I appreciate this opportunity to speak to you today about one of
the most important opportunities that America has faced in several
decades. The North American Free Trade Agreement, which adds Mexico
to the current free trade area with Canada, will create the largest
free trade zone in the world, with a population of 370 million and
a gross domestic product of $7 trillion.
Most of the arguments in favor of NAFTA have focused on the
short-term economic benefits to the U.S.:
Mexico's tariffs on American goods
average about ten percent while America's tariffs on Mexican
products average only about three percent. Consequently, when NAFTA
eliminates these tariffs, America gains greater access to Mexico's
market than Mexico gains to America's. Under NAFTA Mexico will
allow American enterprises to provide banking, securities,
insurance, and other services in its market. All serious scholarly
studies of the effects of the agreement find net new jobs created
in the U.S. The only open question is, "How many?"
With all of these benefits, it is curious that some
conservatives actually oppose NAFTA. On a few points their concerns
are valid, but their conclusions about the actual effects of NAFTA
are mistaken. The environmental and labor commissions established
by the NAFTA side agreements, for example, are unneeded. But, they
do not give more power to radical American environmental groups,
they do not endanger American sovereignty, and they do not offset
the benefits that will result from freer trade.
Today I want to give you ten reasons why all Americans who want
a prosperous, growing country, and conservatives in particular, who
favor less government control of the economy and more freedom for
individuals, should favor NAFTA.
REASON #1: NAFTA originated as part of the vision of one of the
most outstanding conservatives in this country's history -- Ronald
In the late 1970s Ronald Reagan was setting forth his vision of
America, a vision that won him the White House and a vision which,
when translated into economic policy, led to this country's longest
period of economic expansion. Part of that vision was a free trade
area in this hemisphere, stretching from the Yukon in the Arctic to
the Straits of Magellan in South America.
The Reagan Administration negotiated the country's first free
trade area in 1985 with Israel. Next followed the FTA with Canada.
NAFTA is the next step in the Reagan vision of a free trade
REASON #2: Conservatives stand for the freedom of individuals,
not for the power of governments. NAFTA restores sovereignty to
Too often we speak of free trade as, for example, between Mexico
and the U.S. But what do we mean by Mexico and the U.S.? Do we mean
the governments of these countries? Do we mean the physical
In point of fact, Mexico and the U.S. do not trade anything.
Individual Americans and individual Mexicans are the actual
merchants and customers.
NAFTA removes the current restrictions of the Mexican and U.S.
governments on the freedom of their citizens to trade with one
another. NAFTA removes power from the hands of governments and
restores freedom to the sovereign individual.
Some critics have complained that somehow, by allowing the
economies of Mexico and the U.S. to become more interdependent,
NAFTA robs America of its sovereignty. But to these critics I say
that it is not your economy to begin with. Conservatives reject the
premise that a country's wealth is collective or communal. The
American economy belongs to millions of individual private property
owners who should be free to use and dispose of their property as
they see fit. This freedom includes the right to buy from and sell
REASON #3: Conservatives respect the lessons of history. One of
these lessons is that free trade leads to a prosperous world.
Another is that protectionism leads to poverty.
To paraphrase my friend Thomas Sowell, I don't have faith in
free trade, I have evidence. Freer trade leads to greater
In the 19th century Britain became the dominant economic power.
Why did Britain, a small island, rise to economic dominance? In
part it was because Britain progressively opened its markets to
imports. It realized that it makes little sense to waste manpower,
raw materials, land, and capital to produce goods and services that
can be purchased more cheaply elsewhere. It is better to allow the
individuals who are most efficient in producing any given good or
service to do so and to allow them to trade with others for the
things they cannot produce as efficiently.
Even countries that kept their markets more closed than Britain
to the outside world in fact prospered through trade
liberalization. Germany, for example, was only united as a country
under the leadership of Prussia in 1871. But that union was the
culmination of a process of eliminating trade barriers between the
numerous small German principalities. The efficiency that resulted
from the free trade area between these German states helped what
became unified Germany to grow and prosper.
The U.S. kept trade barriers relatively high in the 19th century
as well. But much of the American national enterprise in that
century was settling the vast territory of the West. America was a
huge, European-size continental free trade area, stretching from
the Atlantic to the Pacific, the same distance as between Madrid
NAFTA will apply this lesson, that freer trade means greater
History also shows us the follies of protectionism. During the
1920s the U.S. progressively raised its trade barriers to other
countries. Of course, that meant that other countries could not
earn the dollars necessary to purchase U.S. products. So the U.S.
government, through the newly created federal reserve system,
expanded credit and encouraged lending to other countries.
When the stock market crashed in October 1929 because of these
policies, policy makers and the public assumed the country was in a
temporary recession. By early 1930 the economy was beginning to
But in that year President Hoover changed a recession into a
depression by raising taxes twice. First he raised taxes on
personal and business income. And second, he raised taxes on
purchases from overseas, under the infamous Smoot-Hawley Tariff
Britain followed suit at the 1930 Ottawa conference by
establishing the imperial preference system to favor trade within
its empire and discourage trade outside of it. Similarly, France
tried to restrict within its empire. Fascist Italy already was
trying to keep out foreign goods and investments. And when Germany
went fascist it followed a similar policy.
Unlike a trading bloc, NAFTA does not establish significant new
barriers to non-NAFTA members. Rather, it opens markets and, it is
hoped, will lead to more free trade areas.
REASON #4: Conservatives understand the need for institutional
checks on government abuses of freedom. NAFTA provides such a
To explain this point, I call your attention to one of the
principal reasons why Mexico wants NAFTA. The Mexican government
over the past seven years has taken major steps to convert its
socialist economy into a free market economy. It has joined the
General Agreement on Tariffs and Trade and, as a result, already
lowered many of its trade barriers. It has controlled the runaway
inflation of its currency. It has sold off many government-owned
But the free market advocates in Mexico understand that these
reforms could be undone by a future government. And the Leftist
opposition in Mexico that might control or influence such a
government is indeed anti-American and anti-free market. Two
Leftist critics of the government of Mexican President Carlos
Salinas, for example, recently suggested that in place of NAFTA,
Mexico levy a 100 percent tariff on American imports while allowing
Japanese and European imports into the country duty-free.
Thus, to make it difficult or impossible for a future government
to scrap the free market reforms, Mexican reformers understand the
need to integrate their country's economy with the economy of a
relatively prosperous, more free market country. For Mexico, the
obvious candidate for economic partnership is the U.S. If Mexico is
more integrated with America's economy, what would happen, for
example, if the government of Mexico decided to nationalize and run
enterprises that belong in the private sector?
Naturally such companies would run inefficiently. But with a
free trade area, American firms would provide alternatives to the
high-cost, low-quality government goods or services. The Mexican
government enterprises would lose millions of dollars and require
massive government bailouts even larger than those normally
required by such enterprises. Mexico would have a very hard time
affording such an economically irrational policy in a NAFTA with
the U.S. and Canada.
But the same controlling effect on government can work on
America from closer economic ties with Mexico. For example, many of
America's environmental laws have little or nothing to do with
protecting the public health and safety, and everything to do with
empowering bureaucrats. With NAFTA, the U.S. will have a strong
incentive to replace these senseless laws with a more efficient and
just form of environmental protection based on private property
rights. America would have a strong incentive to clean up its own
REASON #5: Conservatives examine new arrangements closely and
base their decisions on facts.
Conservatives know well not to trust the words and assurances of
governments when they propose new policies. This does not means
that conservatives oppose all change, only change that limits
freedom and expands government power.
Some conservatives fear that the labor commissions and
especially the environmental commissions set up by the NAFTA side
agreements might take away American sovereignty or give radical
environmentalists in America more power. These concerns are
legitimate and reflect the kind of care and attention to the
potential dangers of new government bodies that is a hallmark of
conservatives. But I'm happy to report that while the commissions
are unnecessary, they do not pose a danger to Americans.
Let me review briefly what the commissions can and cannot do.
The first function of the commissions is fact-finding.
Each commission consists of representatives of the three NAFTA
governments and a Secretariat. The secretariat of the environmental
commission is empowered to investigate cases called to its
attention of a country's failure to enforce its own laws. The
commissions cannot search for cases on their own.
Further, the commissions have no subpoena powers for collecting
What the commissions can do, in the end, after an arduous
process that weeds out nuisance complaints, is issue reports of
their findings. These reports, like other reports by international
bodies, might be informative or they might be useless. But they
have no effect whatsoever on the power of the American people to
conduct policy as they see fit.
The second function of the commission is dispute resolution.
If a NAFTA member government believes that another member is
engaging in a "persistent pattern of failure to effectively
enforce" its own environmental or labor laws where a tradeable good
or service is involved, it can request consultations and, on the
agreement of the other NAFTA member, have a dispute resolution
panel convened. But if a country is found to be engaging in such a
pattern, its sovereign powers still cannot to overridden by the
If the guilty country does not agree to change its practices,
the panel can levy a fine of no more than $20 million. If the
country refuses to pay the fine, the worst the panel can do is
allow the aggrieved country to restore certain limited tariffs to
pre-NAFTA levels to collect the fine. This is similar to
retaliation under GATT. It does not limit sovereignty.
It is critical to note that nothing in NAFTA prohibits a country
from changing its own laws. Often critics cite Article 1114 of the
accord which states that "it is inappropriate to encourage
investment by relaxing domestic health, safety or environmental
But NAFTA contains no mechanism by which member governments can
act against an alleged violator. The lip service paid by NAFTA to
these standards does not confer upon any international body legal
authority over U.S. domestic affairs. The U.N. charter, for
example, calls for the peaceful solution of all international
disputes. Has this produced world peace? Has an American weapons
manufacturer found itself answering to an international tribunal
for violating such policies?
The environmental agreement makes clear that, while NAFTA
countries are urged not to reduce environmental standards, they
still retain the right to make their own policies. Beginning the
side agreement is a preamble "Reaffirming the sovereign right of
States to exploit their own resources pursuant to their own
environmental and development policies.... "
Article 3 of the side agreement, while calling for high levels
of environmental protection, does so while "Recognizing the right
of each Party to establish its own levels of domestic environmental
protection and environmental development policies and priorities,
and to adopt or modify accordingly its environmental laws and
Free market advocates need not fear that American special
interest groups will use the commissions to impose more regulations
on the U.S. economy. According to Article 2021 of NAFTA, private
parties do not have a right of action in U.S. courts based on
REASON #6: Conservatives understand that free trade areas breed
more free trade areas, that NAFTA is a means to spread economic
liberty throughout the hemisphere and the world.
The U.S. often complains about trade barriers in other
countries. American firms face restrictions when they try to sell
computers in Brazil or rice in Japan. Of course, the U.S. has many
trade barriers as well.
The U.S. government often uses the threat of trade retaliation
as a means to force other countries to remove trade barriers. This
approach does not work very well.
But consider the economic dynamics set up by a free trade area.
Brazilian firms, for example, want to compete with American firms
selling products in Mexico. But under NAFTA, American products
enter Mexico duty-free. Brazilian products, however, are subject to
an average ten percent duty.
How can Brazil make up for this disadvantage? By raising trade
barriers on Mexican or American products? No! Such an approach
would not make their goods more competitive in Mexico.
Brazil would have a strong incentive to follow the strategy "If
you can't beat 'em, join 'em." Only by seeking membership in the
free trade area, could a country place itself again on an equal
footing with their competition.
This phenomenon in fact is already occurring. The Japanese, for
example, were concerned about the U.S.-Canada FTA and are now
concerned about NAFTA. NAFTA gives the U.S. more leverage to open
the markets of Japan and Europe.
REASON #7: Conservatives understand that only through free
exchange can American living standards continue to rise. NAFTA
expands such exchange.
Rising material living standards result from rising
productivity. To be more productive, American businesses must
produce more goods and services with given amounts of labor,
capital, land, and raw materials. The only way workers can trade
their labor for more real purchasing power is if their labor is
more valuable, that is, if they produce more goods and
But to prosper we cannot simply produce more of the same old
things. The history of economic development over the past two
centuries is one of creating new goods and services never before
dreamt of. This development included introduction and/or mass
production of everything from trains, planes, and automobiles, to
skyscrapers and assembly lines, to penicillin, anesthetics, heart
transplants, to telephones, radios and televisions, microchips, and
The world's leading industrial countries are those that pioneer
the new products. How can we assure ourselves that America will
remain on the economic cutting edge? How can we give American
entrepreneurs the strongest incentive to continue in our pioneer
economic spirit? How can we make America competitive in the future?
Simple. Allow Americans to compete.
By creating a huge free trade zone, NAFTA will allow for a more
efficient division of labor. Mexicans and Americans respectively
will put more resources into the production of goods and services
at which they are most efficient. The combination of greater
competition and a larger market will help guarantee that America
will remain the world's most productive economy.
REASON #8: Conservatives are optimists who seek to expand
economic opportunity, and not cower behind trade barriers.
The motivation of many opponents of NAFTA seems to be simply
fear. While none can demonstrate exactly what the dangers of freer
trade are from NAFTA, they want us to take their emotions as a
reason to deny freedom of commerce to Americans. It is embarrassing
to hear Americans fear that they just can't compete.
But America is the one country in the world built on the
attitude of optimism and the expectation of opportunity. This
country was settled by pioneers who risked everything to move to a
new land, faced physical dangers, left countries that offered no
avenues of advancement for a country that offered absolutely no
guarantees but one: the guarantee that every American be free from
repressive government, that every American be free to rise to
whatever level they could through his own hard work and efforts,
and to trade freely based on mutual consent.
The result was the most prosperous country in the world.
Again, while some concerns about NAFTA are legitimate, some
fears manifestly are not.
NAFTA opponents should not fear free trade when America has the
most productive economy in the world.
NAFTA opponents should not fear free trade when America is the
largest exporter in the world.
NAFTA opponents should not fear free trade with a country whose
economy is only one twentieth the size of America's.
NAFTA opponents should not fear free trade when the history of
American enterprise, when unshackled from government taxes and
regulations, is one of meeting and winning every economic
REASON #9: Conservatives understand that if this country
abandons free trade and free markets, it could indeed become a
It is instructive to consider the example of Argentina. Earlier
in this century, Argentina was one of the top ten richest countries
in the world. Its living standards were comparable to those in
Europe. It is a country blessed with incredible natural resources,
for example, the pampas, which is one of the most fertile wheat and
cattle producing parts of the world, and its own oil reserves.
British investors built what was then a state-of-the-art railroad.
It had power plants, factories, and other facilities.
But in the 1940s it followed the anti-free trade, anti-foreign
investment, pro-central planning approach of Juan Peron. It closed
its markets. And over the decades it joined the ranks of less
developed countries. Today, Argentina is engaged in a great
national struggle to transform its economy and to rejoin the world
REASON #10: Conservatives understand that with NAFTA, America
can enter the 21st century as the preeminent economic power in an
economically expanding hemisphere.
I conclude my talk by observing that America truly has the
opportunity to enter the 21st century as the preeminent economic
power in an economically expanding hemisphere. NAFTA is an
agreement that is good for America. But it is an agreement that
especially should be favored by conservatives. NAFTA reflects the
optimism that is basic to the American character and the search for
opportunity that made America great and will make it greater still
in the future.
If we abandon NAFTA, Republicans run the risk of ceding the
intellectual high ground of free trade and allowing Pat Buchanan
and Ross Perot to put a stamp of protectionism on the party. But
this party stands for ideas, for individual freedom and for
economic opportunity. When Reagan followed this formula, the result
was seven years of economic growth and prosperity. We cannot
abandon our principles and a winning formula for the purposes of an
apparent political expediency that will politically damage our
party and our country in the future.
© 1995 Persimmon IT, Inc.