A Closer Look at the Trade Agreement

After 14 months of negotiations, representatives of the United States, Canada and Mexico have agreed to a sweeping pact that would create a free trade zone in North America. The agreement, which is subject to the approval of the nations’ legislative bodies, has many controversial elements. Following are details of key provisions.

AGRICULTURE

Steps taken: Half of U.S. farm goods exported to Mexico would immediately become duty-free. Throughout North America, all other tariffs on agricultural goods would be phased out over the next 15 years. Duties on certain items would automatically rise if he countries find that imports are overwhelming home-grown products.

Impact: The agreement should substantially open up the Mexican market to U.S. goods. Mexico is already the third-largest market for U.S. farm products. Fruit and vegetable farms in the United Sates could be hurt, though U.S. grain farmers would likely gain new markets.

TARIFFS

Steps taken: The proposed agreement phases out tariffs and other duties on almost all trade among the three countries over 15 years. Sixty-five percent of U.S. goods would gain duty-free status immediately or within five years.

Impact: The provisions are designed to increase the flow of goods and services among the three nations and could fundamentally alter global trading relationships.

AUTOMOBILES

Steps taken: For imports from Mexico the United States would eliminate immediately all tariffs on passenger cars, and in 10 years all tariffs would be phased out. For imports from Canada and the United States, Mexico would cut in half its tariffs on passenger cars and phase out others over 10 years. Canada will eliminate tariffs on vehicles, following the same timetable. Cars and light trucks within eight years would have to increase their North American parts and labor content from 50% to 62.5%

Impact: The content requirement represents a compromise between the 70% the U.S. industry had lobbied for and the 50% supported by Mexico. The requirement, which has angered Japanese auto makers, may cut imports of Japanese parts and autos throughout the continent. General Motors and Ford applauded the final agreement, but the United Auto Workers continues to oppose the pact.

TEXTILES

Steps taken: Custom duties on textile products made with North American yarn would be phased out within 10 years. However, safeguards allow nations to protect their domestic industries from rising imports. The country may raise duties, or with the exception of U.S.-Canada trade, impose quotas.

Impact: The provision would prevent Canadian apparel manufacturers from exporting to the United States and Mexico clothing that was made with yarn purchased outside North America. The United States would be able to continue duties on many Canadian exports.

ENVIRONMENT

Steps taken: Existing U.S. health, safety and environmental standards would be protected. The United States would be able to bar importation of foreign goods that do not meet U.S. standards. All three nations would be allowed to require environmental impact statements on new investments.

Impact: If effective, the provisions would prevent industries from seeking to transport production to nations with less restrictive environmental standards. However, many environmentalists doubt that provisions of the agreement can be adequately enforced.

ENERGY

Steps taken: The agreement would provide opportunities for U.S. firms to make contracts with Mexico’s state-owned oil company, known as Pemex, and the state electricity commission. It would allow foreign ownership and operation of electric generating plants in Mexico and permit U.S. firms to negotiate directly with Mexican buyers of natural gas and electricity.

Impact: U.S. oil companies and energy supply companies say they would benefit despite continued restrictions on oil exploration and refining in Mexico and private investment in Pemex.

FINANCIAL SERVICES

Steps taken: U.S. citizens would be allowed to invest in Mexico’s banking and insurance industries. Wholly owned subsidiaries and branches of U.S. and Canadian banks and securities firms could also be established in Mexico.

Impact: This should benefit those U.S. and Canadian banks that are interested in playing a role in privatizing the Mexican financial industry. The competition from foreign companies is expected to speed the modernization of Mexico’s financial services industry.

LABOR

Steps taken: The agreement contains measures-such as phasing out certain tariffs-aimed at protecting American jobs in import-sensitive U.S. industries. The U.S. Labor Department has negotiated a memorandum of understanding with the parties with respect to occupational health and safety standards, child labor and workers rights.

Impact: The parties say the measures could minimize the immediate loss of certain U.S. jobs and lead to an improvement in labor standards in Mexico if effectively implemented. However, U.S. labor union officials and some congressmen say the safeguards are inadequate and will push more protection.

TRANSPORTATION

Steps taken: U.S. railroad companies would be allowed to provide services in Mexico and U.S. firms could invest in companies that provide port services to trains and trucking operators. U.S. trucking companies are currently denied the right to carry cargo into Mexico, but the agreement would allow them to transport goods across the border. Trucking firms would be allowed to transport to Mexican states bordering the United States by 1995 and would be allowed to ship goods to any location in Mexico by 1999.

Impact: The provisions are designed to make it easier to ship goods across the border, further facilitating trade.