NEWS ANALYSIS : World Trade Pact’s Chances Brightened by NAFTA Vote

Now that the House of Representatives finally has approved the North American Free Trade Agreement, an even bigger question looms: What happens next to global trade?

With the House passage of NAFTA, the U.S. Congress now is much more likely to ratify the most ambitious trading regime in history--the renewal and expansion of the 110-nation General Agreement on Tariffs and Trade, or GATT.

That expansion--which would bring free trade to agricultural products, to services such as banking and engineering and to intellectual property such as films, videos and television programs--would have been dead if opponents of free trade had snuffed NAFTA on Wednesday.

Defeat of NAFTA also would have dashed the hopes of Argentina, Chile and other South American countries for similar U.S. trade agreements.

In that sense, the yes vote on NAFTA, which faces certain Senate approval, is a signal that the United States more than ever before sees its economic future in doing business with all the countries of the world. The world’s largest customer wants to become the world’s largest business partner.

And it will begin with its neighbors, Canada--already the largest U.S. trading partner--and Mexico, the poor relation that promises one of the great growth markets of the next few decades.

It is all part of the pattern of expanding commerce that for the past seven years has formed the basis of the Uruguay Round talks on GATT, the 46-year-old global trade agreement. Successful resolution of the GATT talks would increase world trade in goods and services by $274 billion in the next decade, according to the Organization for Economic Cooperation and Development.

But nothing is simple in trade matters. The current talks face a Dec. 15 deadline for amendment-free consideration by Congress, and many obstacles remain--not least among them France’s objections to reductions of agricultural subsidies, which would favor U.S. farm exports.

Passage of NAFTA, demonstrating U.S. willingness to give as well as get in trade agreements, will help the U.S. GATT negotiators push to open foreign government procurement of U.S.-made goods and win greater protection for U.S. copyrights, among other things.

“I am sure that the commitment to open markets shown by the vote this evening will greatly assist the successful conclusion of the Uruguay Round before Dec. 15,” said Leon Brittan, external economic affairs commissioner for the European Community, in a statement released after the House vote.

Brittan is scheduled to meet Monday in Washington with U.S. Trade Representative Mickey Kantor to begin negotiations.

As for the economic consequences of NAFTA, many experts have predicted that little will happen immediately. But there is evidence to the contrary. Mexico will act to reduce its tariffs and other barriers to imports and foreign investment beginning in January. And, even though these steps will be phased in over five years, the flow of U.S. goods to Mexico should begin to pick up, analysts said.

Take Ford Motor Co. It now produces 12 different car models at its Mexico City plant. It is not economical to produce small quantities of so many models, but Ford was forced to do so by import barriers, Ford Vice Chairman Allan D. Gilmour said. Now, with NAFTA, “we’ll produce two models in Mexico City and ship others from U.S. plants,” Gilmour said.

The flow of foreign investment into Mexico, which grew to $20 billion in recent years, will increase, international bankers said--and not only from U.S. investors. “I see a lot of Asian money coming into Los Angeles, to invest in Mexico and in ventures between Mexico and this country,” said John Huang, vice chairman of Lippo Bank in Los Angeles.

When NAFTA takes effect, people will be watching to see where, and how many, jobs are created and lost. Although most economists agree that NAFTA will add jobs in the long run, the question remains how individual companies and workers will be affected.

Unions fear the worst, but most business executives are sanguine. Southern California’s furniture manufacturers, for example, look forward to new markets in a country that has prohibited furniture imports.

For their part, apparel makers look for cross-border production arrangements, with design and sophisticated manufacturing performed in the United States and sewing done in Mexico. Environmental equipment and consulting firms are already seeing increased business in Mexico.

Mexico initiated free trade talks in 1988, but the United States took up the idea because it needs new outlets for U.S. industry. The developed economies of Western Europe, Japan and Canada still take more than 60% of U.S. exports, which approach $500 billion. But those economies are no longer growing very fast.

So to seek opportunities for U.S industry and to balance the $530-billion worth of goods the country buys each year from other nations, U.S. trade policy has been expanding economic contacts with developing countries, such as Mexico, the rest of Latin America, China and southeast Asia.

Meanwhile, other Latin American countries have been emulating Mexico, forsaking their former policies of holding out foreign goods and investment in order to produce at home. They found that such policies left them lagging behind in technology and economic development. So Argentina, for example, has privatized state industry and is looking for a NAFTA-like trade agreement with the United States, Argentine Ambassador Paul Granillo Ocampo said recently.

NAFTA, for all its heralded advantages, could complicate GATT negotiations in some areas, such as textiles and apparel. To win key House votes for NAFTA, Clinton promised to back the textile industry’s position in GATT talks to lengthen the phase-down of the system of quotas and tariffs that have protected American manufacturers. Low-wage textile producers such as China, Pakistan and India are likely to object.

The Clinton Administration also faces a challenge in GATT overcoming French and other European objections to loosening quotas governing the importation of American movies and television programs.

France has staked out a hard position on the matter, couching it as a matter of preserving cultural identity.

Expansion of GATT presents a dilemma for the semiconductor industry as well. Companies such as Santa Clara-based Intel favor the expansion of GATT if it establishes firm rules for copyrights and trademarks. But as now written, the GATT accords would allow foreign governments to require licensing of U.S. technologies in exchange for royalties. This means Intel, which exports half of the semiconductors it produces, would have to let other countries in on the know-how for its hugely popular 486 and Pentium microprocessors.

“We find that to be a dagger at the heart of the U.S. standard of living,” said Michael Maibach, Intel’s director of governmental affairs.

So the company cheered NAFTA’s passage because it hopes that the victory will “strengthens Clinton’s ability to work his will” in GATT talks, Maibach said.

Key Issues Ahead

Trade issues still facing the United States:

* RICE: The United States would like Japan to loosen its ban on the importation of rice. In September, Japan for the first time agreed to a one-time exception, allowing limited imports of U.S. rice to make up for shortages caused by bad weather. On Wednesday, the Kyodo news agency reported that Japan agreed to lift the ban and impose tariffs; government officials would not confirm the report.

* AGRICULTURE: In negotiations under the General Agreement on Tariffs and Trade, France has balked at a preliminary agreement to lower agricultural subsidies. European negotiators are seeking a clarification of the agreement, but it’s unclear whether France can be brought into line. NAFTA will help the U.S. position.

* MOVIES: The Clinton Administration faces a challenge of overcoming French and other European objections to loosening quotas governing the importation of American movies and television programs. The United States opposes any move to exempt audiovisual services from the GATT accord.

* TEXTILES: To win key House votes for NAFTA, Clinton promised to back the textile industry’s position in GATT talks to lengthen the phase-down of the international system of quotas and tariffs that protects American manufacturers, over likely objections from low-wage makers of textiles like China, Pakistan and India. The industry also wants reciprocity from other nations for tariff and quota concessions made by the United States.

* HUMAN RIGHTS: At the Asia-Pacific Economic Cooperation meeting in Seattle, Secretary of State Warren Christopher reasserted the United States’ support for improved human rights and open markets in Asian nations. The comments appeared to be aimed in part at China, where the treatment of political dissidents in the wake of the 1989 Tian An Men Square crackdown is likely to be an issue in the debate over renewal of that nation’s most-favored nation trading status next spring.