TIME: Almanac 1993/TIME Almanac 1993.iso/time/060391/0603103.000

Text File | 1992-08-28 | 11.0 KB | 225 lines

                                                                                NATION, Page 20

TREATIES

From Yukon to Yucatan


Congress authorizes Bush to negotiate a U.S.-Mexico free-trade
pact that would create a $6 trillion market, but critics fear
lost jobs and environmental woes

BY S.C. GWYNNE/WASHINGTON -- With reporting by Michael Duffy/
Washington and Laura Lopez/Mexico City


    To hear George Bush tell it, a free-trade pact between
the U.S. and Mexico would be the next best thing to a free
lunch. Abolishing trade barriers between the two nations would
unleash a flood of new investment that would create hundreds of
thousands of jobs on both sides of the border and help stanch
the tidal wave of illegal immigration from Mexico into the
Southwestern states. The only downside would be temporary
"dislocations" in a few American industries until they can
adjust to new economic realities.

    But to the President's equally passionate adversaries, the
proposed North American free-trade agreement would be a
disaster. It would cause devastating job losses and a further
decline for struggling U.S. manufacturing industries. It would
raise the specter of an environmental catastrophe equivalent to
a 2,000-mile Love Canal along the U.S.-Mexico border. And it
would increase America's vulnerability to Asian competition by
allowing the Japanese to take advantage of Mexico's cheap labor
and use that country as a staging area for a new surge of
exports to the U.S.

    The enormous gulf between these competing visions of the
future has produced one of the hottest legislative battles of
the year -- and the most feverish trade debate in memory. It
pits a muscular coalition of protectionist Democrats, Big Labor
and environmental groups against free-market Republicans, much
of corporate America, and a high-profile Mexican government team
backed by squadrons of big-time lobbyists and public relations
firms.

    The issue came to a head last week when both houses of
Congress, after heated arguments, passed resolutions extending
the so-called fast-track authority that U.S. Administrations
have long used to negotiate international trade agreements.
Translated from Washington-speak, fast track would authorize the
President and his Trade Representative, Carla Hills, to cut a
deal with Mexico without congressional meddling. The lawmakers
would have the power to vote down a treaty once it is reached,
but not to alter it.

    At stake in this showdown is Bush's vision of a North
American free-trade zone stretching from the Yukon to the
Yucatan. If he is able to add a Mexican pact to the free-trade
agreement concluded with Canada in 1988, the effect would be to
consolidate 360 million consumers into a $6 trillion market, 32%
larger than the European Community. The question being posed by
skeptics is whether the pact will provide the benefits Bush
predicts, or instead increase America's already dire trade
deficit, which is expected to reach $75 billion this year. Both
economic theory and historic fact support Bush. The Soviet
Union's imploding economy is a good example of what happens when
a country closes its doors to trade though tariffs, import
quotas and other constraints. Mexico, in contrast, offers
perhaps the best current example of the benefits that can occur
when a country lowers trade barriers. Since the mid-1980s,
Mexico has taken a number of daring, unilateral steps to shed
the shackles of protectionism. It has slashed its maximum tariff
rates from 100% to 20%, and its average tariff from 25% to 10%,
while scrapping other nontariff barriers to imports. Seeking a
larger role for free enterprise, the country has put many of its
1,155 inefficient state-owned companies up for sale to private
interests.

    Result: after years of negative growth, Mexico's economy
is expanding at a brisk 4% annual rate. Inflation has plummeted
from 160% in 1987 to about 25%. The boom has created new
markets for U.S. exports, which have more than doubled, from
$12.4 billion in 1986 to $28.4 billion last year, creating an
estimated 264,000 new jobs in the U.S. in machinery, equipment
and agricultural sectors. Mexico is America's third largest
trading partner (after Canada and Japan), importing $295 per
capita from the U.S., vs. $266 for the European Community.

    According to separate studies by the University of
Maryland, the accounting firm Peat Marwick and the International
Trade Commission, a free-trade agreement would accelerate these
welcome trends. The University of Maryland study, for example,
predicts that the U.S. economy would gain 44,500 jobs in the
first five years of a free-trade pact. The big winners would
include producers of machinery and metals, chemicals, plastics
and rubber. The losers: clothing, construction, parts of the
fruit and vegetable business, furniture, leather and glass.

    Mexican industries, notably capital goods like machine
tools, would suffer considerably from U.S. competition at first.
But those losses would be more than balanced by a flood of new
investment from the U.S., Japan and other nations. That influx
could help offset Mexico's burdensome $97 billion debt, for
which there are few prospects of forgiveness.

    The pact's opponents look at the evidence and reach
opposite conclusions. They fear that Mexico's low wages
(averaging $2.32 an hour, vs. $14.31 for American workers) will
tempt U.S. companies to move vast numbers of unskilled and semi
skilled manufacturing jobs south of the border. A recent study
by the General Accounting Office, for example, found that
employment in the U.S. furniture industry dropped 10% in the
past year. All those jobs were lost when 28 wood-furniture
makers moved to Mexico in search of cheaper labor and less
restrictive environmental rules. Florida's fruit and vegetable
growers claim the plan would "annihilate" 8,700 agricultural
jobs and billions of the state's farming revenue. According to
the United Automobile Workers, 75,000 jobs have already been
lost to Mexico.

    Those who would try to protect low-skilled jobs have good
reason to fear the agreement. Even though Mexicans are far less
productive than their American counterparts, there is no arguing
with the competitive advantages of cheap wages. Just how
American workers would be affected by more open borders can be
measured by what has happened to the 2,000 plants along the
U.S.-Mexico line that enjoy barrier-free trade. Nine out of 10
of those plants -- known as maquiladoras -- are owned by U.S.
companies; they employ 465,000 Mexican workers, who are mainly
engaged in assembly of electronic, automotive and textile
products for export to the U.S. Those are, in fact, jobs that
have gone south. And while American manufacturers argue that
this kept jobs from moving to Asia, that is small comfort to
displaced, unskilled American workers.

    Democratic Senator Bob Kerrey of Nebraska, who supports
free trade, says the only solution is for the U.S. to come to
grips with the deteriorating competitiveness of its work force.
"There's a much larger issue here," says Kerrey. "If all I do
is focus on low-skilled jobs lost in textiles or small-scale
manufacturing, I'd be missing the point, saying, well, I'm just
going to protect those jobs. I believe free trade is good for
us in the long run, but I also believe that we have to address
the issue of worker education and training and readjustment."

    Another fear expressed by critics is that a free-trade
agreement, which will have the effect of locking in all of
Mexico's liberalizations, will end up simply providing the
Japanese with opportunities to invest in plants that will export
to the U.S. That would squarely contradict one of the Bush
Administration's primary aims: to create a trading bloc in the
western hemisphere to compete with the formidable bloc being
created by Japan in Asia.

    "((Mexican President)) Carlos Salinas de Gortari has said
Mexico wants Asian investment," says Clyde Prestowitz, president
of the Economic Strategy Institute, a Washington think tank.
"He wants it in high-value-added, high-technology industries
((that will)) be exporting to the U.S. What we emphatically
don't want to do is to make Mexico safe for Japanese
investment." Prestowitz' solution is for the U.S. to induce
foreign investors to export certain percentages of what they
make in Mexico to third countries.

    Whatever else it does, a Mexican free-trade agreement
seems likely to accelerate the decline in the number of American
manufacturing jobs, which provided 35% of U.S. employment in
1948 but now account for only 17%. In time, say economists, both
technological advances in the U.S. and competitive pressures
from low-wage countries will mean the loss of most of America's
unskilled or semiskilled manufacturing jobs.

    One of the major arguments against the proposed pact is
not economic but ecological: the maquiladoras have an
unenviable track record of pollution, which is affecting the
health of Americans across the border. Says Stewart Hudson of
the National Wildlife Federation: "The maquiladora program is
a case study of the kinds of environmental catastrophes that can
happen where trade and investment rule." The biggest fear of
environmental groups, which include Environmental Action,
Greenpeace and Friends of the Earth, is that the leaks and
spills and pollution of border rivers such as the New River and
the Nogales Wash will turn the border into a cesspool, and that
Mexico will end up exporting to the U.S. both its pollution and
products made in environmentally unfriendly ways.

    Bush's victory on Capitol Hill last week was the result of
some uncharacteristically deft political maneuvering on the
domestic front. He has succeeded in splintering both textile and
environmental lobbies, while mollifying fence-sitting Democrats
such as Richard Gephardt by assuring them that the issues of
environment, rules of origin covering foreign investors in
Mexico, and adjustment programs for displaced workers will be
addressed before any agreement is signed. Bush also cornered the
Democrats into choosing between two important constituencies,
labor and Hispanics. Just as Bush hoped, the Democratic National
Committee recently denounced fast-track authorization, which put
them on the side of the shrinking constituency, against the
growing one. "The party is not looking at the numbers," said a
Democratic Congressman who supported fast track. "They're
choosing the protectionist label over a community that will be
the largest ethnic minority in 10 years."

    Although last week's vote cleared away the biggest
obstacle to negotiating a trade agreement with Mexico, it will
be some time before Congress gets to vote on an actual
agreement. When it is completed, it is likely to be so loaded
with adjustments for threatened industries that very little pain
will be felt in this country for a long time. And the benefits,
according to most economists, will be felt most keenly by the
next generation.