Paula Stern, president of trade consultants The Stern Group and former chairwoman of the International Trade Commission, talked with BW's Paul Magnusson and Elisabeth Malkin.
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OnlineHost: Welcome to Business Week Online! As President Clinton is set to visit Mexico, we discuss such hot issues as NAFTA, immigration, drugs, and the booming border area (featured in the May 12 BW Cover Story). The guest is Paula Stern (PaulaTrade), former chairwoman of the International Trade Commission, here with BW's Paul Magnusson (PaulMBW) in Washington and Elisabeth Malkin (Emalkinbw) in Mexico City.
JackBW: Good evening to all of you on AOL.
PaulaTrade: Hi, everyone.
JackBW: Welcome, Paula Stern, our distinguished guest this evening. Welcome also to BW's Paul Magnusson in Washington and Elisabeth Malkin in Mexico City.
PaulaTrade: Hi, Jack. Hi, Paul -- happy to be here.
JackBW: I'm Jack Dierdorff of BW Online, your moderator tonight. Paul Magnusson, will you do the honors with an opening question for Paula Stern?
PaulMBW: NAFTA was supposed to revitalize the Mexican economy and add jobs to the U.S. Instead, the trade deficit soared, the U.S. lost some 200,000 jobs, and the trade deficit with Mexico ballooned to $15 billion. What happened?
PaulaTrade: The purpose of NAFTA was to increase American producers' competitiveness, to increase American export access to Mexico, and to encourage the privatization and liberalization of the market that had occurred in Mexico from 1986 to 1993. NAFTA has achieved those objectives, both with regard to U.S. trade with Mexico and with Canada, the third member of NAFTA.
As for jobs, in the period since NAFTA went into effect with Mexico, U.S. export-related jobs have increased dramatically. These are jobs that pay more than the average working wage in the U.S. These are jobs making products that are shipped to Mexico at an increasing rate. For example, jobs in the auto sector -- before NAFTA, the U.S. exported only 4,000 cars a year to Mexico. In '96, the U.S. exported more than 50,000 new cars and 31,000 new trucks to Mexico. NAFTA is not a panacea, but it has a lot of positive points.
PaulMBW: But even the Clinton Labor Dept. agrees that jobs have been transferred south.
PaulaTrade: As far as I'm concerned, the point to focus on is that the U.S. economy has created 11 million new jobs from exports worldwide during the past four years -- '92 to '96. There's no question that if you take a snapshot of the Mexican market alone in this period, you're taking a picture of an economy that had a peso crisis and a severe recession. NAFTA was a trade pact -- it was not intended to provide a total insurance policy for the Mexican economy. Therefore, to tie U.S. export-related jobs simply to the Mexico situation during a short time period tells you very little about the long-run merits or demerits of NAFTA.
JackBW: YOYMIHere has a question. Perhaps Elisabeth will comment on this one, too.
Question: How has NAFTA improved the Mexican worker's "quality of life"? If NAFTA has been so good for them, why do 1.5 million illegals try to cross the border every year (and that's just the number who are caught)?
PaulaTrade: Again, I think NAFTA is not an insurance policy for the entire Mexican economy. Mexico in the past couple of years has had a very severe economic downturn, and the plight of Mexicans is impacted by more than just changes in rules on tariffs and border barriers, which is what NAFTA is about. It should be pointed out that the crisis that Mexico went through from '94 to '95 was contained much better, and the conditions there have improved much quicker, because of some of the NAFTA rules, which prevented Mexico from closing its borders as it had in the '80s during a severe economic crisis. So, while NAFTA is not the solution to all of Mexico's problems, the U.S. is better off with NAFTA in place on the border than it would be if there was no understanding between the nations of North America.
JackBW: Elisabeth Malkin in Mexico City wants to add to what Paula Stern has said.
Emalkinbw: There is growing concern in Mexico that the economy is developing into a two-tier economy. On the one hand, there are highly competitive Mexican companies and the subsidiaries of U.S. and other multinationals. But on the other hand, the majority of Mexicans continue to work in small and medium-sized companies that are not competitive internationally. Is there any way that NAFTA can make an impact on the majority of Mexican industry?
PaulaTrade: The challenge for any country in international competition is to equip its people -- all of its people -- to compete in the global marketplace. The answers to the problem you raise generally lie in education and training, including literacy training and training in computer skills. The large number of small and medium-sized Mexican enterprises will be better able to compete with NAFTA because their components and raw materials will be more readily available at more attractive prices. Likewise, the extent to which the Mexican economy grows generally through trade will provide a growing market for the small and medium-sized companies.
JackBW: This question from MikeMerc in New Jersey relates to this week's BW Cover Story.
Question: Are you surprised at the amount of economic activity that is now concentrated along the Mexican border?
PaulaTrade: The concentration of economic activity on the border has been growing for many years. I, for one, was hopeful that the NAFTA rules would have the effect of spreading that economic activity throughout Mexico, and reducing the concentration along the border. It seems that in the short period since NAFTA took effect, we have seen a burgeoning of the economic activity along the border. I would hope that the infrastructures that support this activity will be built elsewhere within Mexico, so that whatever development occurs is healthy socially and environmentally.
JackBW: Elisabeth, as co-author of the Cover Story, do you have a take on this?
Emalkinbw: Yes, the boom on the border has more to do with the peso devaluation than NAFTA, although NAFTA certainly encouraged U.S. firms that may have been hesitant to invest in Mexico before to set up production on the border. But the border's infrastructure is strained. Housing, transport, etc., are becoming problems. Indeed, the infrastructure is much stronger in cities like Monterrey and Guadalajara, which are also receiving foreign investment.
PaulaTrade: That's interesting. That's a hopeful sign. I would just add that it wasn't just U.S. firms that were holding back until NAFTA was passed. Foreign direct investors in Korea, Japan, and elsewhere also finally made their decision to invest once the rules were clear.
JackBW: Syxx01 in Ohio has a question heard frequently during the NAFTA debate -- and worth tackling again.
Question: Why should we revitalize Mexico's economy?
PaulaTrade: Because we would like to see Mexicans living peacefully and comfortably in their own homes rather than pulling up their families to find a living in the U.S. The border between the U.S. and Mexico is 2,000 miles long. It's more efficient to move goods and services -- not people -- across the border, and it is undoubtedly a much healthier approach for both nations.
JackBW: Several people have asked about drugs -- this is from YOYMIHere.
Question: Increased drug traffic from Mexico may make the renewal of NAFTA more difficult come July 1. Some in Congress want to end NAFTA because of this. Your comments?
PaulaTrade: It's certainly a scourge. It needs to be addressed. But NAFTA was never intended to tackle that problem. Re the review of NAFTA this summer: Certainly the impact of the headlines on drugs will have an effect. The Administration has to provide a report to Congress this summer on what the impact of NAFTA has been -- it's due July 1 to Congress. I don't think Congress is not going to renew NAFTA. But drugs will make the debate more charged. By the way, Congress doesn't have the same power to pull the plug on NAFTA as it does to pull the plug on renewal of most-favored-nation tariff treatment for China, which will be another major debate coming at the same time this summer.
Emalkinbw: I wanted to add something on the attitude in Mexico to drugs and the NAFTA debate. Mexicans argue that the U.S. is not doing its share to control the demand for drugs. The drug issue has created new tensions in the U.S.-Mexico relationship. That relationship will suffer new strains if the NAFTA debate becomes a new occasion for criticism of Mexico. Public opinion in Mexico is generally in favor of NAFTA, although expectations raised in 1993 were dashed with the peso crisis. It seems Mexicans have a more realistic idea now of what NAFTA is supposed to do.
JackBW: NofearJhwk sends this question up to the stage.
Question: The environmental and health and safety laws are not as strong -- or nonexistent -- in Mexico. We had many kids get sick and some die as a result of tainted strawberries. Are stronger laws and enforcement going to be part of a stronger NAFTA agreement?
PaulaTrade: Agriculture-related regulations have been in place for years with Mexico and other countries that export to the U.S. The big question that is raised by the strawberry incident has to do with enforcement of rules, not necessarily the revamping or rewriting of rules. Enforcement is also critically important with regard to the environmental questions many people legitimately raise when talking about Mexican-U.S. relations.
JackBW: Here's the second of two questions so far tonight about expanding NAFTA, this one pegged to Clinton's trip this week.
Question: President Clinton is heading to Central America to push for inclusion of these countries in an expanded NAFTA. Are we about to see another "fast-track legislation" for this as we did for Mexico?
PaulaTrade: The $64,000 question among the trade gurus in Washington and every other capital of the world is whether we'll see new fast-track legislation that would authorize the President's negotiators to negotiate a variety of different agreements and bring them back to Congress for an up or down vote. Presently, Congress and the White House are at an impasse on the terms on which this so-called fast-track legislation would be renewed. Congressman Gephardt, who is a member of the President's party, has warned that he'll oppose any fast-track legislation that extends NAFTA.
President Clinton has stated on a number of occasions a desire to see NAFTA extended to Chile and other countries in Latin America. Much of the debate that's swirling in Washington is over the inclusion of labor and environment-related objectives along with the trade objectives. Many members of the Republican Party object to inclusion of labor and environment objectives. It's going to take some more time before competing interests sort themselves out. I think the issue will ultimately not be IF we get a fast track, but WHEN fast track will be renewed.
JackBW: The next question is another one often heard in NAFTA debates.
Question: How are Americans supposed to compete with Mexicans who will work in unsafe plant conditions, with few environmental controls, few benefits that American workers receive, and accept a wage of $5 a DAY?
PaulaTrade: I think that the purpose of NAFTA was really to make it possible for American workers to compete on a fairer basis.
JackBW: The Yerzo has an immigration question.
Question: Why doesn't the United States make a hefty punishment for illegal Mexican immigrants?
PaulaTrade: As I understand it, the immigration laws say that if an illegal immigrant is found, he or she is deported. Also, there are penalties against those who help illegal immigrants, and the latest laws provide penalties on employers who hire illegal immigrants. All of this is intended to discourage illegal immigration.
JackBW: That's a wrap for tonight's 45-minute hour!
PaulaTrade: Thanks, everyone.
JackBW: Thanks for being with us, Paula Stern, and for your answers. Thanks to the AOL audience for the questions. And thanks to Paul Magnusson of BW in Washington and Elisabeth Malkin of BW in Mexico City -- read her Cover Story on The Border here in BW Online (keyword BW).
PaulaTrade: Thanks, Paul, Jack, and Elisabeth.
JackBW: Transcripts of this and all BW Online conferences and chats are available soon after the event. Look for them under Talk & Conferences on the BW Online opening screen. Thanks again, and goodnight to all!
Copyright 1997 by The McGraw-Hill Companies, Inc. All rights reserved.
