August 17, 1992 THE BENEFITS OF FREE TRADE IN NORTH AMERICA +quot;By building together the
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
President George Bush
July 15, 1992
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
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
-- 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
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
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
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
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
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,
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
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
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
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
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
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
E-Mail Fredric L. Rice / The Skeptic Tank