20 THINGS YOU NEED TO KNOW ABOUT NAFTA

THE BALTIMORE SUN

The House of Representatives will vote Wednesday on the North American Free Trade Agreement, a complex and ambitious piece of legislation to create the world's largest free-trade zone. It is timely, then, to look at what is proposed and why it has aroused such opposition:

1. What is NAFTA? The North American Free Trade Agreement would eliminate most barriers to the export and import of goods and services among the United States, Canada and Mexico over the next 15 years. It is also designed to encourage investment among the three partners and to protect their patents, trademarks, copyrights and recordings.

2. What would it do? It would unite 360 million consumers in the three countries, with a total annual economic output of $6 trillion, into an open, barrier-free market. Half the existing tariffs would be eliminated immediately, another batch would disappear after 10 years, and the levies on a final, small group of goods -- mainly agricultural products -- would end after 15 years. U.S. tariffs against Mexican goods average 4 percent. Mexican tariffs against U.S. goods average 10 percent. This means the U.S. stands to gain more than Mexico from removal of the tariffs. Tariffs would remain against goods from outside the free-trade zone, putting the Japanese and Europeans at a trading disadvantage.

3. When would NAFTA go into effect? The agreement is slated to take effect Jan. 1, 1994, if Congress approves it. It has already been approved by the legislatures in both Canada and Mexico. The new Liberal government in Canada is seeking settlement of other trade issues with the United States before giving its seal of approval to NAFTA, but this is basically a bargaining posture.

4. Is it a treaty? It is not a treaty. It is an international agreement. This is why it requires approval of both the Senate and the House of Representatives. Treaties require only approval of the Senate. NAFTA faces its biggest challenge in the House, which votes Wednesday.

5. Whose idea was it? It was first proposed by President George Bush and Mexican President Carlos Salinas de Gortari in June as "a powerful engine for economic development, creating new jobs and opening new markets" in both countries. Canada, which created a free-trade zone with the United States in 1989, agreed to join the wider bloc.

6. Why has NAFTA come up now? President Bush signed the original agreement in December 1992. During the 1992 presidential campaign, Bill Clinton endorsed NAFTA on the condition that side agreements be negotiated to strengthen Mexico's implementation of labor and environmental standards. Negotiations on the side agreements lasted until August, delaying congressional consideration. Without the side agreements, it had no chance of congressional approval. Even with them, the outcome of the House vote is uncertain.

7. What is the argument about? The core issue is whether NAFTA will create or cost jobs. Most studies suggest that there ** will be a short-term loss of jobs but a long-term net gain in employment. Overall, the labor impact will be small, because Mexico's economy is only one-twentieth the size of the U.S. economy. But any job losses or plant closures will be locally painful. Other arguments center on protection of the environment and the imposition of higher labor standards in Mexico.

8. What will it cost? The only direct cost to the U.S. government will be loss of revenues from the U.S. trade tariffs that will be eliminated under the agreement. The administration estimates this cost at $6.9 billion between 1994 and 2003. The Joint Economic Committee said last week that this underestimated the lost revenues by $700 million because the administration failed to factor in Mexican growth rates. It also failed to include $224 million for creation of a North American Development Bank, a late addition to the agreement to sweeten it for Latino members of Congress. Under current budgetary law, all lost revenues must be made up in new taxes, federal savings or program cuts. The administration plans to offset the cost by raising $7.6 billion in a variety of ways, including accelerated tax payments, lower federal subsidy outlays because of increased business opportunities, and more efficient customs operations outside the free-trade area.

9. What jobs will be lost? Lower-skilled manufacturing jobs, which Mexican workers will be able to do more cheaply, are most likely to head south of the border. Ross Perot has claimed that 5.9 million production jobs are in jeopardy. But he has arrived at this total simply by adding the current employment totals in 75 U.S. industries in which labor costs 20 percent or more of the final cost of goods sold. The jobs most at risk involve work in industries such as furniture, food processing, clothing, glass, industrial parts and electrical machinery. The Economic Policy Institute, a think-tank backed by organized labor, predicts a loss of 500,000 jobs over the decade. The Clinton administration is proposing a national retraining program.

10. What jobs will it create? High-skilled technology jobs in computers, telecommunications, machine tools and other products needed by Mexico to service expansion of its economy and modernization of its infrastructure. The administration projects a net gain of 200,000 jobs over the first two years of the agreement, with new jobs paying better than lost ones. Jobs already connected to U.S. exports to Mexico pay 12 percent more than the national average wage, according to government statistics. Mr. Clinton argues that the real prize is not increased trade with Mexico but with the rest of Latin America as the agreement is subsequently expanded.

11. How will NAFTA affect Maryland? The jobs impact in Maryland is likely to be minimal. One study by The Trade Partnership, a Washington consulting firm contracted by NAFTA proponents, found that the state's exports to Mexico would increase by $21.3 million over 10 years, creating 500 new jobs. Another, by Interindustry Economic Research Fund Inc. for the U.S. Department of Labor, concluded that there would be a net loss of 390 Maryland jobs by the year 2000, but this did not include agricultural workers. Robert L. Walker, Maryland secretary of agriculture, believes Maryland sales to Mexico of farm products and processed food would both increase under NAFTA, creating new jobs.

12. Who supports NAFTA and why? President Clinton, four former presidents, all living secretaries of state, and most of the nation's governors have endorsed the agreement. It has the support of a minority of Democrats but a majority of Republicans in Congress. It is also backed by most business and some environmental groups. Proponents say it will boost U.S. exports south of the border; create jobs; enhance U.S. competitiveness, particularly against Japan and Europe; strengthen democracy, the economy and the environment in Mexico; reduce illegal Mexican immigration; bolster U.S. global leadership.

13. Who is opposed? The opposition ranges from organized labor to billionaire Ross Perot, from consumer groups to conservatives, from social groups to some environmentalists. The opponents claim that NAFTA will cost U.S. jobs; undermine U.S. wages and environmental standards; worsen border pollution; exploit Mexican workers; increase illegal immigration, especially among Mexican farm workers; and breach U.S. sovereignty through creation of boards and rules that could override U.S. statutes.

14. Why is it such an explosive political issue? Promoted by a Democratic president, it does not have majority Democratic support on Capitol Hill. There are two reasons for this: the vehement opposition of the labor movement, the major contributor of funds and volunteer manpower to Democratic election campaigns, and the congressional elections next November, in which Democrats are likely to be held accountable for their NAFTA votes if any local plants close. These factors combine to make many wavering Democrats nervous of supporting the bill. For some, these misgivings are compounded by concerns over the wider environmental and labor impacts of the agreement. For Mr. Clinton, the stakes are high: his political credibility at home; his global leadership.

15. What do voters feel about NAFTA? A USA Today/CNN poll by Gallup after last week's debate between Vice President Al Gore and Mr. Perot found 57 percent in favor of the treaty, 36 percent opposed. Before the debate, the figures were 38 percent for, 36 percent against. Of those questioned, 50 percent felt NAFTA would create more jobs; 38 percent felt it would cost jobs.

16. What do the Canadians think about it? Canadians are split along lines similar to Americans. Most Canadian workers oppose free trade, blaming it for the loss of an estimated 100,000 manufacturing jobs since a U.S.-Canada free-trade agreement in They fear more of the same if the agreement is extended to Mexico. Canadian businesses are generally in favor.

17. What do the Mexicans think about it? The Mexicans are overwhelmingly in favor, seeing partnership with America and Canada as an opportunity to benefit from association with two rich nations. But recently the government, preparing a possible defeat of the agreement, has been playing down its significance, saying that the Mexican economy will expand with or without NAFTA.

18. What if it passes? The U.S. economy will grow marginally faster. U.S. manufacturing wages are likely to increase slightly faster as technical jobs replace trade jobs. But some agricultural wages could be depressed as cheaper Mexican produce gains easier access to the U.S. market.

19. What will happen if it fails? Mr. Clinton's political image will be tarnished and his global economic leadership diminished. Labor will breathe a huge sigh of relief. Mr. Perot's political standing will be strengthened. Growth of U.S. exports and wages will be slowed slightly. The Mexicans and other Latin American countries will be upset. The Japanese and the Europeans may see it as an opportunity to strike their own deals south of the border.

20. Why should you care? You could be a winner or a loser. If you are a winner, the benefits could be so small you may not even notice them. If you are a loser, it could cost you your job.

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