How The North American Free Trade Agreement Creates Jobs

Report Jobs and Labor

How The North American Free Trade Agreement Creates Jobs

January 15, 1992 21 min read Download Report
Edmund Haislmaier
Senior Research Fellow
Ed is an expert in health care policy and frequently is asked to help lawmakers design and draft reforms to the health systems.

(Archived document, may contain errors)

872 January 15,1992 HOW THE NORTH AMERICAN FREE TRADE AGREEMENT CREATES JOBS INTRODUCTION At the axe of the North American FreeTrade Agreement (NAFTA) now being ne ated with Mexico and Canada is jobs. Transforming all of North America inm a bee aade zone w ill unleash the kind of economic surge which cxeates a bounty of jobs ror Americans, Canadians, and Mexicans Reason #1: A NAFTA will create jobs for Americans in export industries. Amer ican companies will hire more w-rs to satisfy foreign demand for Am c a n exports. This is what has betn happening since the United States began pursuing its free trade policy at the end of World War II Jobs will be created for a number ofreasom Reason #2: A NAFTA will expand the free trade program that the US. bas had with M exico since the 196& known as muquihdoro production, that al ready has created tens of thousands of jobs for Americans. Maquiltidorus m assembly plants located in Mexico, mostly along the U.S.-Mexico border.

These mainly sue owned by U.S. companies. These companies ship U.S.-made components to Mexico for assembly. The finished product then is shipped back to the U.S. for sale or for expart abroad, with atariffonly on the value added in the Mexican maquiladora. Under the maquiladora program, U.S ico, thereb y remaining competitive in world markets companics lower prod~ction costs by assembling their products in Mex Reason #3: A NAFIA will help the U.S. compete e!conomically against Euro pean and Pacific Rim countries by making U.S.-Mexican Labproduction more p rofitable for US. companies that export products to the rest of the world. Co-production, a process by which a company can use the best re sources bm several countries to produce a good, could occur mm easily under a NmA, as barriers to trade between Mexi co and the U.S. are reduced and business laws and regulations between the two countries are simplified.

Reason 4: A NAlVA will strengthen the Mexican economy, which in turn will increase enormously Mexico's demand for U.S. machinery and consumer goods made by U.S. workers. Mexico hady imports $28.4 billion worth of goods and services from the U.S. and is America's third largest customer.

With its population of 85 million, an economically surging Mexico will be come a huge market for U.S. products.

To info rm the American people axid the U.S. Congress on how the NAFI'A will cre ate jobs for Americans, the Bush Administration should Direct the Departments of Commerce and Labor to identify how many jobs in each congressional district depend upon the continued growth of U.S trade with Canada and Mexico, which may be threatened without a NAFTA.

Include in the President's State of the Union Address a statement on the importance of the NAFI'A for Creating jobs in America and the positive im pact that the growth in U.S. exparts will have on job creation as the NAFTA reduces beers to trade with Canada and Mexico.

Mobilize those U.S. companies that assemble products in Mexico under the maquilacbra program, which have benefitted from he trade with Mexico, to educate Congress on the benefits of expanding free trade with Mexico.

Include the NAFTA as one of the main engines of job creation in the Administration's economic growth package.

NAFI'A's big payoff for America is mm jobs for Americans. Its big payoff, too, is e nsuring that America remain the world's super economic power by allowing America to tap the vast resources and energetic populations of Mexico and Canada. Just as the Louisiana Purchase nearly two centuries ago opened a frontier that brought America to gr e atness, so NAFTA will open an equally promising hntier. As America faces the uncertainties and challenges of the approaching new century-and a potentially in tense economic struggle with Japan-NAFTA will allow the U.S. to overcome the challenges and trium p h in the struggle FREE TRADE HAS MEANT JOB CREATION The U.S. has proved to the world since World War 11 that a country with a policy of free trade with other nations can create jobs for its own people. After World War II when the U.S. was the dominant eco n omic power in the world, Washington began low ering tariffs on many products and raw materials that had been paying high levies under the 1930 Smoot-Hawley Tariffs. The U.S. in 1947 led other Western nations in signing the General Agreement on Tariffs and Trade (GAm to reduce tariff and other trade baniers. Since its mation in 1947, the GATT has lowered average world tariffs on manufactured goods from 40 percent to about 5 percent today.This policy of free trade trig

greatex U.S. production, which created jobs in America throughout the 1950s as the world imported quality products made in America. U.S. manufacturers 2 meanwhile used inexpensive imported materials to make affordable, high-quality goods for Americans.

American capital and America's educated work farce were able to produce greater amounts of high-technology goods during the 1960s and 1970s by allowing low cost low technology" products and raw materials into the US. from less developed coun tries. U.S. consumers were able to purchase inexpensi ve products, and U.S. producers could buy inexpensive components, which lowered the production costs of US. prod ucts. This policy of free trade helped to keep the U.S. internationally competitive.

The U.S. Department of Commerce estimates that 22,800 jobs axe created in Amer ica for every $1 billion in qtional merchandise exports.' By 1990 U.S. merchandise exports totalled $424 billion. The number of U.S. jobs de ndent on exparts has grown from 5.6 million in 1987 to over 7 million in 19

90. P The U.S. ma ted jobs for four decades after World War II by reducing tariffs on im ported goods and p&uading other countries to re duce their tariffs against U.S. exports. In 1989, the U.S. bmadened this free trade policy by conclud ing a free trade agreement (FI'A) with Canada.

The US.-Canada FTA reduces tariffs and non-tar iff barriers on almost all bilateral trade. Although in effect far only two yem, by 1990 the agree ment created 264,000 jobs far American workers according to the Department ofcommerceP ~n the first year of t he agreement, US. merchandise ex ports to Canadarose to almost $83 billip an 18 percent in- over the pmvious year.

Making A Diflerence. EEeer trade with Canada also has helped small American businesses com pete mss the U.S.-Canada border. This is benefi ci al because over 80 percent of Americans are em ployed in small businesses. According to Cana dian Ambassador to the U.S. Derek H. Burney For a small business a tarif can often be the dif fance between a profit and a loss, a clinched sale and a lost apport u nitY The NAFTA is merely Table 1 Workers Employed In Export-related Manufacturlng I U.S.Total I 12.8 I I Texas I 12.7 I 1 Intematiod Trade Adminishation Contribution of Exports 011 U.S. Employment, 1980-1987 March 1989, p. 1 2 M~cOmmitteeforTradepolicyand Ne

ations AReparttotheU.S.CongressConcemingthePre8ident's wmt fm the JhWa Of FW-Tkk Mm Implementing k

lath fdhk Agffements March 1991 p. 18 3 Ibid 4 In- Trade Adminishation North American FreeTrade Agreement Generating Jobs for Americans" March 5 Ibid 6 A ngehLagomasini TheU.S.-canadaFreeTradeA~mat First Anniversary News Summary Cirknsfora 1991, p. 4 Sound Economy Fopmdatiosl, January 29,1991, p.2 3 the next step toward freer trade between the U.S. and Canada and Mexico, the fmt and third largest U.S. trad ing partners, respectively.

The NAFI'A like the U.S.-Canada FI'A, will reduce almost all traditional barriers to trade, such as tariffs and import licensing. This will make it cheaper for U.S. compa nies to operate in Mexico and ship components and products across the border.

A NAFTA also will allow greater American ownership of companies in Mexico which is now restricted by Mexican law. In addition, corporate taxes and numerous regulations and rules dealing with production and marketing in the two countri es will become more uniform under a NAFTA. A more uniform legal structure for businesses will reduce their legal fees and create a more secm environment in which business in vestment and activity can prosper MAQUILADORAS: A TEST CASE FOR JOB GROWTH A NAFI 'A would create jobs for Americans because it would expand upon the maquiZudoru program that already employs tens of thousands of Americans in seven teen states.

Muquihdorrrr are assembly plants in Mexico, located near the U.S.-Mexico barder that make prod ucts from components usually made in the U.S.This program has helped keep American companies competitive by keeping production costs low. The muquiZ&ru program, created jointly by the U.S. and Mexico in the 19609, allows U.S. companies to ship U.S.-manufa c tured components to Mexico whm they are as sembled or finher processed. The product then is shipped back for sale in the U.S with U.S. companies paying tariffs only on the value of the work done in Mexico. In practice, many of the U.S. components sent to Mexico for assembly have been high technology components such as electronic gear, automotive parts, and television com ponents.

The maquiladoru program allows U.S. companies to continue to make lowcost qual ity products, such as electronic equipment, for U .S. consumers and for export around the world. A 1987 study by the BorderTrade Alliance (BTA an association of U.S and Mexican businesses and trade groups located along both sides of the border, found that seventeen states have major businesses that eithe r operate maquiladora plants in Mexico or that provide technical and management services to the 1,674 muquiZudoru Jobs Far From the Border. The muquiZudoru system creates jobs not only far workers along the border. Awarding to the BTA repart, over 1.2 mill i on Americans work in ov 1,500 companies in the U.S. in conjunction with maquiladora operations in Mexico. These jobs primarily involve transportation, warehousing, administration financial services, computer technology, components manufacturing, and resea r ch and development plantsinMeXic0 Q 7 BorderTradeAUiance,"Maq~ImpactSurvey: F~gsandConclusions,"prepamdbytheDepamnerrtof Marketing, University of Texas at El Paso, July 17,1987 4 Example: the Illinois-based Zenith Electronics Corporation operates five maq u ilrdorus in Mexico. These assembly plants have reduced Zenith's cost of produc tion and allowed Zenith to compete against Asian electronics manufacturers. This in turn has allowed Zenith to keep 8,000 of its U.S. workers employed in its picture tube plast i cs an find assembly operations connected with the muquihdoras' production in Mexico Keeping Jobs Close to Home. The maquiladora system not only has created jobs it also has helped dissuade many companies from moving their entire operations to countries in the Far Eastg Most U.S. companies conducting muquildru operations report that without the muquiludoras they would be farced to locate assembly opera tions in other countries that could provide low cost labor, like Hong Kong, Malaysia or Singap, in order t o compete with other companies that were doing the same operations, over 300,000 jobs would have been lost in America This is because when U.S. companies locate that far from America's shores, they usually move their entire operations there, putting more U .S. workers out of their jobs. While labor groups, like the AFLCIO, have accused the maquiludorus of taking manufacturing jobs out of the U.S it is the opposite that is true.

When U.S. companies build assembly plants in distant countries, they tend to buy most of their components from companies in countries closer to their assembly opera tions, instead of components made in the U.S. In contrast, over 80 percent of a typical product made in a Mexican maquiladora comes from components made in the U.S. by U.S . warkers. The muquiludoru system has made U.S. companies more competitive in world markets by lowering their production costs, and has kept jobs in the U.S. As the BTA study found "The issue facing American society should no longer be a debate of the meri t s of the muquiludorus, but rathex how best to bring American management and labor together to use the maquiladoras to promote American industrial competi tiveness, both price competitiveness and ~al income far W.S workers."11 The NAFTA will allow companie s to extend the muquiZudora benefits, low tariffs on goods shipped across the border, to companies throughout Mexico. This will pies ent mare opportunities for U.S. companies to lower their production costs and make their products more competitive in world markets. This in turn will inmase their ex port sales and generate mare American jobs. In addition, the NAFI'A eventually will allow U.S. companies that own muquiludoru plants also to sell the products made in those plants in Mexico.Today, U.S. companies a re restricted from selling products in Mexico made in muquiludorus. Lifting this restriction will further increase exports fnnn U.S. companies that have muquiludoru operations in Mexico If these companies had moved to the Far East instead of usin Mexican m uquiludoru 8 "North American FreeTrade Agmment: Recommendariom Institute for Illinois, July, 1991, p. 3 9. Bcnddhde Alliance, op ut 10 Ibid 11 Ibid 5 CO-PRODUCTION WILL HELP U.S. COMPANIES STAY COMPETITIVE The NAFI'A will help U.S. companies stay globally competitive by permitting co production in Mexico. This co-production, or as it is also called, production sharing, is a method by which companies use facilities in two or more countries in the design, pro duction, and marketing of their products. When a c ompany uses co-production, it com bines the best resources, such as the lowest labor costs, easy access to capital, or the best technology fmm several countries and uses them to produce a lowcost, quality prodUCL U.S. companies now face stiff compqtition f rom European and Asian companies that use co-production. Japan co-produces television sets and video cassette recorders in China, Hong Kong, Komi, Malaysia, Singapare, and Thailand. One reason that Japan can sell inexpensive, highquality electronic produc t s in the U.S. is because it produces the technologically advanced part of these products in Japan, and produces the low cost, labor intensive components of the product in countries with low labor ~0sts.l~ By the late 1970s Japan was using co-production in almost all of its manufacturing indus tries, contracting out operations requiring unskilled, lowcost labor to the less devel oped Asian countries, while keeping the high technology, capital-intensive production at home.14 Germany, meanwhile, co-produces m anufactured goods in nearby less developed Gxeece, Portugal, and Spain. Many European companies now are considering w-pm duction ventures in Eastern Europe and the republics of the farmer Soviet Union.

U.S. companies conduct few co-production operations close to home, mainly be cause Latin America's protectionism long prevented fareign ownership of production facilities.

Reducing Risk. The NAFTA can help the w-production operations of U.S. compa nies while still keeping many of the jobs in the U.S. The NAF I'A will reduce the risk forU.S. companies aperating in Mexico by allowing foreign ownership of many indus tries pviously prohibited under Mexican law. Although Mexican President Carlos Sa linas Gd has relaxed many of these prohibitions by executive decre e since he took office in 1988, a NAFI'A would prevent subsequent Mexican presidents from re versing Salinas's decrees through executive fiat.

Under the NmA, U.S. companies will be able to lower their production costs in three ways: 1) they will not be req uired to pay high tariffs when they send components to Mexico for assembly; 2) U.S. companies will be able to operate within Mexico at a lower cost than in the US.; 3) taxes on companies operating in both countries as well as numemus otherregulatio~~s and rules dealing with production and marlreting will be It 'Ihenendtowardco-pdWm began with Western European and Japanese industries in the 1970s. For ma information see Joseph Grunwald and Kenneth Flamm, The Global Factory Washington, D.C The Bmkings Instit u tion, 1985 13 Michael E. porter. The CompCtirve Advuntagt? cfNations (New York: The Free Press, 1990 p. 50 14 Ken I. Kim, Kyoo H. Kim An Empirical Study of TheTransnational productian Sharing of the Asian NICs with Japau Journal of International Business S tdes, Summer 1986, p. 119 6 come more uniform under a NAFI'A. Simplification of bushes laws will lower legal fees far businesses and create a more secure environment in which business activity can thrive operate across the Mexican border almost as easily a s they do across state borders within the U.S. This will allow U.S. companies to use both U.S. and Mexican re sources mm efficiently to produce a lower cost, higher quality product. These prod ucts then would compete more effectively against products made in Asia and Europe Several U.S. Cammexce Department studies show that as an American company be comes moxe competitive in the global market, the number of jobs in that company in creases. As the market far an export product increases, so does the demand f a r workers with skills to produce that product. Co-production is an important factor in producing competitive goods far expart. Without a NAFTA, U.S. companies will find it mare dif ficult to co-produce, and thus less able to compete in the global marketpl a ce As the cost of doing business in Mexico diminishes, U.S. companies will be able to HIGHER MEXICAN DEMAND FOR AMERICAN PRODUCTS WILL CREATE AMERICAN JOBS Mexico is now America's third largest trading partner, after Canada and Japan. Total U.S.-Mexico bi lateral trade in 1990 reached $59 billion. U.S. exports to Mexico which totaled $14.6 Won in 1987, soared to $28.4 billion by 19

90. In 1987 the Com merce Department estimated that U.S. exports to Mexico had created 315,ooO jobs in U.S. expart industries. Today that number is even larger as U.S. exports to Mexico have grown 21 percent since 1987.

Under the NAFTA, U.S. exports to Mexico of both goods and services will increase dramatically as tariffs c ontinue to be duced and non-tariff banien axe eliminated. Be fm Mexico joined the GAlT in 1986, tariffs on U.S. exports to Mexico were as high as 100 percent. Under the GATT, Mexico was obligated to reduce import tariffs to 50 percent on most products. Si nce then Mexico has reduced most tariffs to less than 20 percent; the current average tariff on U.S. goods is approximately 10 pemnt.15 his steep decrease in taiffgdoubled U.S. exports to Mexico from $14.6 billion in 1986 to 28.4 billion in 19

90. The NAFI'A would ensure that Mexico keeps its tariffs low on U.S. goods.

Mexico Rebuilding. With low tariffs, the U.S. will be well positioned to sell Mex ico goods and services as Mexico rebuilds its economy. Mexico suffered fram a severe recession from 1981 to 1988, neglecting investments in plant equipment, transporta tion infrastrucm, and other capital goods. Now Mexico is rebuilding its economy. As it does, Mexico will import greater quantities of products and services, mostly from the U.S. Construction equi p ment to rebuild Mexico's transpartation network will be in 7 high demand Industrial machinery will be needed to modernize obsolete factories and equip new factories. Computer and financial services also will be needed to support growing industries in Mexi co. The cost of upgrading and expanding Mexico's tele phone service alone is estimated at $14 billion.

U.S. Advantage. Under a NAFI'A, U.S. companies would supply most of the im ported products id seMces that will be needed for Mexican growth, making jobs for mil lions of Americans. A NAFTA would give U.S. suppliers an ad vantage over suppliers from non NAFTA countries that, of course, would face higher Mexi can tariffs. As the Mexican econ omy grows, Mexican wages also will rise. Histary shows that U.S. e x ports respond dramati economy. Fnrm 1980 to 1990 changes in Mexico's gross do mestic product correlated strongly with changes in U.S exports to that country. As Mexi can GDP pw by 8 percent in 1980, U.S. exports to Mexico in creased by some 55 percent the same year. When Mexican GDP fell by 4 percent in 1983, U.S exports to Mexico plunged over 20 percent cally to changes in the Mexican Chart 1 As Mexico's Economy Grows So Do U.S. Exports 10% I I 180 8 8 4 2 0 2 4 10 80 80 '81 '82 '89 '84 '85 '88 '87 '88 '8 9 '90 US. Export Moxlan QDP Qrowth Qrowth Noh QDP aroma Domeatlc Product 8wnal Sldney WelnIrau3 Tho Goso lor Frae Trade Wlth MEXICO, Progreaalve poiicy Inatltute. Awl1 1881. narlt.oa When the Mexican economy &rows, U.S. exports to Mexico grow in almost dir ect prapartion. This happens because 73 percent of Mexico's imparts come from the U.S.

In camparison, Hong Kong gets only 8.1 percent of its imports from the U.S and Ger many only 7.5 percent. Because U.S. exports in absolute terms make up such a small per centage of these counaies' imparts, when their economies grow, U.S. exports do not grow as dramatically as they do when the Mexican economy grows.

U.S. companies hady have a large part of the Mexican market compared to its Asian or European competitors. Far example, the average Mexican spends $300 a year on American goods and only $30 a yeai on products from the European Community."

U.S. companies are therefm positioned to benefit ktly in increased sales as the Mexican market grows.

According to Roberto Salinas, Director of Mexico's Center far the Study of Free En terprise (CISLE Every one percent increase in Mexico's [economic] growth rate rep 17 Speecb given by Senator Lloyd Bentsen to BorderTrade Alliance, Washington, D.C November 4,1991 8 resents som e 7,000 new jobs in the United States.18 This is primarily because Mexi cans buy so many U.S. goods. This advantage will grow under a NAIFTA, as reduced tariffs make U.S. goods cheaper than goods from non-NAFIA countries.

Large U.S. companies now producing in Mexico, such as the Ford Motor Company already are gearing up to sell more cars to Mexicans. According to Aron Kahan Freund, director of the Mexico City-based Automotive Distributars Association, Mexi can manufacturers and distributors of cars and car parts already are experiencing dou ble digit inmases in annual sales, due to tariff reductions since 1986 and a growing economy. A NAFTA will make these tariffreductions permanent and spur further growth.

Anticipating Export Explosion. The U.S. National A ssociation of Manufacturers supports the NAFIA because it anticipates that under the NAFTA there will be an ex plosion of U.S. exparts to Mexico. Michael Bay, Senior Vice President of the Na tional Association of Manufacturers, last May told the Subcommit t ee on Commerce Consumer Protection and Competitiveness of the U.S. House Committee on Energy and Commerce several major American cairporations-including Rubbennaid Proctor and Gamble, Quysler, and Eastman Kodak-expect to see new export oppor tunities for t heir companies as a result of the combination of a North American Free Trade Agreeme t and an inuease in the size and purchasing power of the Mexican middleclass senting companies that account for 80 percent of Americas steel capacity, supports a NAFTA.Th e mason: In 1990, the U.S. steel industry sold $500 million worth of steel to Mexico, representing 18 percent of total U.S. steel exports.

Mexico is becoming increasingly important to the expart industries of many U.S states.Today 37 U.S. states and the Di strict of Columbia rank Mexico among their top ten export markets. These are not just border states. In 1990 every mgion of the coun try had at least one state that was among the top ten exporters to Mexico. Mexicos im portance as a market for U.S. goods a nd services will grow under a NAFTA, as bar riers to trade are redUCxd 18 Other U.S. companies also see benefits. The American Iron and Steel Institute, rep A NAFTA not only will accelerate Mexicos economic growth, providing Mexicans with mom purchasing p o wer to buy U.S. products, but it also will encourage Mexicans to umtinue their Buy American trend by making U.S. products tariff-fm and thus cheaper than products from many other parts of the world 18 Robexto Satiaas-LeOn. A Mexican View of Nath American F be Trade, Foreign Policy Briehg Series #9 I9 Testimony of Michael Baroody before the Subrnmbx on Commm, Consumer Rumtion. and Compe$itiwness Washington. D.C Ihe CAT0 Instiarte. May 21.1991 HousecOmmionEnergyandcosnmerCe.May 15.1991.p.6 9 HOW TO WIN THE FI G HT FOR NAFTA Although most economic studies on the p sed NAFTA have found that more jobs will be created under a NmA than lost, American labor unions, such as the AFGCIO, and some U.S. protected industries, like the textile industry, continue to op pose a NAFTA. These opponents incorrectly portray the NAFTA as a foreign aid giveaway that would lose millions of American jobs tration intends to win the fight in Washington for NAFTA, the Administration must work to get out the truth on NAFIAs benefits. The Ad m inistration should 98 The arguments against the NAFTA are based on flawed data. If the Bush Adminis 4 Direct the Departments of Commerce and Labor to identify how many jobs in each congressional district depend upon the continued growth of U.S. trade with Canada and Mexico, which may be threatened without a NAFTA Paradoxically, many members of Congress who oppose the NAFTA, like Repmen tative Donald Pease, the Ohio Democrat, and Senate Majority Leader kge Mitchell the Maine Democrat, come from states where many jobs are dependent on U.S. ex ports to Mexico. Between 1987 and 1990, for instance, Ohios exports to Mexico in creased 81 percent to $444.7 million, and Michigans exports to Mexico increased 32.9 percent to $1.43 billion providing jobs for thousands of workers. Harris Woffurd won the Pennsylvania Senate race November 3 running on an anti- NAFTA platfmn.

Yet Pennsylvanias exports to Mexico have increased 221 percent since 1987 to 582.6 million in 1990, pviding jobs for Pennsylvania workers 4 4 Include in the Presidents State of the Union Address a statement on the importance of the NAFTA for creating jobs in America and the posi tive impact that the growth in U.S. exports will have on job creation as the NAFTA duces barriers to trade with Canada and Me xico.

According to the Department of Commerce, far every $1 billion haease in mer chandise exports, 22,800 American jobs are created. The number of jobs in industries that export to Mexico and Canada will increase as barriers to trade iue removed under a N AFTA. In his State of the Union speech, George Bush should vow that he will sub mit the NAFTA to Congress this year. He should stress that gaining congressional ap proval for the NAFTA will be one of his highest priorities 20 For more information see Clop p ex Almond, Albert0 Ruis-Moacayo, Industrial Effects of a Mexico-U.S. FreeTrade AgreamlG Interindlls Research Fund, 1991: KPMG Peat Marwick, Policy Economics Group, The Effects of aFreeIhk Agmement bemeen the U.S. and Mexico, 1991; Review of Trade and Inve s tment Libembation Measma by Mexico and F3wpects for Fu~e UNted States-Mexican Relations, United States International Trade Commission, Pub. No. 332-282, October 1990 10 Mobilize those U.S. companies that assemble products in Mexico under the muquiladoru p r ogram, which has benefitted from free trade with Mexico, to educate Congress on the benefits of expanding free trade with Mexico Over 1,600 U.S.-owned maquiladoras operate in Mexico. These plants help U.S companies produce low-cost, highquality products t h at can compete against products made in Empe and the Pacific Rim nations. These and other U.S. companies have much to gain fnnn a free trade agreemenband should be used by the Administration to help lobby Congress on the benefits of free trade with Mexico Include the NmA as one of the main engines of job creation in the I Administration's economic growth package.

The U.S.-Canada FreeTrade ha, signed by both countries in 1988, reduced, and in many cases eliminated, tariffs and other baniers. Bilateral trade since the agreement took effect in 1989 has increased 20 percent. This has created 264,000 jobs for Ameri can s .Tfie NAFI'A would build upon that success by enlarging the free trade area to in clude Mexico CONCLUSION A North American FreeTrade Agreement will create a free trade zone from the Yukon to theYucatan.This area currently produces $6 trillion in goods and sexvices and has a population of over 362 million consumers, surpassing the economic power of the European Community.The NAFI'A will give North America, particularly the U.S enormous economic power. NAFI'A will enable America, in fact, to coat and if nece ssary-defeat Japan economically.

NAFI'A, too, will mate jobs for Americans. U.S. trading experience since World War II demonstrates how free trade with other nations can inmase U.S. wealth and provide jobs for U.S. workers. The NAFI'A will build on that history of free trade.

Americans wondering what will happen to U.S. jobs under a NAFTA can look to today's U.S.-Mexico maquiladora program. Under this quarter-century-old program U.S. companies have located their labur-intensive production in Mexico near th e U.S Mexico border in maquiludoru assembly plants. This has allowed U.S. companies to keep costs low, while still producing the high-technology end of the product in the U.S. If not for the maquiladora program, many of these U.S. companies would have mov ed their entire operations to distant low-cost labor countries in Asia, with a much higher loss of U.S. jobs. A NAFI'A will provide U.S. companies with gxeater apportu nities for maquiladora operations throughout Mexico.

Using Best Resources. A NAFI'A ako will help U.S. companies stay competitive with such economic powerhouses as the European Community and Japan by allowing U.S. companies to produce more products for expart, and thus create more jobs in U.S.-based companies. This will happen because a NAFI ' A will establish a ceproduc tion zone in the U.S., Canada and Mexico that will allow U.S. companies to use more easily the best resources from all three countries to create low-cost, high-quality goods, thereby duplicating the system that the nations in t h e Pacific Rim and Empe al ready have used so successfully 11 A NAFIA too will broaden and deepen a trading relationship with Mexico that has produced a growing amount of U.S. exports since the early 1980s. As the Mexican economy grows in the coming decade s, a NAFTA will allow the U.S. to benefit by sell ing Mexico billions of dollars in capital equipment, such as construction equipment and factory machinery, and consumer goods, providing thousands of jobs for Ameri cans in these important export sectors.

T he NAFTA is so vital to future U.S. competitiveness that the Bush Administration should make its passage a top priority this year. George Bush should make NAFIA a key component in his domestic job growth program. He should ht the Departments of Labar and C ommeme to educate the Congress on how a NAFTA will strengthen Americas export industries. The Bush Administration should marshall the business community to lobby Congress on the benefits of free trade with Mexico, citing the cur rent muquiZ&ru system to s how how U.S. companies have benefitted from free trade with Mexico.

Harnessing Creativity. And the Bush Administration should stress that Americas future success in competing economically against Europe and the Pacific Rim nations will depend on its abilit y to harness the comparative advantages of all thxee countries in North America, and that this will be possible only under a NAFTA.

America can remain the worlds leading economic power only if America begins to use the economic resources and creativity of its neighbors as well as its own. This NAFTA would allow America to do Wesley R Smith Policy Analyst I I 12


Edmund Haislmaier
Edmund Haislmaier

Senior Research Fellow