The Case for a North American Customs Union

May 12, 2004
By Stephen Probyn

America’s only really important strategic interest in the Gulf region is energy — a factor which is likely to double from the current 2.5 million barrels a day to more than twice that total, according the US Energy Information Administration.  This oil dependence is the crack-cocaine of the US economy, providing a transitory fix while it embeds an ever more intractable relationship with the Muslim world.  Ironically, the 2.5 million barrels a day, isn’t much (about 20% of imports) and is far less than total energy imports from Canada.  The idea that Saudi Arabia is America’s largest energy supplier is a myth, persistent and dangerous.  It’s persistent, because everyone, from the President on down appears to believe it and dangerous because of the consequences of that misperception.

It’s not difficult to parse the consequences of Saudi oil dependence.  Because the US is increasingly dependent on Gulf oil, the argument runs, American forces must stabilize the region, even at the cost of ever greater entanglement.  It’s the imperialist vision for Pax Americana, a kind of romanticized pastiche concocted by the likes of such academics as Harvard’s Michael Ignatieff and Brits like writer Niall Ferguson.  Americans must now shoulder the burden of empire, learning to take casualties in order to deal with — as Kipling put it in trying to sell a similar vision to America over 100 years ago — “the lesser breeds without the law”.  One could almost sense Mr. Ferguson smirking as he recounts the similarities of the rhetoric of British post-WWI occupiers of Iraq with current day US counterparts. 

Are we doomed to repeat the lessons of history?  Not necessarily.  Suppose instead of an inexorable increase in Middle East oil imports, we could make those numbers shrink and actually disappear?  Then America would not actually need to be in the Gulf to secure its own energy supplies.  The Middle East would be more Europe’s problem than America’s, both because its real and growing oil dependence on the Gulf as the North Sea winds down and a large Muslim population.  The United States would obviously continue to have a strong interest in stability in the Gulf, but would not owe its economic lifeblood to Middle East oil.

The formula for achieving this goal is threefold:  First, increase energy efficiency to current-day European standards.  Secondly, develop domestic energy resources.  Third, expand North American energy production, particularly in renewables, the oil and gas frontiers and Alberta’s oil sands — a huge energy resource with some 300+ billion barrels recoverable at today’s prices and technology.  All of these objectives at a cost of less than today’s imported crude.  The politics are also right for such initiatives to include America’s neighbors.  In Canada, for example, the anti-American Jean Chretien has been supplanted by business tycoon Paul Martin who has made fixing the US-Canadian relationship a priority.   Canada’s business community is strongly supportive of NAFTA and a battalion of Canadian CEOs recently visited Capitol Hill to argue the case for what is effectively a customs union.  The Canadian public, with its legendary love/hate relationship with its rich neighbor to the south, has accepted NAFTA and would probably see a customs union as an extension of a good thing.

NAFTA can be transformed into an oasis of security in an uncertain world.  For its part, the United States will want continental perimeter security to deter terrorist incursion. The security apparatus — now under discussion among the democratic governments of North America — will have to be transparent and accountable to each of the three national governments. A customs union will have common tariffs and completely free trade among member states.  Unlike today’s free trade area, a customs union will provide for uniform external tariffs among the three governments.  A North American customs union would enable the effective elimination of border posts as is the case in today’s European Union.  While the logic of a customs union points towards a common currency, it is not essential as Europe for many years demonstrated.

All parties will have to get used to, as the Europeans have, to the idea of pooled sovereignty. Economic regulation would necessarily become tri-national in scope.  This will raise concerns about loss of sovereignty, particularly in the US, which with almost 90% of the GDP of North America, is the overwhelmingly dominant partner in the relationship.  Some will argue that NAFTA already provides access for the US to Canadian energy supplies. NAFTA in its present form, however, is increasingly unstable, as trade disputes continue to rock its foundations. Either we evolve towards increasing integration or we move apart — the status quo will not hold. 

For Mexicans and Canadians, the political “ballot-box” question will be:  “Is the gain in prosperity that I get from a customs union stronger than my fear of absorption into my vast neighbor?”  For Americans, that question is:  “Is a united, largely self-sufficient North America, worth a reduction in sovereignty over our economy?”  The historic moment that a violent and hostile world has engendered is that the answer to both questions may be “Yes”.

Stephen Probyn is Chairman and CEO of The Probyn Group.