Senator John McCain, a Repubfican, represents Arizona in th e United States Senate. He addressed the Heritage Foundation conference "U.S.-MexicoCanadm A Free Tmde Partnership for the 21st Century," at The Heritage Foundation, on November 14,1991. ISSN 0272-1155. 01991 by The Heritage Foundation.threatening proc ess with an exotic name. But if the one-third cuts in global tariff and non-tariff barriers which the U.S. envisioned for the Round were effected over the next ten years, they would generate a $1.1 trillion increase in our GNP. On average, that amounts to a $16,700 real income gain for every American family of four. Terror By Slogans. That is the kind of message our advocacy of free trade should highlight if we are to counter the simple sloganeering of protectionists who condemn the NAFrA for put- ting "Am e rican jobs on a fast track to Mexico." Regrettably, in difficult economic times it is easier for us to take counsel of our fears than our aspirations. Most Latin American leaders are reforming their countries' historically insular economic policies and ap p ealing for the formation of a hemispheric free-market. It is ironic that many political leaders in the U.S. have premised their opposition to NAFI7A on the kinds of fears that have informed the economic nationalism that Latin Americans, at our urging, are now abandoning. The specter of thousands of American jobs heading south is, of course, the most widely used instrument of ten-or in the anti-Eree trade arsenal. However, fears that a NAFTA would make Mexico a superior competitor to many U.S. industriesor c ause a large displacement of U.S. production to Mexico are misinformed. Lower wages and weaker occupational safety standards do not guarantee cor npetitive ad- vantages to a country. If that were so, India would be a better competitor than Japan, and Port u gal a better competitor than Germany. There are a great many factors other than low wages and lax enforcement of safety regulations that contribute to an industry's competitiveness: productivity, technology, access to multiple transportation, quality of p r oduct, to name a few. Indeed, when the AFL-CIO is lobbying for higher wages for American workers, one never hears them admit that higher wages will result in less competitiveness for the industries affected by the increases. Certainly, Mexico will attract more foreign investment and production in a free trade environ- ment, but the level of U.S. investment in Mexico in 1990 represented 3.8 percent of all U.S. direct investment abroad. Were U.S. investment in Mexico to triple it would represent only 0.7 per c ent of current investment in the United States. Most important, the economic growth en- gendered in Mexico by a free trade agreement would expand investment opportunities in Mexico without necessarily decreasing those opportunities in the United States. I n creasing U.S. Competitiveness. What most fearmongers; of NAFI7A's impact on American labor ignore is that new investment in Mexico will benefit both the U.S. and Mexican economies. Obviously, a richer Mexico means healthier markets for goods produced in t h e U.S. and consequent job creation in those firms exporting to Mexico. But production-sharing with Mexico will increase U.S. competitiveness in sectors like the automobile and electronics industry that suffer the most from non-regional competitors. Japane s e manufacturers have long understood the advantage that co-production with lower cost countries provides in penetrating foreign markets. Japanese electronics firms employ over 10,000 people in Tijuana and export over four million television sets to the U. S . every year from Mexico. The imperative for creating a North American free market should not be replacing a multi- lateral trading system with a system of protected regional blocs. But the U.S. obviously cannot afford to ignore threats from bloc formatio n elsewhere in the world. The difficulties attending the Uruguay Round certainly enhance the attractiveness of regionalism.
2South American Cooperation. But regionalism should not and need not be an end in itself. A NAFTA need not violate GATT princip les or raise external barriers to North American markets. Indeed, the very prospect of a North American Free Trade Agreement has energized South American governments to reform their trading practices in pursuit of a hemispheric free market. The President' s Enterprise for the Americas Initiative is intended to capitalize on such sentiment. We should note, also, that many of the most recent additions to GATT membership have come from Latin America. They can be expected to add weight to U.S. appeals for great e r liberaliza- tion of European and Asian trading practices. In a NAFTA, the U.S. seeks to develop a regionalism that is consistent with Article 24 of the GATT permitting free trade and customs unions under certain circumstances, and that liberalizes trade beyond what can be achieved currently in a multilateral framework. The prospect of the world's leading economies abandoning efforts to liberalize the whole of the international trading system is disturbing. But the presumption that nations would rather ra i se. neighborhood fortresses than build bridges to markets the world over is, I hope, incorrect. Some 74 percent of U.S. trade is conducted outside North America; 65 percent of Japan's trade is conducted outside of Asia. Admittedly, 70 percent of the Europ e an Community's trade is conducted within the European Community. Nevertheless, most nations still recognize that resorting to regional discriminatory practices will not stimulate the levels of economic growth that would be derived from regionalism that co m fortably coexists with and contributes to a healthier global trading system. The rationalization of production between the three largest North America markets should rein- force that message to our European and Asian a-ading'partners. Production-sharing w i thin North America will make the U.S., Mexico, and Canada more formidable global competitors, displace U.S. imports from non-regional countries, and displace U.S. investments in those countries. These are the same advantages that Japan finds in Southeast A sia, and Germany finds in Por- tugal. When the nations of North America seize similar opportunities, we will create jobs and raise income and living standards in all three societies. We will also considerably strengthen our hand in promoting greater globa l liberalization of trade and capital flows. Larger Mission. In closing, let me def:me briefly what larger mission ;I believe the formation of a North American free market serves. Twice in this century the United States has fought in world wars to defend a notion of how people should be governed. When our aspirations for a world of free, independent nations were betrayed, first by the rise of the Third Reich, and next, by the enslavement of half of Europe, we did not adapt our views to accommodate the disap p ointment of our dreams. We persevered confident of the enduring truth that just government is derived from the consent of the governed. We did not abandon our aspira- tions to accommodate changing circumstances. We sustained our advocacy and changed the w o rld. The United States should be no more inclined to modify our advocacy of free trade than we were our advocacy of free elections. That is especially true when trade as a source of national wealth has risen in importance as rapidly as communism has decli n ed as an alternative to capitalism. A North American Free Trade Agreement is merely the most recent reaffirmation of values the U.S. has been dedicated to since our inception as a nation. Its successful conclusion re- quires us only to be guided by our vi sion, not our fears.