the entrepreneurial capacity of regions increases, training standards can be raised, new technologies and innovations can more easily be integrated into regional production, and accomplishing more bilateral efficient economic restructuring becomes easier.
Aiming for greater synergy between bi-national industrial sectors increases the potential for effective integration and improved global competitiveness. This includes boosting trade within sectors and product groups, not between sectors. The traditional, vertically-centralized approach by US and Canadian firms will have to become more horizontally oriented. This vertically oriented production structure is too inflexible and insufficient to cope with the rapid technological change and uncertainty of today's global market. Through a more horizontal specialization, greater product diversity and innovation becomes possible, as well as a more efficient division of labor. Thus, the likelihood of losing entire industry sectors and causing production displacements is reduced.
Stressing complementarity and cooperation in production networks is especially applicable to both Cascadia and the Great Lakes transnational regions. For example, through NAFTA, US firms acquired the opportunity to compete for Canadian government procurement contracts in energy industries. Here aggressive competition by the US, while providing the US with the short-term benefits of a greater supply of energy and resource extraction contracts, could undermine the indigenous energy industries of Canada unless these industries can be more effectively networked together. This is particularly evident in the case of the Quebec and Ontario energy trade with the US, where adequately servicing the Canadian domestic demand for hydro-electric energy has been constrained by NAFTA. Industrial synergies need to be established to create a mutually beneficial relationship where the absolute gains are greater for both sides. Preventing drastically unequal development within these sectors is then essential to the larger integration process of the regions.
Within the Great Lakes Basin, the socio-economic situation of the region is fundamentally linked to the auto industry and manufacturing industries. Trade within the auto sector represents the largest component of bilateral trade between the US and Canada. As the few remaining tariffs within this sector are eliminated, it is crucial to create transnational economies of scale and horizontal networking across the border to prevent harmful industry displacement and to assure the realization of this region's total productive potential. In "Harmonizing the Heartland", Wolters reveals that industrial ties across the border are already fairly developed and entrenched. As Huggins illustrates, where cross-sectoral ties are already fairly developed, new technology increases interdependence between industries and, "the competitive position of industries will become increasingly blurred." Thus, a more substantial, coordinated effort to restructure the industry bilaterally is needed to insure the auto industry's future competitiveness.
Enhancing the socio-economic position of the transnational regions also requires a substantial coordination of labor policies. At present, awareness of locational differences in labor standards, specifically the lower wages and labor standards of the US and Mexico, could lead to a loss of Canadian jobs and the development of "social dumping." Hence, provisions are needed to prevent the detrimental effects of free trade and integration on workers. The development of common labor standards and workers' rights helps to mitigate this effect. Instead of simply promoting the harmonization of standards to the highest common denominator, NAFTA needs to go further to establish a binding form of harmonization in which countries are required to comply. While this is a monumental task, it is much easier for the northern border regions due to the absence of some of the enormous asymmetries which exist along the US-Mexican border. Differing standards distort price signals in the production process and are detrimental to the long-run development of the entire region. Without harmonized standards, there is a tendency for unequal development to occur within the region.
Cooperatively creating a comparative advantage for the trans-border regions also entails establishing a high-grade, educated labor force. In addition to the bi-national restructuring of industries to incorporate more networked forms of economic activity, displaced labor must be integrated into the new structures. Regions along the northern border will not be affected evenly by unemployment. For example, economic restructuring within the Great Lakes transnational region will likely benefit skilled, value-added labor the most. This is evident within the Cascadia region where the adjustment costs will be highest in the traditional resource-oriented industries and in the Great Lakes region where low-medium manufacturing jobs will be hardest hit. The goal of increased, transnational networking will be to disseminate innovation and high-tech, high valued-added production across the region. At the moment, trade composition of Canadian exports moving south in Cascadia is predominantly wood, paper, and energy products. Canada as a whole relies heavily on the export of forest products, perhaps more than any other country in the world. It is likely that due to the high demands of the global market and the networking response to these demands, significant displacement will occur in the traditional, resource-centered industries. Regional policies must facilitate the integration of these workers into the new division of labor. Therefore, extensive bi-national vocational training and retraining programs should become integral components of the integration process in Cascadia and the Great Lakes region.
Both Cascadia and the Great Lakes Basin need to make their regions more attractive to potential investors. Cascadia, for example, is lacking in sources of venture capital to develop projects and build a stronger industrial capacity. Regional policies should be designed to attract foreign and domestic investment for the greater region and to stimulate forms of inward investment. Competing for investment along Canadian-US lines in the regions is divisive and is self-defeating for the future of regional development. Instead of the sometimes, "frenzied and cut-throat competitive bidding," to attract investment on both sides of the border, regions need to instead coordinate their investment attraction efforts. In the European border regions of Nord-Pas de Calais and EUREGIO, cooperative efforts to increase business investment have improved long-run employment prospects and brought about successful regional development programs. An incentive for firms to locate in specially designated locations within the regions must develop. Investors could gain the advantages of being located within an important, bi-national access point, but this investment should also be contingent on its contribution to the overall sustainability of the region. In other words, regional investment would be allowed under the approval of bi-national institutions and would require that investments "give something back" to the region. As a result, investment would more effectively contribute to the longer-term socio-economic and environmental well-being of the regions.
Adequate infrastructure represents one important consideration of potential investors. By improving transportation links and maintaining a strong infrastructure, regions can greatly enhance their attractiveness to both foreign and domestic investment interests. The current roads, rail links, sea and air ports, and border-crossing facilities are incapable of sustaining the increasing levels of commerce occurring within either region. Regional transportation systems need to be upgraded. More effective and expedient connections across the border are needed in Cascadia and the Great Lakes region as well as transportation networks capable of dispersing commerce from the trade focal points along the border to other locations outside of the existing trade corridors. Concentrating coordinated efforts toward eliminating unnecessary border delays and trade obstacles will benefit the overall region and create incentives for regional investment. For one, long delays at border crossings are creating excessive carbon monoxide emissions in the regions and harming the environment. Second, valuable time spent waiting at the border is also creating large levels of economic waste. Alan Artibise's evaluation of the Cascadian transportation corridor addresses this issue: "If it is easy to move freight intraregionally, businesses will improve, while if there are bottlenecks at the border, congestion at the ports, and inadequate infrastructure, cargo and jobs will go elsewhere." Both sides need to develop a more expedient and coordinated border-crossing policy in the regions. Freeing the flow of goods at border crossings not only increases efficiency, reduces economic waste, and allows for greater trade benefits, it also reduces pollution levels along the border and improves the environmental integrity of areas close to the crossing points.
Another important policy consideration should be developing stronger transportation links between the important cities within the regions. In Ryan Ehlinger's analysis of socio-economic interdependency in Cascadia, he argues that, "the world of the 21st century will be a world of cities." Given this condition, developing a high-speed rail link for the Cascadian corridor could potentially improve the region's overall well-being and make the region more attractive globally. Such a transportation link would make cross-border trade much more accessible, would help alleviate the high volume of goods moving through border-crossing points on the highways, and would better connect the key cities of Vancouver, Seattle and Portland, thereby strengthening cross-border ties. In the Great Lakes region as well, there is a need for "adequate border-crossing infrastructure. . .and linkages into each of the 'bridged economies'." In order for Canadian cities to effectively market themselves as "points-of-access" to the US economy, better connections between such key cities as Montreal, Toronto, Detroit, Buffalo, and Chicago are essential. The INTERREG II program in Europe has proven that improved transportation networks and the use of high speed rail links have enhanced regional development and facilitated more coordination between major cities of Europe. This type of rail link also has important environmental implications. In Cascadia, such an extensive and accessible transportation system could considerably increase use of public transit and reduce traffic on the I-5 corridor. In addition, a regional transportation link of this magnitude may help reduce the urban sprawl phenomena characteristic of the region. By better connecting the key cities of the region and making the industrial bases surrounding these urban centers more accessible, firms can concentrate their business around these city centers and there will be less of an incentive for firms to move away from the cities into the suburbs. Clearly then, the capability of a region's infrastructure to handle increased growth will determine the future path of economic and environmental development within the regions.
Pursuing the freest international trade possible as an objective of national policy is a statement of ultimate faith in the same philosophy of economic growth, of growth for growth's sake, which bears significant responsibility for the now almost universal nature of international and transboundary environmental pollution.-Carroll
In her analysis of the effects of Canadian-US free trade on the environment and Canadian economic policy, Michelle Swenarchuck illustrates that, "the NAFTA falls short of containing provisions that would allow us to respond to the enormity of ecological crisis that confronts us in Canada and in the world." A deepening of free trade in the NAFTA context should also contain extensive provisions for the environment. Without such provisions the long-term sustainability of free trade and the further integration of northern border regions will be endangered. The environment has played a central role in the economic growth of both regions and any continued development depends on maintaining environmental integrity. In "Bi-national Pollution, Bi-national Solutions," Sarah Mitchell illustrates this point by stating, "the industries which have propelled the Great Lakes region to become the busiest border trading zone rely on the ecosystem for their ongoing economic success." The environmental framework of NAFTA is, at best, insufficient. The present agreement is predominantly trade oriented and requires a strengthening of environmental protections to insure the future sustainability of the regions.
Creating sustainable integration within border regions requires increased harmonization of environmental standards and setting guidelines for responsible environmental use in addition to the convergence of socio-economic standards. Under the current agreement, the member countries agree to promote the establishment of compatible standards, but there is nothing which obliges a harmonization of standards. These differing environmental standards are creating barriers to trade and interaction as false market signals and incentives emerge. Divergent national policies also create harmful effects for the environment. Through the use of subsidies, governments often under-price natural resources. Differing resource pricing and environmental standards affect the competitiveness of domestic firms and may undermine the competitiveness of firms across the border. Moreover, these lower prices contribute to the over-use of resources, facilitate market failure and promote negative environmental effects. Environmental policies thus need to be developed bi-nationally and be regionally specific. Mutually derived policies must harmonize the divergent national standards and resource pricing methods to create a level playing field for firms on both sides of the border.
The regional environmental policies must also be designed to internalize the external environmental costs created by industries. One method would entail the use of countervail tariffs for environmentally harmful practices and the over-use of resources. True, adopting countervail policies to offset the under-pricing of natural resources could potentially open a "Pandora's box" creating an incentive to increase the use of the countervail tariff as a protectionist tool. However, if adequately implemented and regulated by bi-national institutions, this method could effectively cut down on potentially harmful environmental practices.
The coordination of environmental policy within border regions is insufficient and the fragmented regulatory framework is allowing for unnecessary environmental degradation. In fact "cross media pollution" may actually be encouraged by this fragmentation as separate approaches to managing environmental resources compete with one another and simply transfer pollution from one medium (land, water, or air) to another. Thus, the negative economic effects are simply traded back and forth across the border and the problem increases in magnitude as pollution is not bi-nationally addressed within the transnational region. True, several bi-national agreements and have emerged to deal with environmental degradation in the Great Lakes region. Unfortunately, bilateral commitment has thus far been of a more rhetorical rather than practical nature.
Particularly within Cascadia, promoting "environmental tourism" provides an opportunity for economic growth in conjunction with maintaining the environmental quality of the region. The region's unique natural setting and environmental appeal make it an attractive travel destination. The tourist industry has been quick to capitalize on this factor and promote the idea of the trans-border region internationally. The future success of this rapidly growing industry depends on preserving the environmental integrity of Cascadia. For this industry to continue, high levels of environmental protection will need to emerge in order to maintain Cascadia's natural appeal. Joint marketing between Canadian and US firms in this industry, in conjunction with bi-national regulation, would enhance not only bilateral cooperation, but the preservation of the environment as well.
The very nature of the environmental problems facing the Great Lakes and Cascadian transnational regions cannot be adequately addressed by separate national policies and agencies. Not only are the regulatory systems of the two countries divergent and fragmented, but problems of pollution do not fall within the parameters of existing borders and cannot be contained inside these established political boundaries. Since the problems are transnational by nature and the effects are felt on both sides of the border, the solutions too can only be appropriately organized through a transnational approach where the political border does not cause divergent policies and competing, compartmentalized regulatory frameworks. This has become all too clear in the Great Lakes region. While both sides may have begun to realize that the Great Lakes represent one unitary ecosystem, both governments have still not delegated sufficient authority to regional institutions such as the IJC to address environmental issues. As a result, effective shared management has not materialized.
As a result of NAFTA, interdependence between Canada and the US will continue to increase. But as interdependence is increasing, NAFTA's institutional framework is insufficient. Therefore, creative methods for managing the free trade regime are necessary. Specific policy recommendations for both the Cascadia and the Great Lakes transnational regions must, at the most fundamental level, contain significant improvements in regional institution building. More extensive bi-national institutions serve as a stepping stone for greater integration and are absolutely essential to the deepening process. First, these institutions serve as a method for implementing policies and facilitating the necessary changes within the transnational regions. Institutional strength and depth is the key to the successful implementation of policy recommendations. Second, bilateral institutions serve as important intermediaries. These institutions must balance the economic visions with the environmental visions for the regions. Adequately addressing these two perspectives simultaneously is a critical factor in gaining acceptance of policies within the transnational regions and increasing the likelihood of sustainable development. Only through economic integration is there legitimate hope for environmental cooperation. It then follows that economic and environmental policies must be compatible.
If managed properly, environmental improvements can result from increased economic integration. As both economies grow due to further integration, more funds become available for environmental projects and pollution control. Consequently, economic prosperity can encourage a cleaner environment. However, economic expansion often comes at the expense of the environment. For example, under the present agreement, NAFTA countries are not allowed to establish national environmental standards which can be considered disguised trade restrictions. As a result, governments become limited in their ability to enforce stricter environmental standards. Eliminating obstructions to trade along the northern border is important. Nonetheless, protecting the environment should not continually be abandoned because of the possible creation of trade restrictions. This would imply only short-term solutions to regional development problems. At the same time, many environmental provisions do exist as simply disguised trade barriers and excessive government interference can distort efficiency and obstruct economic development. This idea of interference can be reduced by internalizing business interests, in addition to environmental interests, within the institutions. In managing transnational development and integration, a balance must clearly be established between these often competing interests. Bi-national institutions should seek to merge these divergent perspectives.
The fact is, livable and vibrant regions don't just happen or get built by others; they are built by the people who live there.-Artibise
The contemporary lack of institutional coherence and coordination within border regions warrants a strengthening of the bi-national institutional framework. A cooperative, bi-national institutional framework is presently insufficient in the Cascadia and the Great Lakes regions. The International Joint Commission (IJC) of the Great Lakes region represents one example of the need for greater institutional strengthening. IJC agencies have no comprehensive authority to preside over the environmental problems of the Great Lakes region. The IJC, while having responsibilities for environmental review, negotiation and advising, has no teeth. The IJC lacks any kind of substantial policing or enforcement authority.
This example illustrates the need for more local action within the border regions. While border regions are becoming the focal points for Canadian-US trade and are experiencing the highest levels of integration, the regions are still far removed from the actual decision-making process which affect their regions. Most of the important policy-making originates from national agencies outside of the transnational regions. National agencies in Canada and the US are often preoccupied with other issues and trans-boundary concerns often become less of a priority compared to their other responsibilities. Yet, in a more interdependent world, regional policy making should not, "hinge on the marching orders from the central government."
Institutions need to possess sufficient autonomy, coherence and insulation to form effective policies. Bi-national institutions need to acquire greater jurisdiction and authority with regards to regional policy making relative to the respective national government agencies. This could greatly enhance the ability to formulate solutions for border region issues. Federal agencies are increasingly absorbed in their extensive nation-wide responsibilities and cannot sufficiently address specific regional needs. This problem is made worse by the fact that, unlike in Europe, the conservative nature of the US government reduces the likelihood of any interventionist policies emerging to deal with the adjustment costs associated with further integration. Providing regional agencies with the capacity to perform functions at the local, transborder level allows the federal agencies to better concentrate efforts on broader, truly national issues, while allowing border region institutions to sufficiently address local issues. This process of "downloading" responsibilities to regional institutions would also alleviate some of the deficit burden facing both governments.
Achieving compatible interests within the region and promoting more effective integration are crucial. The "bi-national" nature increases the likelihood that policies will still reflect the concerns of both sides and that decisions will be in the mutual interests of Canada and the US. Chapter 1 of this volume revealed that many Canadian regional development programs are being challenged by the US and struck down through US countervail tariffs against so-called "unfair subsidies". If instead, regional development programs were implemented through bi-national, regional institutions with authority on both sides of the border, then the US government's ability to interfere with many regionally beneficial programs would be constrained. Furthermore, the regional nature of the institutions would encourage policies which address issues specific to the transnational region. The jurisdiction of institutions becomes much more focused and intensifies efforts to resolve problems particular to the transnational region.
Issues no longer become divided along strictly Canadian-US lines. Rather, issues become conceptualized as distinctly common problems of Cascadia or the Great Lakes Basin. As a result, regions are not so far removed from the decision making process. Under current conditions, policies adopted in Ottawa and Washington DC reflect the distant nature of regional policy making. Current policies represent short-term, quick fixes with little regard for the unique nature of the issue's regional relevance. Furthermore, the current political structure, "creates particular tensions between federal governments on the one hand and state or provincial governments on the other." Through greater institution building within the regions, efforts are much more concentrated from a "bottom up" approach and policies have more direct and immediate effects at the local level. As a result, the institutions become explicitly accountable for their policies and the motivation to adequately address issues increases. Thus, there exists a greater incentive for cooperation and integration.
Institutions need to introduce an element of leadership and direction to the integration process. In order to be successful, these regions must establish clear and achievable socio-economic and environmental objectives. There already exist numerous transnational organizations and committees both in Cascadia and in the Great Lakes region. While they all may share a desire to increase bilateral cooperation in the region, the majority of these organizations have differing agendas. Thus, while there is a wealth of good ideas about how to develop regional integration, the multitude of organizations and lack of unity of purpose inhibit the ability to successfully implement these ideas. Without a stronger leadership role from the institutions, "the sheer number and complexity of initiatives results in a loss of focus - and for some in the region - a loss of interest."
This is where a transnational institution possessing the authority and the capacity to implement development strategies is particularly important. In the EU, institutions play a much more active role in the integration process and truly bi-national, regional problems can be better addressed on such an institutional level. The European experience reveals that, "regional institutions have the ability to look at a specific problem from a multinational perspective and form [an] opinion and a plan of action on behalf of the region, instead of individual states." To facilitate more productive and concentrated approaches to integration, various committees and organizations would be allowed to present initiatives and proposals to a transnational institution - made up of public and private sector representatives, as well as epistemic communities. Institutions could create incentives for submitting sustainable development projects by offering funding assistance for proposals. Proposals would be subject to the approval of the institution before projects could be implemented. In Europe, so-called "Community Initiatives" must be formulated and channeled through EU institutions in order to qualify for funding through the European Structural Funds. As in the EU, a similar procedure in the Canadian-US border regions would enable the institutions to sort through proposals and assign priority to projects based on both socio-economic and environmental needs. Because these projects stem from bi-national institutions, the mutual interests of both Canada and the US would be reflected in proposals and the actual development projects. The risks and responsibilities associated with development would be shared across the border. More importantly, channeling proposals through the institutions would create more direction and clearer objectives for regional development.
In conjunction with the development of border region projects, institutions must fulfill the role of making bilateral decisions on measures for a number of issues including dealing with adjustment costs, coping with industrial restructuring associated with more networked economic activity, and allowing for adequate environmental provisions. The overriding goal should be to maximize the general welfare of regional societies. The bilateral, regional institutions need to internalize the zero-sum game between Canada and the US. The aim is to reduce competitive policies between Canada and the US, where one side gains at the expense of the other. As Amy Kaestner reveals in her analysis of environmental interdependency in Cascadia, "it is useless to discuss sustainable development and environmental quality regulation unless it attempts to deal with the region as a single entity." Institutional policies must reflect the mutual interests of both sides and transform the competing interests into regionally compatible interests.
The effectiveness of institutional policies depends, first, on the institutions' ability to set parameters for "acceptable" behavior within the region. Patterns for long-term sustainable development must be outlined and achievable targets for development must be set. Second, institutions need to gain substantially more regional enforcement capabilities. Institutional policy must have a legal, binding status so as to assure compliance. This means a bi-national enforcement group with the power to enforce laws on either side of the border. Third, bi-national institutions need to possess flexibility. They have to allow for differentiation within the region and set quantifiable, achievable objectives both in terms of industrial development and environmental provisions. The success of policies will depend on the degree of consensus or conflict between institutions and other interest groups. Finally, these institutions must be appropriately ambitious. This means policies should not aim to overstretch the capabilities of the region, making it unlikely that goals will be met. On the other hand, policies must also reflect the urgent nature of establishing more cooperative development and not seek changes that will have little effect in creating a more positive transnational region in the future.
In constructing these regional institutions, a more transparent framework is required. Who shapes policies and where the policies originate is of particular importance in regional policy making. These factors help determine the motivation for policies and their likely effects on the region as a whole. From strictly an environmental standpoint, "access to information and to accountable government standard-setters are crucial to the environmental movement in achieving further environmental protection." The present NAFTA institutions are democratically deficient. Currently, NAFTA policy making is formulated under very ambiguous, almost secretive conditions. This is detrimental to public awareness of issues and the future development of the transnational region in which they live: "For any regional concept - and especially for a transnational region - to have any meaning, it is critical that the people and the institutions of the region know each other and communicate with each other on a regular basis." The important "movers and key policy makers" reside in Ottawa or Washington DC and are not present at open meetings to, "confirm, deny, or explain national policies," with regards to the border regions. Moreover, differences are usually resolved behind closed doors, in regions far away from the border regions. Therefore, institutions need to be opened up - made more accessible and democratically oriented with regards to decision making. A conspicuously missing element of current institutions is the absence of epistemic communities in policy advising. Epistemic communities include groups of scientists, academics and experts who specialize in contemporary technical problems and globally interrelated issues. They are international actors and work in a "methodically pluralistic" fashion by pooling their resources and knowledge to enhance research. Unfortunately, the current personnel of national agencies which make decisions on environmental policies affecting the border regions are more often lawyers than scientists. By integrating epistemic communities into the institutions, they can "contribute both to the transparency of actions and to the stable expectations of others' behavior." Epistemic communities need to play a more important role in formulating policy recommendations and their contributions need to be reflected in the development strategies of the border regions.
Institutions perform a variety of functions to help improve the border regions as a whole. It is in this area that many lessons from Europe can be learned. In both the EUREGIO and Nord-pas de Calais regions of Europe, extensive regional programs have emerged to combat job loss and enhance the economic linkages between countries. Given that the implementation of socio-economic policies such as industrial networking require an extensive private and public institutional support system, one function bilateral institutions should perform along the Canadian-US border is to facilitate and implement industrial synergies within regions. These institutions become channeling mechanisms for innovation and information. Institutions are responsible for dispersing information and technologies within the industrial network. They create a clustering effect of innovation and investment within the border region. The institution performs a linking function, whereby firms are networked with these innovation clusters which often are built up around universities, research institutions, banks, and other R&D centers. The idea is to provide an extensive knowledge infrastructure. Not only does this provide the common good of access to new technologies and innovations, but the institutions serve to reduce uncertainty for firms integrating into the network. Through these linking institutions, firms can concentrate efforts and exchanges in a much more focused, less wasteful fashion. These institutions also provide firms with opportunities to establish transnational, cooperative subcontracting within the regions. This promotes not only economic growth within the border region but also makes the region more competitive globally. Institutions also should provide partial funding for firms to begin network start-up. Several European programs, such as the European Structural Fund's Objective 2 and KONVER II programs have emphasized networks to facilitate integration and promote small-medium sized enterprises (SME's) in the region. Most European networking programs have as a funding requirement the obligation that recipients of institutional funding become part of a cross-national partnership or network. This approach should be adapted to the Cascadia and Great Lakes transnational regions.
The creation of institutions to help reduce adjustment costs will be another important factor in the integration process. European adjustment funds have helped to reduce economic and social differences and strengthen economic and social cohesion in transnational regions. One of the most important roles institutions have performed in the border regions of the EU has been to provide regional public goods and adjustment cost support, including vocational training to supplement regional comparative advantages. The development of the Canadian-US border regions would be enhanced if bi-national institutions could perform a similar role with NAFTA. This includes providing social services and transition programs for those negatively affected by free trade. In order to build up the human infrastructure of these regions it is necessary to create a more educated labor force, initiate unemployment counter-measures, and promote comprehensive retraining programs. In addition, a common regional regulatory framework within which firms can operate should be established. These institutions should offer retraining for displaced workers and incorporate the retrained workers into the more integrated industrial sectors. The size, composition, and skill level of the regional work force will determine the ability to bring about positive integration. Within these programs should be support for SME's and the traditional industries most hurt by the development of freer trade between Canada and the US. These programs need to offer funding, seek to develop partnerships and sub-contracting relationships between big businesses and SME's, and provide access to new markets.
Another major function of bi-national institutions is to assist in the development of regional physical infrastructure and lending. As discussed earlier in this chapter, one of the most practical roles these institutions can play is promoting better transnational transportation links within the regions. Not only does this help industrial networking and industrial synergies develop more effectively, but it also improves the longer-term sustainability of the entire region. A cooperative effort to build better infrastructure, whether it be developing a high-speed rail link between Vancouver and Portland or the expansion of Ambassador Bridge between Windsor and Detroit, means that both sides can derive enormous benefit from the public good. Additionally, a cooperative effort to improve transportation links is a huge step towards the further integration of border regions. The European experience with improving transnational transportation links has brought much improved coordination and cooperation between countries.
Other European programs, such as the European Structural Funds and the European Regional Development Fund have proven to be important institutional mechanisms for developing greater transnational integration. Joint US-Canadian funds could play a similar role in Cascadia and the Great Lakes regions by offsetting differences across the border and providing countermeasures to regional disparities. In addition, substantial infrastructure development projects could develop through such funds. These programs need to have clearly defined goals, such as offsetting unemployment in low-medium manufacturing sectors. Providing sufficient funding is especially crucial to the success of these programs. The European Structural Fund's successes have been largely due to the extensive funding it receives from Brussels. In 1992 capital from the EU's Structural Fund alone represented 28% of the EU Commission's budget.
The extent of institutional funding is often the determining factor in the success of border region programs. There exist many good proposals in the regions, but a general lack of funding for projects hinders the implementation of proposals in the border regions of Cascadia and the Great Lakes. While acquiring direct funding similar to the levels coming out of Brussels for EU projects is not a realistic expectation for Cascadia or the Great Lakes region, more direct funding and resources from both governments is still needed. Because these transnational regions cannot rely solely on both the Canadian and US governments for sufficient funding, the institutions must create incentives for the private sector to participate in the integration programs. There is a need for more US-Canadian joint ventures and joint marketing programs in regional development. Support and investment from the private sector is essential for bilateral projects such as improving the rail system within a region to be successful.
Partial grants to industries for investment into bi-national industrial development projects represent one way to spur private sector participation. For example, regional institutions could grant funding to bi-national construction consortiums for the development of better transportation infrastructure in the Great Lakes region. These programs would help incorporate displaced workers, give injections to the regional economies when needed, and provide the regions with long-term returns on investments.
Another method for incorporating the private sector is through the establishment of bi-national, regional lending institutions. These institutions would be concerned solely with the financing of local, transnational projects that are in accordance with the long-term sustainability of the region. This requires partial direct funding from both governments to provide lending institutions with the means for capitalizing projects. The institutions themselves would grant loans for environmental and infrastructure development programs to facilitate integration. The majority of these loans would be low interest with extended payback periods. On the US-Mexico border such an institution has been established with the North American Development Bank (NADBank). In her chapter on policy recommendations for the US-Mexican border, Valeria Leonardi argues that the NADBank will play a pivotal role in bringing about sustainable development within the southern border regions in the future. Creating a similar bank along the Canadian-US border would help fill a large gap in funding for development projects in the North.
Institutions can employ other methods to facilitate acceptable regional development and attract investment. Institutions should not perform strictly a regulatory role in which the threat of enforcement ("sticks") is employed to get firms to comply with the sustainable development agenda. Instead, more subtle methods ("carrots") could be employed to induce private sector compliance with longer-term, regional objectives. One such means is through the use of financial incentives such as various tax concessions for sustainable development projects. These include, tax reductions for "green" development projects and "tax holidays" (special tax concessions or exemptions for a specified period of time) for environmentally-friendly firms in the region. Capital grants to firms also represent a way to assimilate private sector expansion into the idea of the long-term sustainability of a border region. When firms propose clean-up or infrastructure improvements, institutions could provide partial funding for acquiring assets, or firms' existing capital investments could be depreciated against taxes at an accelerated rate. These methods, combined with other institutional development funds would help bear the financial burden for firms and make sustainable growth more feasible.
The environmental functions of transnational institutions are particularly important to the border regions. Both Canada and the US must mutually decide where environmental efforts within the border regions should be allocated. Regional institutions could help facilitate the internalization of environmental costs within industries. This requires bi-national enforcement and regulation in order to make pollution creating industries on both sides of the border bear the environmental costs of their actions. This is particularly important within the Great Lakes border region. In her analysis of the environmental problems within the Great Lakes Basin, Sarah Mitchell has illustrated the massive pollution and enormous environmental degradation which has developed within this region. Much of the pollution has resulted because industries have not carried environmental costs in the past. These costs were largely absorbed externally instead of being allotted as part of the costs of production. To avert such further degradation, environmental usage could be commodified. In other words, industries would have to pay the additional cost of environmental usage and/or pollution, thereby internalizing the environmental costs. The US side of the border has already begun such efforts with the use of pollution "permits". Through these permits, industries acquire the right to release emissions into the environment. This right to pollute can be bought and sold within the industries through allowable permit trading on the US side. This represents one method of internalizing environmental costs. Bi-nationally, however, this system remains fragmented and Canada has not implemented such a program. Installing a truly bi-national permit trading system would allow environmental costs to be more effectively allocated across the entire border region and would more accurately reflect the costs of environmental usage. Hence, a cooperative effort in this area would be effective in reducing the continued degradation of the region's environment.
Making US and Canadian direct investment and other joint ventures subject to bi-national institutional regulation and enforcement is another way to reduce negative environmental effects. Regions need to have the capability to pass their own environmental accords. The clean air legislation of the early-mid 1990's reveals the ability of both governments to enact similar legislation to reduce pollution affecting a bi-national region. Yet, waiting for national governments to recognize the environmental needs of a region and then enact suitable legislation is potentially very costly to the long-term environmental health of the border regions. By having the capability to adopt environmental legislation bi-nationally, border regions can better customize regulation and enforcement to their immediate and longer-term needs. This entails harmonizing standards and setting guidelines for responsible environmental use, as well as a more coordinated effort to install a mutually acceptable regulatory framework.
If it continues, the fragmentation and lack of coordination of regulatory agencies within the Great Lakes region are potentially disastrous for the environment. The level of inter-governmental cooperation is the most important factor in adequately addressing border environmental problems. Within the Great Lakes basin, the International Joint Commission (IJC) needs to be substantially restructured. Mitchell summarizes this point as follows: "The IJC and other institutions that have been put in place to deal with trans-boundary pollution policy are inadequately equipped to deal with the multitude of problems caused by trans-boundary pollution." Instead of simply review and advising responsibilities, this institution should be the stepping stone towards the creation of an autonomous Great Lakes authority. This authority would be advised by a joint representative assembly and would possess revenue raising capabilities, as well as enforcement capabilities.
Institutions need to promote the establishment of compatible, mutually acceptable standards incorporating the interests of epistemic communities, state and provincial regional authorities, and private sector organizations. Because current funding is insufficient, any form of economic integration should find new revenue-raising measures for border environmental programs. While some bi-national environmental institutions exist, they require a comprehensive enhancement of their ability and capacity to affect the future development of the transnational regions.
NAFTA, or at least the political negotiations that take us beyond NAFTA, should be about much more than simply free trade. The agreement presents a unique opportunity for both Canada and the US to more effectively integrate with one another and successfully manage the increasing levels of interdependence between the two countries. Current problems surrounding NAFTA will only escalate unless a significant deepening of the existing institutions develops. While these problems are often regionally specific and require creative solutions, on virtually every level, the current commitment by the US and Canadian governments to the regional integration process is inadequate.
Given that this commitment is lacking and that border regions along the northern border will be most effected by NAFTA, the focus should shift not only toward a deepening of NAFTA, but specifically toward a deepening within the border regions on the continent. Coordinated efforts and the extent of mutual cooperation occurring within these transnational border regions will be the determining factors in the overall success of the free trade regime. The potential benefits of deepening are substantial, while the costs of not deepening are equally, if not more, substantial. The challenge for all border regions will be to integrate within the parameters of the mutual interests on both sides of the border and to balance the differing commercial and environmental visions for the transnational regions. The degree and extent of this integration will play the pivotal role in determining whether or not any future development will be sustainable on the North American continent.