IMPACT OF THE TRADE AGREEMENT : Q & A : How Accord Is Apt to Affect U.S. Citizens

If Congress and legislative bodies in Mexico and Canada approve it, the North American Free Trade Agreement is expected to have a wide-ranging impact on Americans. Here are answers to some questions about how the pact is likely to affect American workers, consumers and investors.

Q: How would consumers be affected?

A: The most immediate impact would be on manufacturing tariffs. Negotiators agreed to reduce customs duties on thousands of items, resulting in lower costs for imported goods. Some tariffs would be cut immediately. Others would be reduced gradually over five to 15 years.

In the longer term, the agreement may encourage U.S. manufacturers to establish operations in Mexico. Labor is cheaper in Mexico, and U.S. firms say the lower costs of production would be reflected in the prices of goods they ship from Mexico to the United States.

Q: How would American workers be affected?

A: The effect on U.S. workers has been among the most hotly debated issues surrounding the agreement. Various groups have issued estimates ranging from a net loss of 900,000 U.S. jobs to a net gain of more than 300,000. The Institute for International Economics, for example, estimates that a continent-wide trade accord would bring a net gain of 175,000 American jobs.

Opponents of the agreement argue that Americans could lose jobs because the agreement would encourage U.S. firms to shift production to Mexico, where labor is less costly. Others concede that some American jobs may be lost in the short term. However, they maintain that more U.S. jobs would be created because Mexico relies on the United States for nearly 70% of its imports. Supporters say that the agreement would create new and higher-paying jobs in Mexico and that more Mexicans would be able to buy American goods--eventually generating new U.S. jobs.

Q: What are other possible benefits to U.S. workers?

A: Proponents say free trade would encourage plants in Mexico to import U.S. machinery, materials and parts. American workers producing goods such as manufacturing equipment, machine tools, instruments and steel could benefit.

A recent Brown University study concluded that there would be a significant increase in exports of American plastic products, computers, textiles and electrical machinery to Mexico. If exports in these areas increased, the job base in those industries could expand.

Q: Would the pact address rules relating to temporary work visas?

A: Yes. Corporate executives and some professionals in the United States, Canada and Mexico would be able to live and work anywhere in North America with few bureaucratic requirements. Changes in this area, however, would be confined to executives and restricted to certain professions to prevent large-scale Mexican immigration to the United States.

Q: Will the agreement benefit investors?

A: One provision of the agreement would allow U.S. banks, insurance companies and brokerage houses to operate in Mexico. Such a provision would make it easier for Americans to invest in Mexican firms and Mexican-American joint ventures.

U.S and Canadian banks would be allowed to establish subsidiaries in Mexico. Each foreign bank would be limited to 1 1/2% of the total Mexican market. Foreign banks in total could have no more than than 8% of the Mexican market immediately. That share would gradually rise to 15% until the year 2000, when there would be no restrictions.

Also, U.S. and Canadian firms would be able to buy Mexican securities firms until they had 10% of the Mexican market. All limits on acquisitions would be removed by the year 2000.

Q: Could American shareholders benefit?

A: Firms with a manufacturing presence in Mexico tend to have better success penetrating the Mexican market. For example, General Electric, which has increased its production in Mexico in recent years, had sales of $870 million there in 1991. GE projects that under the trade agreement its sales in Mexico would rise to between $2 billion and $3 billion by 1996.

North American Trade North American inter-country trade, or the value of what each country imports from the other, nearly doubled in the 1980s. The North American Free Trade Agreement is designed to remove remaining barriers to commerce.

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United States and Canada are the biggest trading partners 1987: $131.1 billion ‘88: $151.9 billion ‘89: $164 billion ‘90: $169 billion ’91 168.7 billion *

Although trade between the United States and Mexico is growing rapidly 1987: $28.7 billion ‘88: $35.6 billion ‘89: $43.1 billion ‘90: $53.8 billion ‘91: $65.1 billion *

Trade between Mexico and Canada is Small but could grow 1987: $1.3 billion ‘88: $1.6 billion ‘89: $1.8 billion ‘90: $1.9 billion ‘91: $2.5 billion Source: Directory of trade Statistics, International Monetary Fund. The Conference Board