ABSTRACT
North American Free Trade Agreement (NAFTA) arrangements seem to have given strong encouragement over the last decade to additional labour mobility, to foreign direct investment (FDI), and to other capital flows. The initial agreement between Canada and the United States (US) in 1989 was facilitated by the shared experiences under the Canada-US auto pact of 1967. The EU used the existing exchange-rate mechanism (ERM) of the European Monetary System (EMS) as a basic part of the Maastricht Treaty to stimulate the new path toward more economic convergence. In terms of further integration within NAFTA, the Canada-US relationship is more likely to be an initial point of departure rather than the relationship between Mexico and the US because of the relative longevity of existing agreements, the closer match for states of economic development. The conventional bipolar debate over the relative advantages and disadvantages of any fixed or flexible exchange rates is well established.
