Regional integration in the emerging global economy: The case of NAFTA

The rationale for international trade is that nations should specialize in production and trade to take advantage of their different resource bases. The emerging global economy differs from the international economy in that resources are becoming more mobile and intra-industry trade is becoming more important. Evidence is presented that these developments require compatibility and harmonization of technical and policy standards. It is easier to harmonize standards on a regional level than globally; thus the rise of regional integration movements. However, because the standards to protect workers, the environment and intellectual property rights are so different between Mexico on one hand, and Canada and the United States on the other, it is very difficult to develop compatibility in the case of NAFTA. Negotiations over these standards will be difficult in the NAFTA region without institutional development.