August 17, 1992 THE BENEFITS OF FREE TRADE IN NORTH AMERICA +quot;By building together the

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August 17, 1992 THE BENEFITS OF FREE TRADE IN NORTH AMERICA "By building together the largest free trading region in the world, Mexico, the United States and Canada are working to ensure that the future will bring increased prosperity, trade, and new jobs for the citizens of each of our countries." President George Bush July 15, 1992 Summary o President Bush had the vision to conceive and complete negotiations on a job-creating North American Free Trade Agreement (NAFTA) -- creating a market that will extend from the Yukon to the Yucatan. The United States will become the centerpiece of a $6 trillion market with 360 million consumers. o By tearing down Mexico's remaining trade barriers, NAFTA will increase U.S. exports and jobs. Increased trade will help Canadians and Mexicans spend more on American goods while American consumers will enjoy cheaper Canadian and Mexican goods. -- As Mexico's economy grows, it will import more: 70 cents of each Mexican import dollar -- and 15 cents of each additional dollar of Mexican income -- is spent on U.S. goods. o The jobs of over 600,000 Americans are currently tied to exports to Mexico -- this is expected to increase to one million jobs by 1995 as a result of the NAFTA. o NAFTA will also ease immigration pressures in the Southwest United States, provide measures to ensure a smooth transition for American workers and industry, and will enhance environmental protection. o Integrating the three economies will improve the competitiveness of the U.S. economy, raise productivity, and increase real incomes in the U.S. Creating Jobs by Expanding Exports o Creating Jobs: Exports to Mexico already support over 600,000 U.S. jobs. The Institute for International Economics projects that with a NAFTA, by 1995 over one million U.S. jobs could be tied to exports to Mexico. -- Merchandise exports to Mexico have grown by more than 169 percent over the past five years, creating more than 300,000 new U.S. jobs. -- Even states like Missouri, where NAFTA's leading critic in Congress -- Richard Gephardt -- comes from, would gain: In 1991, 170,000 jobs in Missouri were tied to exports, 78,000 of which depend on exports to Canada and Mexico. o Since Mexico began reducing its trade barriers in 1986, U.S. exports to Mexico have almost tripled, and are expected to reach $44 billion in 1992. In 1991, the U.S. ran a trade surplus with Mexico for the first time in a decade. -- Mexico is now the United States' second-largest market for manufactured goods, having recently surpassed Japan. o Nonetheless, Mexico's tariffs are still two-and-a-half times the average U.S. tariff -- by leveling the playing field, U.S. exporters stand to reap substantial gains. o More trade means a higher standard of living for Americans; export-related jobs pay 17% more than the average U.S. job. Examples of NAFTA'S Market-Opening Provisions o Approximately 65 percent of U.S. industrial and agricultural exports to Mexico will be legible for duty-free treatment either immediately or within five years. Mexico's tariffs currently average 10 percent, which is two-and-a-half times the average U.S. tariff. o Services: NAFTA will open Mexico's $146 billion services market for U.S. providers, including banks, insurance, telecommunications, accounting, and trucking firms. It will also improve our access to Canada's $285 billion services market. o Motor Vehicles and Auto Parts: U.S. autos and light trucks will enjoy greater access to Mexico, which has the fastest- growing market in the world. With NAFTA, Mexican tariffs on vehicles and light trucks will be cut in half immediately. Within five years, duties on three-quarters of U.S. parts exports to Mexico will be eliminated and Mexican "trade balancing" and "local content requirements" will be phased out over ten years. o Auto Rule of Origin: Only vehicles with substantial North American parts and labor content will benefit from tariff cuts under NAFTA's strict rule of origin. NAFTA will require that autos contain 62.5 percent North American content, considerably more than the 50 percent content requirement of the U.S.-Canada Free Trade Agreement. NAFTA contains tracing requirements so that individual parts can be identified to determine the content of major components and sub-assemblies, e.g. engines. o Textiles and Apparel: Barriers to trade on $250 million of U.S. exports of textiles and apparel to Mexico will be eliminated immediately and another $700 million will be freed from restriction within 6 years under NAFTA. Tough rules of origin will ensure that the benefits of trade liberalization accrue to North American producers. o Agriculture: Mexico imported $3 billion in U.S. agricultural goods last year, making it our third-largest market. NAFTA will immediately eliminate import licenses, which were required on 25 percent on U.S. agricultural exports last year, and will phase out Mexican tariffs. o Energy: NAFTA provides increased access for U.S. firms to Mexico's electricity, petrochemical, gas, and energy services and equipment markets. o Intellectual Property Rights: NAFTA provides a higher level of protection than that in any other bilateral or multilateral agreement. U.S. high technology, entertainment, and consumer goods producers that rely on protection for their patents, copyrights, and trademarks will all realize substantial gains under NAFTA. NAFTA Ensures a Smooth Transition for American Workers o NAFTA will give sensitive sectors time to adjust to full competition by gradually phasing out tariffs and by providing a safeguard mechanism against import surges that injure U.S. firms. o Tough rules of origin will prevent non-NAFTA products coming through Canada or Mexico to take advantage of a NAFTA. o The Bush Administration will ensure a worker adjustment program that is adequately funded and that provides effective services to workers who may lose their jobs as a result of an agreement with Mexico. o Pursuant to a 1991 Memorandum of Understanding, the U.S. and Mexican governments have been cooperating on key labor issues, such as worker safety and health, child labor and worker rights. o NAFTA has focused attention on critical infrastructure needs at the border; the U.S. and Mexico are building bridges, improving crossing points, and upgrading border facilities. o Removing restrictive Mexican trade and investment barriers under a NAFTA will reduce the incentive of illegal immigration into the United States. A NAFTA Will Enhance Environmental Protection o The NAFTA will sustain our right to enforce existing environmental standards and encourage all NAFTA parties to strengthen standards. NAFTA specifically allows the U.S. to maintain its stringent health, safety, and environmental standards, including the right to prohibit imports that do not meet our standards. The NAFTA also: -- Allows states and cities in NAFTA countries to enact even tougher standards. -- Preserves our right to restrict trade in endangered species and to take other steps pursuant to international environmental accords. o New Resources for Environmental Protection: By generating new income, NAFTA will permit Mexico to devote even more resources to protecting and enhancing the environment. Academic studies show that as economic growth increases, pollution decreases. o Border Plan: The United States and Mexico have developed an "Integrated Environmental Plan for the U.S.-Mexico Border," announced by President's Bush and Salinas in February 1992. Mexico has committed $460 million over three years for border environmental initiatives. President Bush's FY93 budget includes $241 million, double the 1992 amount, to clean up the border area's rivers, hazardous waste, and air pollution. o FINANCIAL SERVICES: Mexico's closed financial services markets will be opened and U.S. banks and securities firms will be allowed to establish wholly owned subsidiaries. Existing restrictions, including limits on foreign market share, will be eliminated by January 1, 2000, giving U.S. banks and securities firms the opportunity to compete with local firms. o INSURANCE: U.S. insurance firms will gain major new opportunities in the Mexican market: firms with existing joint ventures will be permitted to obtain 100-percent ownership by 1996 and new entrants to the market can obtain a majority stake in Mexican firms by 1998. By the year 2000, all equity and market share restrictions will be eliminated, opening up completely what is now a $3.5 billion market. o TELECOMMUNICATIONS: NAFTA opens Mexico's $6 billion telecommunications services and equipment market. It gives U.S. providers of voice mail or packet-switched services nondiscriminatory access to the Mexican public telephone network and eliminates all investment restrictions by July 1995. o TRUCKING: More than 90 percent of U.S. trade with Mexico is shipped by land, yet U.S. truckers have been denied the right to carry cargo in Mexico or to own warehouses. With NAFTA, U.S. truckers will no longer be forced to "hand off" trailers to Mexican drivers and return home empty. NAFTA will permit U.S. trucking companies to carry international cargo the Mexican states contiguous to the U.S. by 1995, and gives them cross-border access to all of Mexico by the end of 1999. o INVESTMENT: Mexican "domestic content" rules will eliminated, permitting additional sourcing of U.S. inputs and, for the first time, U.S. companies operating in Mexico will receive the same treatment as Mexican-owned firms. Mexico has agreed to drop is export performance requirements, which presently force firms to export as a condition of being allowed to invest. o Textile and apparel exports to Mexico have increased at an average annual rate of 25 percent since 1986, reaching almost $1 billion in 1990. o A NAFTA will increase exports of U.S. motor vehicles to Mexico by removing restrictive Mexican trade and investment barriers. NAFTA will slash Mexican tariffs by half immediately and phase out restriction that have kept U.S. parts and vehicles out of Mexico's auto market. o In 1991, agricultural products to Mexico rose to a record $2.9 billion, double the amount in 1986 when Mexico began cutting trade barriers. Under a NAFTA agricultural markets will grow even more. o Steel: U.S. exports of steel products to Mexico increased 64% in 1991. The American Iron and Steel Institute and the Steel Manufacturers Association, recognizing that NAFTA will lead to even more exports to Mexico, have endorsed negotiation of a NAFTA. o On August 12, President Bush announced completion of negotiations for a job-creating North American Free Trade Agreement (NAFTA).


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