So far the debate about the North American Free Trade Association has been unnecessarily emotional and vague regardless of the side being argued. Opponents appeal to populist fears about low Mexican labor costs, and proponents ask us to have courage about American competitiveness and faith in the benefits of free trade.
In a nod to reason, both sides have relied on economists to make projections about job gains or losses. Most of us, however, have plenty of history to justify our skepticism when it comes to econometric models and predictions.
In fact, NAFTA very likely will be beneficial to America and American workers. It should help American manufacturers and labor. And we need not rely on high-minded free-trade principles to reach that conclusion.
At a recent White House briefing for Maryland business leaders, a woman suggested to Vice President Gore that worker opposition to NAFTA was based on fear that it would accelerate a trend toward "outsourcing" manufacturing production and jobs offshore, and continue downward pressure on wages from cheaper labor elsewhere. Mr. Gore responded that we shouldn't worry because Mexican labor isn't really all that cheap, once you factor in lower productivity, logistical problems, worker turnover, etc.
I found that part of his answer unsatisfying and likely to leave lingering doubts in the minds of the undecided. Who wants to depend on the possibility of electrical brown-outs in Mexico to keep American companies from moving jobs there for cheaper wages? Fortunately, the vice president followed with a much stronger argument: Contrast our situation if we continue without NAFTA to what NAFTA will change?
The attractions and economic arguments for manufacturers to move to lower-labor-cost areas already exist and will continue if NAFTA doesn't pass. Mexico, like many developing economies, has used protectionist policies such as high duties and local-content requirements to force companies wishing to serve the Mexican market to locate production in Mexico. NAFTA will change this situation dramatically.
The removal of local-content laws actually will reduce incentives for American firms to reach the Mexican market by investing in Mexico. They will be able to export from existing American plants. For example, the Big Three American car makers expect Mexican auto imports, now virtually banned, to rise to 60,000 cars in the first year alone. It's not American industry that must improve its productivity because of NAFTA, but currently protected Mexican industries!
NAFTA's effects on duties tells the story even more simply. Mexican duties on imports now range from 10 to 20 percent, while American duties average less than 5 percent. Reducing all duties to zero means that the prices of American products in Mexico will drop more than Mexican prices will drop here.
If our products cost less, American market share will rise for two reasons. First, Mexicans will be able to buy more American goods for the same amount of money. Secondly, American products will enjoy a new and substantial 10 to 20 percent price advantage compared with imports from other areas like Europe and Asia that will still be subject to the higher duties. We don't need to know NAFTA's precise impact on U.S. GDP growth to see that it will create jobs by increasing American exports.
The experience of my company, Ellicott Machine Corporation International, with the Canadian free-trade agreement convincingly suggests that lower duties do mean more exports. Ellicott exports dredges for marine construction, mining and environmental markets. Before the free-trade agreement now in place between the U.S. and Canada, import duties were much higher in Canada than in the United States, making our products disadvantageously priced there.
When the Canadians eliminated their duties against American imports, new Ellicott dredges were much more attractive to Canadian buyers than European products or used equipment, which was less efficient but also much less expensive. The effect on exports was immediate: Our Canadian sales more than doubled. We expect the same from Mexico if NAFTA passes. Interestingly, it is our environmental sales to Canada which have grown the most.
The logic of this relationship between lower duties and more exports is sufficiently clear that Ellicott's unionized steel workers have broken away from labor dictum to endorse NAFTA. These people know that exports mean jobs -- their jobs.
Some of the opposition to NAFTA is based on environmental issues. Some environmental groups are unreservedly for NAFTA, and some against. Here we really need to look at where would we be without NAFTA. What seems logical to me is that we have more leverage on Mexican environmental issues if we adopt NAFTA than if we don't.
Whatever environmental problems exist in Mexico today will certainly continue without NAFTA, which is the first trade agreement to recognize environmental issues as a multi-sovereign affair. The Environmental Protection Agency's Carol Browner is right when she says that environmental opposition is a red herring, or more appropriately, a "red dolphin." We also shouldn't ignore the beneficial economic impact of greater American exports of environmental goods and services based on NAFTA's mandate to improve implementation of environmental standards.
I support NAFTA based on global principles like free trade and in recognition of the degree to which Mexican President Carlos Salinas de Gortari has stuck his neck out. Rejection of NAFTA would likely push Mexico out of our trading sphere into some other bloc such as Japan's, with unfavorable consequences for America's current large trade surplus with Mexico.
But the Clinton administration shouldn't try to sell NAFTA on those principles alone. The logic of NAFTA can be shown more simply and compellingly to the average American worker on other grounds, such as those I have suggested. American workers are too cynical for appeals based largely on faith in free trade.
Peter A. Bowe is president of Ellicott Machine Corporation International.