NAFTA Boosts U.S. Exports, Case for GATT

Even as Congress ponders the most sweeping liberalization of international trade rules ever attempted, a narrower treaty relaxing trade barriers between the United States, Canada and Mexico is beginning to result in increased U.S. exports, particularly to Mexico.

President Clinton is banking on the early experience with the relatively small-bore North American Free Trade Agreement to help him sell Congress on the gigantic General Agreement on Tariffs and Trade, which would reduce tariffs and other trade barriers among 124 countries.

GATT will be the sole item on the agenda when Congress reconvenes Tuesday.

NAFTA is not exactly a miniature GATT. For one thing, NAFTA will eventually remove all barriers to trade between its three participants, while the global agreement would reduce and equalize tariffs around the world but not eliminate them.

The final verdict on NAFTA, which took effect in January, is years away. Nevertheless, most analysts agree that the early experience under NAFTA shines a favorable light on trade liberalization generally. Nowhere to be found is the “giant sucking sound” that 1992 presidential candidate Ross Perot warned about--the sound of U.S. manufacturing jobs drawn to Mexico, where labor is so much cheaper.

Quite the contrary, NAFTA may result in more jobs for workers in the United States, not fewer. Caterpillar Inc., for example, reports that its sales of giant earthmoving equipment to Mexico during the first half of the year soared 77% above last year’s levels. Midwestern farmers are selling three times as much corn to Mexico this year as last.

“Thanks to NAFTA, new exports to Mexico and Canada have helped our businesses create as many as 100,000 jobs,” Clinton claimed in a recent speech. “In the six months after the treaty’s adoption, exports from the United States to Mexico increased nearly 20%, about three times the rate of our overall export growth in this time of economic expansion.”

U.S. residents are also buying more Mexican products, more than offsetting the surge in U.S. exports to Mexico. The U.S. trade surplus with Mexico dropped by half during the first six months of 1994, from $1.64 billion a year earlier to $810 million this year. But analysts say many of the Mexican goods being bought in the United States are not replacing U.S.-made products but are items that buyers in the United States otherwise would not have bought at all.

Not every U.S. industry is coming out ahead. Economist Charles W. McMillion of MBG Information Services, a business information, analysis and forecasting firm in Washington, says the United States has boosted its exports of plastics, iron, steel and fertilizer. Mexico is selling more electronic equipment, surgical instruments and optical equipment to the United States, as well as automobiles and auto parts.

“The losers (in the United States) are high-tech, high-wage, California-type products, and the winners are bulk commodities,” McMillion said. “It’s completely at odds with the theory that we export high-skill, high-wage products to Mexico and we import simple products and raw materials.”

With import taxes falling, Mexico has purchased 44,000 U.S.-made automobiles during the first 10 months of 1994, six times the number purchased in all of 1993, according to the American Automobile Manufacturers Assn.

On the other hand, McMillion said in an interview, the Big Three auto companies have increased the number of cars they are building in Mexico and selling in this country.

Overall, argues the Clinton Administration, NAFTA is clearly a net plus.

“Last year we predicted that NAFTA could support 200,000 jobs within two years. We are right on track to achieve this,” U.S. Trade Representative Mickey Kantor said in a statement marking the first anniversary last week of congressional approval of the trade pact.

He also said that no one has used the trade agreement as the basis to challenge U.S. environmental regulations or health and safety standards--although there has been no significant progress in beginning a border cleanup in Mexico that was a central element of the trade plan’s environmental provisions.

One of the ironies of the angry debate over the North American accord has been the effect it has had in the Midwest, where much of the opposition was centered--and where manufacturers such as Caterpillar, long a backer of the trade plan, and farmers are happily taking advantage of the lowered barriers.

“The center of American export industry is the Midwest,” said Barry P. Bosworth, an economist at the Brookings Institution, a public policy research organization in Washington. “Yet it was the Midwest congressional bloc that voted against it.”

And in the border town of Laredo, Tex., business is booming as big diesel rigs rumble back and forth across the border at an ever-increasing rate. Restaurants have opened, distribution warehouses have been established, and the Mall del Norte has been expanded.

In the year ending Sept. 30, 1993, roughly 113,500 trucks entered the United States from Mexico at the Laredo-Nuevo Laredo border crossing. That figure grew a year later to nearly 191,000, according to Audrey Adams, the district director of the U.S. Customs Service.

At the same time, U.S. shipments to Mexico increased threefold.

When Adams served in the same region a decade ago, it was not uncommon for U.S. merchandise bound for Mexico to sit in a warehouse for nearly a year while Mexican taxes were assessed and paperwork was completed.

Now, she said, “it’s just not happening like that.”

Instead, goods are flowing into the region from throughout the United States, and they move right along into Mexico. And products from Mexican factories--television sets, for example, or windshield wipers for cars being assembled in this country--are moving north.

“There is no problem getting the permits,” she said. “It’s a very free flow of cargo.”

“Remember that whole thing about the ‘giant sucking sound?’ The increases in imports are impressive--but the increases in exports are even more impressive.”

GATT’s Main Points

Here are the chief provisions of the General Agreement on Tariffs and Trade accord, which Congress will consider in a special session next week:

* TARIFFS: Reduce and equalize tariffs around the world but not eliminate them.

* SCOPE: Expand the reach of the international trading system to make it possible for companies involved in accounting, banking and advertising to do business around the globe.

* COPYRIGHTS: Strengthen enforcement of copyright laws to provide protection for pharmaceutical companies.

* SUBSIDIES: Cut agriculture subsidies so that the prices of produce in foreign markets are not kept so artificially low that U.S. goods seem overpriced.

* REFEREE: Establish an international body, the World Trade Organization, with authority to regulate global commerce.