Mexico and the World
Vol. 3, No 1 (Winter 1998)
http://www.profmex.org/mexicoandtheworld/volume3/1winter98/benefits_freetrade.html

EXTEND THE BENEFITS OF FREE TRADE

By SIDNEY WEINTRAUB

And JEFF CHISHOLM

(Wall Street Journal, 10/14/98)

The most significant obstacle to the U.S. further extending its trading relationships has been the domestic political challenge posed by vocal critics who assert that freer trade destroys jobs. Opponents used that argument in November when they blocked congressional reauthorization of President Clinton's fast-track authority.

But the facts belie the anti-free-trade rhetoric. In the years since the North American Free Trade Agreement was ratified, unemployment has declined in each of its member countries--the U.S., Canada, and Mexico.

In the U.S., whose economic expansion is beginning its eighth year, unemployment has reached its lowest level in a quarter century. Canada, emerging from a long recession, is anticipated to have the highest growth rate of all G-7 count ries in 1998; its unemployment rate dropped dramatically in December, to the lowest level in seven years. Mexico, which only two years ago experienced its worst single-year economic decline since the Great Depression, rebounded in 1996 and 1997 to its be st performance since the 1970s. Its economic growth was 7% last year; inflation is declining; its stock index is more than 20% higher than it was a year ago. Unemployment in the main cities is now below 3.5%.

A recently completed survey of 361 medium-size and large businesses in the U.S., Canada, and Mexico not only confirms these macroeconomic trends, but specifically indicates that NAFTA has had no adverse impact on jobs. This survey--to be released next week by Bank of Montreal; its U.S. subsidiary, Harris Bank; and its Mexican affiliate, Grupo Financiero Bancomer--found that since NAFTA came into effect in 1994, 47% of all North American businesses have gained employees while another 41 % employ about the same number. Only 11% of the firms surveyed said that they had lost employees since 1994; of the 361 firms surveyed, only one, a U.S. company, directly attributed its job losses to NAFTA. These findings indicate that increased interna tional opportunities, coupled with the significant domestic growth all three economies have experienced in recent years, has fueled job creation across North America.

Seizing on Nafta's success, Mexico has been concluding free-trade agreements with countries throughout the Western Hemisphere. Canada has concluded a free-trade agreement with Chile and has plans to expand its free-trade network furthe r. Of the three NAFTA countries, then, the U.S. stands alone in its inability to expand its access to Latin American and Caribbean markets through trade negotiations. The consequence is that North American producers will increasingly base their operatio ns in Canada, Mexico, and elsewhere to avoid the discrimination they would face by exporting directly from the U.S. American workers will suffer as a result.

The continuing crisis in Asia makes trade within the Western Hemisphere more important than ever. Already, Canada, and Mexico are the top two destinations for U.S. exports, and Latin America has become the fastest-growing regional mark et for U.S. goods. Similarly, the U.S. is clearly the most important destination for Canadian and Mexican goods.

The leaders of the hemisphere will meet in Santiago, Chile, for the Summit of the Americas in April, at which they will make final preparations to negotiate a Free Trade Area of the Americas. They will look for leadership from North Am erica, especially the U.S. If Mr. Clinton arrives in Santiago without fast-track authority in hand, the U.S. will be isolated from the current hemispheric trend of market opening and subregional economic integration.

The proposed FTAA is the logical next step for expanding trade and investment opportunities throughout the hemisphere. It would be unfortunate if the U.S. squandered the opportunity.

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Mr. Weintraub is a scholar at the Center for Strategic and International Studies in Washington. Mr. Chisholm is vice chairman of Bank of Montreal and a director of its Mexican affiliate, Grupo Financiero Bancomer.