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file NAFTA
THE WHITE HOUSE
WASHINGTON
MEMORANDUM
TO:
Mark Gearan
David Dreyer
Bob Boorstin
Rahm Emanuel
Mike Waldman
David Gergen
Jeff Eller
Dee Dee Myers
George Stephanopaulos
FROM:
Ann Walker
RE:
The North American Free Trade Agreement
DATE:
June 19, 1993
The following is a summary of the Clinton Administration Statement on the
North American Free Trade Agreement. This was released today
The North American Free Trade Agreement
"In the face of all the pressures to do the reverse, we must compete, not
retreat." -- President Clinton, February 26, 1993
Expanding Exports, Jobs and Growth
The Clinton administration supports the North American Free Trade
Agreement (NAFTA) with supplemental agreements because it will create
high wage U.S. jobs, boost U.S. growth, and expand the base from which
U.S. firms and workers can compete in a dynamic global economy.
Creating the Largest Market in the World
With NAFTA, the United States, Canada, and Mexico will create the
largest market in the world -- a combined economy of $6.5 trillion and 370
million people.
Leveling the Playing Field
Mexico's trade barriers are now much higher than ours. NAFTA will level
the playing field now tilted heavily in Mexico's favor.
NAFTA will require little change on our part -- while requiring Mexico to
sweep away decades of protectionism and over regulation.
Removing Mexican restrictions against U.S. exports means that U.S.
companies no longer will have to invest in Mexico or manufacture in
Mexico to supply the Mexican market.
Creating Higher-Wage U.S. Jobs
Defeating NAFTA could cause a sharp drop in exports to Mexico and thus
the loss of hundreds of thousands of U.S. jobs
Protecting and Assisting U.S. Workers
NAFTA not only will create a large number of new jobs in export
industries, but also will insure that our import-sensitive industries have
substantial room for adjustment.
The Wage Issue
The idea that U.S. workers can't compete with low wage Mexican workers
is a myth. If companies decided where to locate based solely on wages,
investment would flock to countries much poorer than Mexico.
Immigration
The combination of domestic reforms and NAFTA-related growth in
Mexico will keep more Mexicans at home.
It is likely that a reduction in immigration will increase the real wages of
low skilled urban and rural workers in the United States.
Increasing Opportunities to Export to Mexico.
NAFTA will "lock in" and expand trade gains achieved since Mexico
began to open its economy in 1986.
Mexico is our third largest export market and fastest growing major export
market.
Key sectors benefiting from NAFTA include automotive, agriculture,
financial services, textiles, and communications.
Mexican Consumers Prefer U.S. Goods
70 cents of every dollar that Mexico spends on foreign products is spent on
U.S. goods.
Mexico purchases more imports per person from the United States than
does the more affluent European Community countries and Japan.
Small and Medium-Size Business
Small companies usually lack the resources to penetrate the thicket of
Mexican trade barriers and regulatory restrictions. By lowering cost and
dissolving barriers, NAFTA will help smaller business to penetrate the
Mexican market without having to invest in Mexico.
Enhancing Environmental Protection
NAFTA and its supplemental agreements will help ensure that economic
development takes place in a way that protects and improves the
environment.
Supplemental Agreements on Environment, Labor, and Import Surges
The Administration is seeking supplemental agreements on import
surges, the environment, and labor. These separate agreements will
provide additional assurance that NAFTA-enhanced growth will be
sensitive to environmental and labor concerns.
The agreement on import surges would establish a tri-national committee
to help ensure the effective use of NAFTA's provisions allowing
temporary relief in the event of injurious import surges.
The United States, Canada, and Mexico will establish a North American
Commission on the Environment which will formally give
environmental advice to trade representatives from the three NAFTA
countries as well as provide a focal point to expand and strengthen
existing environmental initiatives.
The United States, Canada and Mexico will establish a North American
Commission on Labor that will encourage domestic enforcement of
national labor laws as well as promote the raising and strengthening of
labor standards in North America.
The supplemental agreements cannot resolve overnight all
environmental and labor problems. But defeating NAFTA and the
supplemental agreements would only aggravate these problems. Never
has the United States had a comparable opportunity to promote improved
environmental and labor conditions. If NAFTA and the supplemental
agreements are successfully concluded and enacted, we will have an
unparalleled opportunity with our neighbors to advance a broad agenda
for economic growth and environmental improvement for our countries
and all our people.
NAFTA and American Leadership
The NAFTA has been negotiated by two Administrations. It stands as a
testament to the ability of the United States to design a bipartisan foreign
policy crafted to the requirements of the post-Cold War world. Its defeat
would signal to the world that Washington is mired in inertia and
gridlock.
Conclusion
NAFTA will create jobs and improve our competitiveness. It will create
the largest, richest market in the world. Mexico's strong and growing
demand for U.S. products has created a $5.6 billion U.S. trade surplus.
With a stronger Mexican economy and higher Mexican wages, demand for
U.S. goods will continue to expand. Increased access to the rapidly growing
Mexican market will create extraordinary new Opportunities for U.S.
companies and workers. Taking advantage of these opportunities will lead
to increased prosperity in the United States.
CP
THE OF YES OF THE STATES THE UNITED
THE NAFTA
Expanding U.S. Exports, Jobs and Growth
Clinton Administration Statement
on the North American Free Trade Agreement
"In the face of all the pressures to do the reverse, we must compete, not retreat."
President Clinton, February 26, 1993
The North American Free Trade Agreement (NAFTA):
Expanding Exports, Jobs and Growth
Critics of NAFTA use scare tactics to assert that NAFTA
"The truth of our age is this-and must be this
will put Americans out of work. The truth is quite the
Open and competitive commerce will enrich us as
opposite:
a nation And so I say to you in the face of all
NAFTA will spur further job gains and push jobs
the pressures to do the reverse, we must compete,
related to exports to Mexico toward the 1 million
not retreat."
mark.
-President Clinton, February 26, 1993
Defeating NAFTA could cost hundreds of thou-
sands of such jobs.
"By building together the largest free trading
region in the world, Mexico, the United States and
The facts about NAFTA:
Canada are working to ensure that the future will
NAFTA will create the biggest market in the world
bring increased prosperity, trade, and new jobs
-right at our doorstep: a $6.5 trillion market with
for the citizens of each of our countries."
370 million people.
- President Bush, July 15, 1992
NAFTA will level a playing field that remains-
despite recent Mexican market openings-substan-
tially tilted in Mexiço's favor. Mexico's tariff barriers
to U.S. goods are still 2.5 times greater than our
E
very generation of Americans has embraced the
own. All tariffs will be phased out under NAFTA.
challenge of its times. None has shrunk from the
task. Our biggest challenge today is economic-
NAFTA will expand benefits the United States has
to channel a changing international economy to our
enjoyed since Mexico began to open its markets in
benefit.
1986. U.S. merchandise exports to Mexico have
risen by 228% since 1986, reaching $40.6 billion in
The Clinton Administration is committed to rebuilding
1992.
the U.S. economy from the ground up. We must pre-
pare our entire work force to compete in the global
U.S. jobs supported by these merchandise exports
economy and make sure that nobody gets left behind
rose from 274,000 in 1986 to an estimated 700,000
in the process. We look at trade-and every other
in 1992-and these jobs are in all 50 states.
issue-from the viewpoint of what is best for ordinary
(Merchandise exports to Canada support another
Americans who work hard, play by the rules, and want
1.5 million U.S. jobs.)
a chance to get ahead. The key building blocks are
NAFTA will create an estimated 200,000 additional
economic growth and jobs.
high-wage jobs related to exports to Mexico by
The North American Free Trade Agreement
1995.
(NAFTA) is a part of this forward-looking strategy.
NAFTA will increase opportunities for American
This Administration supports the NAFTA with sup-
firms to sell to Mexico. Those opportunities are
plemental agreements because it will create high-
especially important for small and medium-size
wage U.S. jobs, boost U.S. growth, and expand the
businesses that cannot readily overcome high
base from which U.S. firms and workers can com-
Mexican border barriers.
pete in a dynamic global economy.
NORTH AMERICAN FREE TRADE AGREEMENT
Mexico were $8.9 billion in 1992). This will benefit
such industries as enhanced telecommunications
CHART 2
services, insurance, banking, accounting, and
U.S. Employment Supported
advertising.
by Merchandise Exports to Mexico
1000
Under NAFTA, our access to Canada's service mar-
900
with NAFTA
ket also will be more open than it is under the
800
existing U.S.-Canada Free Trade Agreement.
700
Removing Mexican restrictions against U.S.
exports means that U.S. companies no longer will
Thousand Jobs
600
Without
500
?
NAFTA
have to Invest in Mexico or manufacture in
400
Mexico to supply the Mexican market.
300
200
NAFTA will eliminate Mexican requirements that force
100
our companies in Mexico to:
0
1986
1987
1968
1989
1990
1991*
1992*
1993
1994
1995
Purchase Mexican goods instead of U.S.-made
"Estimated
equipment and components;
Export their production, usually to the United
CHART 3
States, instead of selling directly into the Mexican
market; and
U.S. Jobs Supported by Exports to Mexico
Pay More Than Other U.S. Jobs
Produce in Mexico to sell in Mexico. For example,
11.20
the current Auto Decree has the effect of barring
11.01
11.32
10.83
10.02
automotive imports from the United States through
9.43
a complex series of investment requirements that
will be phased out under NAFTA.
III. Creating Higher-Wage U.S. Jobs
Average Hourly Wages ($/hr.)
A strong consensus of the economic studies that have
looked at the labor effects of NAFTA have found it will
All Industries
Manufacturing
Services
result in increased jobs or increased real wages-or
both.
All U.S. private sector, non-agcicultural employment
Employment supported by merchandise exports to Mexico
Our experience confirms the findings of these studies.
Since Mexico began to open up its economy and pre-
Defeating NAFTA could cause a sharp drop in
pare for NAFTA, the number of American workers pro-
exports to Mexico and thus the loss of hundreds
ducing merchandise exports to Mexico has risen from
of thousands of U.S. jobs:
274,00C in 1986 to an estimated 700,000 last year. (See
Chart 2)
Without NAFTA, we anticipate a reduction in U.S.
exports and related jobs. Mexico could suffer capl-
With NAFTA we anticipate 200,000 MORE export-
tal flight, disinvestment, and a loss of confidence
related jobs by 1995.
in its economy. A less healthy Mexico would be
Wages of U.S. workers in jobs related to exports to
less able to afford imports produced in the United
States.
Mexico are 12% HIGHER than the national aver-
age. (See Chart 3.)
The precise impact is difficult to measure.
NAFTA will further open the Mexican economy so that
However, in the first two years of the Mexico debt
we can push employment related to exports to Mexico
crisis (1981-1983), U.S. exports to Mexico dropped
toward the 1 million mark.
by almost half.
NORTH AMERICAN FREE TRADE AGREEMENT
IV. Increasing Opportunities to Export to
Mexican consumers prefer U.S. goods:
Mexico
70 cents of every dollar that Mexico spends on for-
eign products is spent on U.S. goods. Given its
NAFTA will "lock In" and expand trade gains
location, this preference is likely to continue.
achieved to date. Since Mexico began to open up its
economy in 1986:
Mexico purchases more imports per person from
the United States than does the more affluent
U.S. exports to Mexico have expanded enormous-
European Community countries and Japan. For
ly, rising from $12.4 billion in 1986 to $28 billion in
example, last year, each Mexican, on the average,
1990 and a whopping $40.6 billion in 1992.
purchased more than $450 worth of U.S.-made
The U.S. trade balance with Mexico has shifted
products. By contrast, the average Japanese spent
from a $5.7 billion deficit in 1987 to a $5.6 billion
$385 on U.S. products, despite the fact that aver-
SURPLUS in 1992. (See Chart 4.)
age Japanese incomes are five times as high as
average Mexican incomes.
CHART 4
Key sectors benefitting from NAFTA include auto-
U.S. Merchandise Trade with Mexico:
motive, agriculture, financial services, textiles, and
From Deficit to Surplus
communications:
15
U.S. telecommunications exports jumped 50% in
U.S. Exports
1991. Mexico is the industry's second largest export
U.S. Imports
U.S. Surplus
market after Canada.
35
Detroit's Big 3 predict that their combined exports
Billion U.S. $
could rise from 1,000-plus to over 60,000 vehicles
25
NAFTA
in NAFTA's first year alone.
U.S. Deficit
Negotiations
Began
Mexico was primarily a bulk commodity market for
:5
U.S. agricultural exports prior to 1987. Now it is
Mexico
one of the United States' largest and fastest growing
Joined
GATT
high-value markets. High-value products now
5
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
account for almost 70% of all U.S. agricultural sales
versus 40% in 1987.
Mexico is important to the U.S. economy because it
Small and Medium-Size Businesses
is our:
The significant expansion of the Mexican market
Third largest export market and the fastest grow-
will benefit small and medium-size businesses in
ing major export market:
particular. These companies usually lack the resources
Since 1986, U.S. merchandise exports to
to penetrate the thicket of Mexican trade barriers and
Mexico have increased by 228% (to $40.6
regulatory restrictions. By lowering costs and dissolv-
billion)-2.3 times faster than U.S. exports
ing barriers, NAFTA will help smaller businesses to
to the world.
penetrate the Mexican market without having to invest
in Mexico.
Second largest market after Canada for manufac-
tured exports (amounting to $34.5 billion in 1992).
V. Enhancing Environmental Protection
Third largest market for agricultural products (after
Japan and Canada), reaching $3.7 billion in 1992
NAFTA and its supplemental agreements will help
(a 242% increase since 1986).
ensure that económic development takes place in a
way that protects and improves the environment.
NORTH AMERICAN FREE TRADE AGREEMENT
VIL NAFTA and American Leadership
NAFTA'S defeat would shock the Mexican econo-
my, depress wages and living standards, reduce the
In the post-Cold War world, American leadership will
Mexican capacity to purchase U.S. products, and
be measured in part by the creativity and aggressive-
stimulate immigration. It could also create tensions
ness of our trade policy. Bold, original, and forward-
on a host of critical issues from illegal drugs to oil.
looking, NAFTA is worthy of a world leader.
NAFTA's defeat would also throw sand in the eyes
In North America, division between foreign and
of our allies throughout Central and South America,
domestic matters narrows every day. American
who are striving to open their markets and democ-
communities are inevitably affected by what hap-
ratize their societies. Anti-Americanism, protection-
pens in Canada and Mexico. Their problems spill
ism, and authoritarianism may well increase. A
over the border to harm us-just as their success
NAFTA defeat would be a major, self-inflicted set-
adds to our welfare.
back to American leadership.
By increasing the flows of commerce and culture
and by forging new cross-border friendships
Conclusion
among labor and environmental organizations, the
NAFTA will promote prosperity and democracy in
NAFTA will create jobs and improve our competitive-
neighboring Mexico. Americans who favor freedom
ness. It will create the largest, richest market in the
and good government in Mexico should favor
world. Mexico's strong and growing demand for U.S.
NAFTA.
products has created a $5.6 billion U.S. trade surplus.
With a stronger Mexican economy and higher Mexican
NAFTA has been negotiated by two Administrations.
wages, demand for U.S. goods will continue to expand
It stands as a testament to the ability of the United
Increased access to the rapidly growing Mexican mar-
States to design a bipartisan foreign policy craft-
ket will create extraordinary new opportunities for U.S.
ed to the requirements of the post-Cold War
companies and workers. Taking advantage of these
world. Its defeat would signal to the world that
opportunities will lead to increased prosperity in the
Washington is mired in inertia and gridlock
United States.
NAFTA's defeat would raise serious questions
about America's commitment to global leadership,
NAFTA Is Good For America
thereby undercutting our influence throughout the
world.
Questions and Answers about NAFTA
Q. How can Mexico, a low-income country, be such a
Q. Will NAFTA result in massive U.S. job lasses to low-
large market for U.S. exports?
wage Mexican workers'
A. Mexico now is our third-largest trading partner.
A. No. NAFTA will increase jobs, productivity and
Although Mexican per capita incomes are low rela-
wages in the United States as well as in Mexico
tive to incomes in the United States, Mexico is a
and Canada. If lower wages were the only reason
country of 90 million people (who prefer U.S. to
that companies, moved to other countries, Haiti and
other foreign products) and a developing country
Bangladesh would be economic powerhouses by
with an improving economic outlook. On a per
now. Other factors such as high worker productiv-
capita basis, Mexico purchases more U.S. products
ity in the United States and high non-wage costs
than our trade partners in the European
in Mexico (including transportation, infrastructure,
Community and Japan. NAFTA will help the United
and support service costs) make U.S. workers more
States. take further advantage of the growing
competitive than their Mexican counterparts.
Mexican market for U.S. exports.
NORTH AMERICAN FREE TRADE AGREEMENT
Q. What has been the effect of the 1989 United States-
United States. These are not jobs "lost" by American
Canada Free Trade Agreement on U.S. exports?
workers, but rather U.S. jobs foregone by Mexican
workers for whom NAFTA will provide an accept-
A. Before the agreement, Canada had tariffs on
able economic alternative at home.
imports that were two or three times higher than
those of the United States (similar to Mexico today).
Without NAFTA and a stronger Mexican economy,
After the agreement to eliminate tariffs and other
pressures for illegal Mexican emigration to the
barriers on all United States-Canada trade flows and
United States would only continue to increase.
many restrictions on investment and services, U.S.
merchandise exports grew 27% between 1988 and
Q. In the short term, would eliminating Mexico's barri-
1992 (from $71.6 billion to $90 billion). U.S. service
ers to U.S. agricultural imports lead to more rural
exports to Canada increased by 78% to $17.2 bil-
Mexican unemployment and increase pressures to
lion during the same time period. Also, since the
migrate to the United States?
agreement, there have been numerous calls from
A. The NAFTA agreement contains the longest phase-
both sides of the border to accelerate the sched-
in period (up to 15 years) for Mexico to liberalize
uled phase out of tariffs.
agricultural trade policies with the United States and
Canada. This gives Mexican farm laborers time to
Q. What long-term impact will NAFTA have on illegal
adjust and will help minimize short-term immigra-
immigration from Mexico?
tion effects. With or without NAFTA, agricultural
A. NAFTA will promote economic growth and increase
reforms will continue to reduce Mexican agricultur-
wages in all three countries. This will create more
al employment. NAFTA will enhance the opportu-
economic opportunities for workers in Mexico—
nities for displaced Mexican agricultural workers to
the single most important, long-term remedy to ille-
find other jobs in the Mexican economy.
gal migration from that country. According to some
scholars, significant real wage increases could also
Q. Wont't increase trade flows from NAFTA worsen the
occur for U.S. rural and lower skilled urban work-
flow of illegal drugs into the United States?
ers as a result of reduced emigration from Mexico
A. While NAFTA will reduce tariffs, it will not relax
to the United States.
customs controls on the border. As trade between
Some economic studies of NAFTA considering the
the United States and Mexico has increased in
immigration issue have been misconstrued to sug-
recent years, cooperation in counternarcotics and
gest that hundreds of thousands of Americans
law enforcement has improved. By promoting U.S.-
would lose their jobs because of NAFTA. In fact,
Mexican cooperation, the NAFTA can foster a posi-
these studies do not show such results. The "U.S."
tive atmosphere for further bilateral efforts to fight
job losses turn out to be hundreds of thousands of
drugs.
Mexican workers who decide to remain in Mexico
because of the enhanced job opportunities created
by NAFTA; without NAFTA, they would have
crossed the border to compete for jobs in the
NAFTA CREATES JOBS AND IMPROVES OUR COMPETITIVENESS
President Clinton supports the NAFTA as an important element of his strategy for
harnessing change in today's competitive international economy. NAFTA will increase
U.S. exports and create high-wage, high-skill jobs. At the same time, supplemental
agreements and legislation envisioned by the President will ensure that increased trade
does not come at the cost of workers or the environment.
Exports create jobs, and increased access to Mexico's market of 90 million people will
provide new opportunities for American exports. Mexico is already the second largest
market for American manufacturing products and the third largest market for U.S. farm
exports. Taking advantage of these opportunities will translate to increased prosperity
in the United States.
From 1986 to 1992, exports from the United States to Mexico increased from $12.4
billion to $40.6 billion. Our $5.7 billion trade deficit in 1987 was transformed to a $5.4
billion surplus in 1992.
Since Mexico began opening its market in 1986, more than 400,000 export related jobs
have been created. Today, over 700,000 jobs in the United States are supported by
exports to Mexico. With the NAFTA, we forecast a gain of 200,000 such jobs by 1995.
Without NAFTA, we would be unlikely to maintain the status quo. If exports fell by as
little as one-quarter, we would lose 200,000 export related jobs. Moreover, the jobs
gained are high paying; jobs related to exports to Mexico average 12 percent more than
the average wage for all jobs.
Mexico prefers U.S. goods. Last year, each Mexican, on the average, purchased more
than $450 worth of U.S.-made products. By contrast, the average Japanese spent $385
on U.S. products, despite the fact that average Japanese incomes are dramatically higher
than Mexican incomes.
Through this agreement with Canada and Mexico, the NAFTA will create the largest
market in the world - more than 370 million consumers and over $6.5 trillion of
production. That larger market will help our products be more competitive in global
markets, with Europe, Asia and the rest of the world.
Critics claim that low wages will result in an exodus of jobs from the United States. If
low wages were the driving factor in deciding where factories should locate, Haiti and
Bangladesh would be world manufacturing powers. Our workers are far better paid than
those of Mexico and other countries because we have the most productive workers in the
world and because the United States has such a significant advantage in the other factors
that go into competitiveness, such as transportation, communications, and infrastructure.
The NAFTA eliminates Mexican import restrictions and investment requirements that
have forced some manufacturers to move to Mexico in order to sell there. The NAFTA
will eliminate those barriers, opening vast new opportunities in what is already the
second largest market in the world for U.S. manufactured products.
Because the U.S. market is largely already open to Mexican goods, the NAFTA will
have less effect on U.S. imports as it does on exports. Half of the products we import
from Mexico are already free of tariffs, and the average current U.S. tariff on Mexican
products is only 4 percent, while Mexican duties on U.S. products average ten percent.
Thus NAFTA eliminates much higher barriers to U.S. exports than to our imports from
Mexico. NAFTA will level the playing field with a country with whom we already
successfully compete.
OTHER ADMINISTRATION INITIATIVES
The text of the NAFTA was signed last December by the United States, Canada, and
Mexico. President Clinton is committed to the NAFTA with a package of supplemental
agreements and domestic programs that will include strong provisions on labor, the
environment, import surges, border clean-up, and worker adjustment assistance.
The Clinton Administration has concluded supplemental agreements on labor,
environment, and import surges to strengthen enforcement of national laws and promote
cooperation in these areas. We will establish separate commissions on labor and the
environment, chaired by appropriate Cabinet-level officials, to achieve these ends. For
a more detailed description of the supplemental agreements, please see Tab E.
Even though NAFTA will create far more and better jobs than it will cost, the
Administration realizes some workers may be negatively affected. As a result, the
Administration currently is formulating a strong worker adjustment program to assist
those hurt by the NAFTA.
The President also is committed to a strong and creative border cleanup package. The
NEC currently is reviewing funding options, and the Administration will work with
Congress and with Mexico on these issues.
TIMING
The Administration will sign the supplemental agreements this month and begin the
process of drafting the implementing legislation with the Congress shortly thereafter.
Our goal is for the NAFTA to enter into force on January 1, 1994, as scheduled.
The Administration will work with Congress, and in consultation with State and local
authorities and the private sector, to develop strong implementing legislation so that we
2
are in the best possible position to obtain the full benefits of the NAFTA. Once the
implementing legislation is submitted, it will be entitled to "fast track" treatment,
meaning that Congress will vote "yes" or "no" on the agreement (without making
amendments) within 90 session days of Congress. Traditionally, we have not needed the
full 90 days, because the Executive Branch has worked so closely with the Congress to
develop a strong implementing bill.
HOW THE NAFTA APPLIES TO THE STATES
The NAFTA will benefit the entire country, not just selected regions. Forty-eight ous of fifty
states increased exports to Mexico from 1986 to 1992. Twenty-one states exported more than
$250 million to Mexico in 1992. Five of the top ten states exporting to Mexico are northern
industrial states.
Standards
NAFTA permits the states to set their own standards, including standards on plant and
animal health and safety and the environment.
NAFTA does not interfere with the ability of states to set mandatory standards. State
standards may be more stringent than federal standards.
NAFTA does not require states to lower their standards to make them compatible with
Mexican or Canadian standards.
NAFTA rules are simply a re-statement of sound policy-making in the health and
environment area and are those we already live with, for example that health and safety
measures should have a scientific basis.
Services
NAFTA does not pre-empt the ability of states to regulate and license services, such as
medical, legal, insurance and other services.
All levels of government - state, local and federal - are covered by NAFTA and new
regulations must comply with the Agreement.
Existing measures at the state and local level that do not conform with the Agreement do
not have to be changed, except for citizenship requirements affecting the licensing and
certification of professionals. Existing local laws are automatically "grandfathered"
(exempted from NAFTA).
3
Any non-conforming state laws which states wish to exempt must be listed within two
years of entry into force of the Agreement, but there are no restrictions on the number
of measures that may be listed.
The federal government will work with the states to ensure proper listing of all measures
to be retained.
We have committed ourselves to removing citizenship requirements affecting the
licensing and certification of professionals within two years of entry into force of
NAFTA.
Financial Services
Like services, states will be able to maintain existing regulations, but they must be listed
if they conflict with NAFTA obligations.
For the states of California, Florida, Illinois, New York, Ohio and Texas, non-
conforming measures must be listed by entry into force of the Agreement; other states
must list their measures by January 1, 1995.
Government Procurement
State government procurement practices are not subject to the NAFTA. States will have
the opportunity to voluntarily enter into future procurement negotiations.
U.S. small and minority business set-aside programs are maintained intact.
Investment
States also will be able to take reservations (exemptions) for non-conforming measures
affecting investment. As with services, the states have two years after entry into force
of the Agreement to do this.
Land Transportation
States will maintain their authority to impose and enforce safety regulations concerning
land transportation services.
Telecommunications
NAFTA does not apply to basic telecommunications services.
There is no change required in the state or federal regulation of common carrier services,
such as local telephone exchanges.
4
Dispute Settlement
Should a formal dispute settlement case be brought against a state measure, the Federal
government would notify and work with a state from the initiation of a challenge under
NAFTA.
State government representatives would participate in arbitration proceedings.
A dispute settlement panel cannot force a state to change a law. It merely determines
if a measure violates NAFTA.
If a measure is determined to violate NAFTA and is not altered, the challenger may
request trade compensation or withdraw trade benefits of equivalent effect if appropriate
compensation is not made.
U.S. CONSUMER GOODS TO MEXICO - A BOOMING MARKET
From 1987 to 1992, exports from the United States to Mexico increased from $14.6 billion to
$40.6 billion. Our $5.7 billion trade deficit in 1987 was transformed to a $5.4 billion surplus
in 1992.
Consumer goods exports to Mexico shot up dramatically in the past five years -
quadrupling from $1.1 billion in 1987 to $4.4 billion in 1992.
Consumer goods exports are growing faster to Mexico than to the rest of world. Over
the past five years, consumer goods exports to Mexico grew by 31 percent annually,
compared to the rest of the world at 17 percent, Japan at 15 percent, and the European
Community at 16 percent.
Mexico buys as much as developed countries. Although a developing country, Mexico
compares well to developed countries in the percentage of U.S. consumer goods
purchased. Eleven percent of U.S. exports to Mexico are consumer goods, compared
to 12 percent in developed countries.
Export growth to Mexico is shared broadly among product areas, with many consumer
goods in our top 50 U.S. exports, ranging from musical instruments to furniture to
sporting goods.
Mexican consumers prefer U.S. goods. Last year each Mexican purchased $49 of U.S.
consumer products. By contrast, each Japanese spent an average of $47, despite the fact
that the average Japanese incomes are dramatically higher than the average Mexican
income.
5
The Mexican market is 90 million strong, and growing at twice the rate of our own
market. Exports create jobs, and increased access to Mexico's 90 million people will
provide new opportunities for American exporters.
Today almost $1 out of every $10 of U.S. exports goes to Mexico. An additional $2 of
that ten goes to Canada, our other NAFTA partner. Put another way, Mexico buys 70
percent of its imports from the United States.
U.S. consumer goods companies like Colgate-Palmolive, Procter & Gamble, and 3M are
enjoying booming sales in Mexico, and strongly support the NAFTA. 3M Vice
President for Latin America Allan Petersen said:
"All this growth at 3M has taken place to date with only a partial roll-back of trade
barriers. The North American Free Trade Agreement will bring even freer trade. It will
also give Mexico's trade policies the force of law, which ensures that they will not be
revoked for short-term political reasons.
6
S A PROPONENT of a tough-minded, results
A
oriented trade policy, I have supported the
principle of the North American Free Trade
Agreement but have been concerned about its
specific provisions. Nevertheless," I believe the time has
now come for Congress to ratify NAFTA. Here's why
The agreement is admittedly not flawless, and be-
NAFTA:
cause passage is very uncertain, the administration
should press for accelerated removal of trade barriers,
as provided for in the treaty-as well as for a commit-:
ment from the Mexicans linking increased productivity
to increased wages for Mexican workers. But even with
its imperfections, NAFTA will leave America better off
Why We
than before. Moreover, its passage will help us to deal
better with the much more important-but much more
obscure-issues of the Uruguay Round of world trade
talks, and the framework negotiations with Japan that
Hafta
are currently being obscured by the NAFTA uproar.
Those who are rightly concerned about jobs should
remember that the United States has a $5.4 billion
trade surplus with Mexico, while its trade deficit with
How I Overcame My Doubts
Asia is over $75 billion. This means the United States is
gaining jobs as a result of trade with Mexico while los-
And Learned to Like the Pact
ing nearly 2 million jobs in its trade with Asia. There is
indeed, as Ross Perot has said, a "giant sucking sound"
threatening U.S. workers, but it doesn't emanate from
south of the border. For 30 years the giant sucking
sound has been coming from the East, and it represents
a much bigger trade and jobs policy challenge than
NAFTA.
Unfortunately, the Uruguay Round is proceeding
toward a planned finish on Dec. 15 with a draft agree:
ment on the table that, if enacted, would eviscerate
U.S. trade laws, making it. extremely difficult to re-
spond to the persistent dumping and subsidization that
have devastated such U.S. industries as consumer elec-
tronics, steel, semiconductors and aircraft.
By comparison, NAFTA should improve our short-
-to-medium-term situation and may enable us to com
pete better with Asia in the longer term. To grasp this;
it is important to understand one of the great fallacies
of the NAFTA discussion-the notion that the United-
States is sweeping away barriers to exports from Mex-
ico to America. Thus (it is claimed) the agreement will.
encourage U.S. firms to move south in search of cheap-
labor.
In fact, the agreement doesn't change the situation
along the border that much. The United States current-
ly has only a 4 percent average tariff rate and very few
other restrictions on Mexican imports. Under the
terms of NAFTA, we are giving away very little. The
barriers that are being removed are mostly on the Mex-
ican side. Ironically their removal may actually reduce
incentives for U.S. firms to move south.
Take the minivan, the fastest growing segment of the
vehicle market. Because of Mexican regulations, ITO
minivans are sold south of the border. But with the
Mexican auto market booming, there is demand for
minivans. Under the present Mexican auto decree, to
See NAFTA, C4, Col. 1
Clyde Prestowitz is president of the Economic Strategy
Institute.
nums
NAFTA: Why We Hafta
U.S. firms a lock on a market of their own
NAFTA, From C1
with which to fight back.
supply this market would require U.S. pro-
Another potential plus of NAFTA will be
ducers to build a plant in Mexico. But since
the displacement of Asian production by
that Mexican market is too small at the mo-
Mexican production. Over the years the As-
ment to absorb all the production of a
ian countries have drawn such activities as
world-class-size plant, and because of Méx-
television production, semiconductor assem-
ican requirements that producers export
bly and the sewing of apparel out of the Unit-
large percentages of their production, the
ed States. In the past month, I have spoken
logical way for U.S. automakers to meet
to officials of several U.S. companies who say
demand in Mexico at present is to build
they may move some of this activity back
plants there and send the excess production
from Asia to Mexico. Zenith has already an-
to the U.S. market where tariffs on autos
nounced a move of television set production
are only 2.5 percent.
from Taiwan to Mexico and some semicon-
NAFTA would change the calculations of
ductor makers are considering similar shifts
a U.S. automaker because it makes export-
from Southeast Asia. The reason: Control,
ing from the United States to Mexico a real
servicing and quick response are easier when
possibility. Under NAFTA, a U.S. producer
the plant is an hour away than when it is 21
would probably not build a plant in Mexico,
hours and 14 time zones away. And factories
but export minivans from the United States
in Mexico are much more likely to use U.S.
instead. This would require less investment
parts, service personnel, designers and en-
than a new plant in Mexico and would in-
gineers than factories in Southeast Asia-a
crease the economies of scale at U.S. fac-
plus for Americans.
tories. It would also avoid the need for hir-
ing and training a whole new work force in
A
final potential benefit of NAFTA will
Mexico.
be tied to the structure of new invest-
ment in Mexico. It is here that I and
T
he truth is that as far as imports from
many other observers have had our greatest
Mexico are concerned, we already
concerns. If new investment in Mexico were
have free trade. NAFTA will only
to be largely Japanese or European, the
make it more of a two-way proposition-as
equipment going into the new plants, the
corporate behavior is already demonstrat-
construction companies building them, the
ing. Raychem, a rapidly growing U.S. semi-
parts and the intermediate materials used for
conductor and electronics firm, is moving
production would probably come from Asia or
three plants from Mexico back to the Unit-
Europe as well. Thus, Mexico would be
ed States, and General Motors is likewise
turned into a foreign export platform aimed
moving production that until now had to be
at the United States. The initial Bush admin-
done in Mexico back to more efficient fa-
istration negotiating strategy would have
cilities north of the border.
placed few conditions on investors in Mexico,
Beyond this, NAFTA will create an im-
and there was a real danger of this scenario
mediate jump in U.S. exports to Mexico to
becoming reality.
meet the demand for U.S. goods that has
In a 1991 study of possible outcomes, the
long been pent-up by Mexican barriers. And
Economic Strategy Institute estimated that
even NAFTA opponents agree that because
this foreign dominated export-platform sce-
U.S. barriers are already so low, there will
nario could result in substantial long-term
be no reciprocal surge of exports from Mex-
U.S. job loss. But we found that if investors in
ico.
Mexico are largely American, and the parts,
NAFTA opponents sometimes argue that
capital equipment and engineering are sup-
à poor country like Mexico cannot afford to
plied from the United States, long-term as
buy very much from the United States. Yet,
well as short-term net U.S. job gains would
although half of Mexico's 80-million popu-
result. We thus recommended crafting
lation does indeed live in poverty, one-quar-
NAFTA to ensure that new investors in
ter to one-third of Mexicans have relatively
Mexico would continue to obtain parts,
high incomes, creating a market nearly the
equipment, and other supplies and services
size of Canada's for U.S. goods. Mexicans
largely from the United States.
already buy more per capita from the Unit-
As it now stands, NAFTA includes many of
ed States than Japanese or Europeans. We
these measures. For example, steel will not
should not forget that Japan is getting rich
qualify for duty-free treatment under
in part by running trade surpluses with the
NAFTA unless it is melted and poured in
small, developing countries in Asia with av-
North America. Autos will not qualify unless
erage income levels far below its own.
62.5 percent of their parts and components
Because Mexico's barriers will only be
are made in North America. Textiles will not
reduced for U.S. and Canadian producers and
qualify unless they are made from North
not for Asian or European suppliers, most of
American fiber and yarn. Television sets will
the benefits of the larger market will go to
not qualify unless the picture tube is made in
01
U.S. companies. Japanese companies have
North America, and so forth. These mea-
S
long benefitted from having a lock on the
sures will tend to lock in the present situation
emerging markets of Asia. NAFTA will give
in which over 70 percent of Mexico's imports
the rest of Latin America are engaged in an
historic realignment away from dictatorship
and state intervention in the economy toward
democracy and the free market. They are
asking for our help. It is not in our interest to
have an impoverished and embittered nation
with a rapidly growing population on our
southern border. If the Israelis can shake
hands with the PLO, surely the United States
can take the outstretched hand of Mexico
that, after all, has been more sinned against
than sinning in the history of our mutual re-
lations.
If NAFTA is to pass, the White House and
big business will have to do much more than
they have done to date. Tariffs will remain
higher on the Mexican than on the U.S. side
of the border for several years after
NAFTA's enactment even in industries such
as glass, steel and chemicals in which Mex-
ican competitors are already world-class pro-
ducers. Moreover, Mexican industrial de-
crees and re-export requirements will be
phased out slowly, thus damaging the poten-
tial for U.S. exports for several years after
ratification. The agreement permits accel-
eration of the removal of trade barriers, and
the Clinton administration ought to insist on
it in key industries.
At the same time, it should be made clear
to Mexico that U.S. implementation of the
deal will be contingent on rapid democratiza-
tion in Mexico and particularly on guarantees
for the rights of labor to organize and bargain
collectively.
Finally, American business, which stands
to gain much from NAFTA, must assert
some leadership. So far the airwaves have
been dominated by opponents offering sim-
plistic and misleading aphorisms about what
business will and won't do. Where are the
captains of industry at the Business Round
BY JANUSZ KAPUSTA/INX
Table, the National Association of Manufac-
come from the United States. Thus as Mex-
to move, Mexico is preferable to Asia as a
turers and the Chamber of Commerce? They
ico's industry expands, it should provide a
destination.
must get on "Larry King" and "Meet the
continuously growing market for U.S. goods
The second fallacy is the notion that com-
Press" too. And when they do, they should
as well.
panies make investment decisions primarily
recognize that some of the opposition to
Beyond this there is the potential for the
on the basis of labor costs. The truth is that it
NAFTA is based not on the exact terms of
United States to do in Mexico what Japan has
is overall costs, not labor costs, that deter-
the treaty but on a more amorphous but un-
done in Thailand. There, Japanese companies
mine investment locations. BMW recently
derstandable feeling among American work-
have invested and assembled components
made a major decision to locate its first plant
ers that neither big government nor big busi-
shipped from Japan into products for export
outside of Germany. It did not choose low-
ness has been vigilant enough in defending
to the world. Japan thereby runs a trade sur-
labor-cost Mexico. Rather, it chose South
and advancing their interests.
plus with Thailand, while both their produc-
Carolina. The reason is that despite Mexico's
When industry leaders campaign for
tion and exports increase. Under NAFTA,
cheap labor, according to the Office of Tech-
NAFTA, they should be prepared to talk
U.S. firms should be able to do the same in
nology Assessment, it costs only $8,777 to
straight and to make some commitments to
build a car in the United States versus
Mexico, turning Mexico into the same kind of
$9,180 in Mexico. Mexico's high shipping,
the American public. A formal pledge, like
export platform that Thailand provides to
parts and inventory costs more than offset its
the Sullivan Principles that guided business in
Japan.
low labor costs. Thus it is unlikely that there
South Africa, might be appropriate. Such
t is important to correct two major fal-
will be a major emigration of U.S. manufac-
principles might include a pledge to pay the
I
lacies that have arisen in the NAFTA de-
turing to Mexico. More likely, and much
U.S. minimum wage at Mexican operations;
more desirable, is a combination of Mexican
to provide for reassignment and retraining of
bate. The first is the notion that the
and U.S. operations to make both more com-
any displaced workers; and to maintain a
choice is between keeping jobs in the United
petitive with Asian and European enter-
company-wide trade surplus with Mexico.
States or moving them to Mexico. In fact, in
prises.
Such commitments would go a long way to
many instances jobs have already moved or
Beyond the economic considerations, there
calm the fear of losing more American jobs.
will move to Asia if they don't go to Mexico.
are fundamental reasons of national security
It is clear that this fear must be counteracted
For the reason noted above, if jobs are going
for going ahead with NAFTA. Mexico and
if NAFTA is to have a chance of passage.
NAFTA TIMETABLE
17
Target date for NAFTA vote:
November 23-
Introduction of unamendable Fast-Track bill: November 1
Schedule for Non-Markups and Non Conferences:
House Ways and Means:
Walk-thru October 13
Non-Markup October 19-21
Senate Finance:
Walk-thru October 14
Non-Markup October 20-22
Ways and Means/Finance Non-Conference: October 26-28
Other Committees:
House
Agriculture
Banking
Energy and Commerce
Foreign Affairs
Gov. Ops.
Judiciary
Natural Resources
Appropriations ( possibly)
Senate
Agriculture
Commerce
Environment
Foreign Relations
Gov. Affairs
Judiciary
Remarks of Senator Paul Simon
On His Support For
The North American Free Trade Agreement
Brookings Institution Auditorium
Washington, D.C.
October 20, 1993
[EMBARGOED until delivered at 12:15 p.m. E.D.T.]
The proposal for a North American Free Trade agreement has evoked a greater
barrage of surveys and analyses than any issue I can recall in my eighteen years in
Congress, though I am sure the health care proposal will eventually surpass it.
People whose judgment I trust draw directly contradictory conclusions. The
issue inspires fear on the part of many and hope for others. My study of the NAFTA
agreement began skeptically. I voted against the fast track authority passed two
years ago, fearful that the administration then in power would not adequately protect
the interests of our nation's working men and women.
Three members of my staff who have primarily worked on this knew that I
would spend the past weekend pounding on my old manual typewriter, formulating a
position. I asked them where they felt the merits of this issue rest, and all three said it
would be good for the nation. But all three advised me that politically the advantage
is on the side of opposition.
That seems to me an accurate summary of where we are. And if that is correct,
those of us in the Senate who believe NAFTA will be good for the United States need
to provide leadership so that our colleagues in the House who are wavering know that
they are not alone. Political prudence for Senators requires silence. Political
leadership requires a stand. Illinois is an economic microcosm of the nation. By
studying its impact in Illinois, I have come to believe that NAFTA will strengthen the
nation's economy. I have concluded that NAFTA's overall benefits to this generation
and to future generations make this a fight worth spending political capital to win.
Here is how I arrived at my position.
First, the unspoken premise of some opponents is clearly that there are only so
many riches to spread around this region of the world, and if we permit our neighbors
to the south to have more, we will have less. It is the same false assumption that
those who wrote about population two centuries ago had: There are only so many
goods to be divided, and if you increase the population, gradually everyone will
become poorer. The average person in the world today has a much higher standard
of living than in those days, and our population has grown tenfold. After World War II,
[MORE]
the United States was by far the wealthiest nation, and Western Europe and Japan
were miserably poor. I can remember staying at a small hotel in Spain where, for one
American dollar, I received my room and three meals, including steak for dinner.
Today the average American income is two and one-half times greater than it was
then, after adjusting for inflation, and many of our friends in Western Europe now have
average wages higher than ours. We have moved ahead economically and so have
they. Clearly the economic prosperity of Western Europe did not come at the
expense of the United States.
I start, then, from a different premise than some who oppose the agreement. I
recognize that both Mexico and the United States can benefit, but reciprocal gains are
not automatic. If they were, we would not between us have the greatest disparity in
the standard of living of any two neighboring nations.
There are several questions that need to be answered:
What will be the job impact of such an agreement on the United States?
The short-term impact is clear. It will create jobs in the United States and raise
the standard of living of most people in both nations slightly. With an average
Mexican tariff on U.S. goods of between ten and twelve percent, and an average U.S.
tariff on Mexican goods of four percent, when the tariffs on both sides are removed,
the United States is the larger immediate job beneficiary. On auto parts, for example,
the U.S. has a tariff of less than one-half of one percent, but Mexico has a tariff that
averages thirteen percent. When you drop both tariffs, Mexico gains with cheaper
auto parts, and the United States benefits in jobs. Even though Mexican tariffs are
higher than ours, in 1992, we had a trade surplus with Mexico of $5.4 billion, the
largest trade surplus we have with any nation other than the Netherlands. Our
primary trade deficits are not with low-wage countries but with high-wage trading
partners, Japan being the number one example. As Secretary of Labor Robert Reich
has written, "if low wages were the key to where manufacturers locate, Bangladesh
and Haiti would become the manufacturing capitals of the world." George Fisher of
Motorola speaks for many of today's and tomorrow's industries when he says, "The
days of chasing low-cost labor are over." Of the ten nations with whom we have the
largest trade deficits, our highest deficit with Japan is more than the next seven
nations combined, and when the three oil-exporting countries are eliminated from the
ten big deficit nations, of the remaining seven, five are high-wage nations, and two are
low-wage countries."
The myth that NAFTA will result in a huge transfer of plants to Mexico is exactly
that: a myth. There are economic advantages for that transfer now that will not be
there after NAFTA is approved. There will be U.S. investments in infrastructure there --
in telephones, for example -- that will create jobs in Mexico, but should not result in
job loss here. And generally, U.S. companies -- like all companies -- invest primarily
where there are skilled workers, not where there are low wages. Three-fourths of our
foreign investment is in developed countries, primarily Canada and Europe, where
wages are often higher than ours.
The NAFTA agreement may temporarily stem the flow of some plants to Mexico.
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Gatorade, made by an Illinois corporation, Quaker Oats, has major sales in Mexico,
but Mexico has an eighteen percent tariff on Gatorade made in the United States. If
the NAFTA agreement is approved, the Gatorade plant will remain in the United
States. If it is not approved, they will build a plant in Mexico.
General Motors faces a similar decision. Our tariff on Mexican-made cars is 2.2
percent. Their tariff on our cars is twenty percent. The American Automobile
Manufacturers Association says that if Congress approves NAFTA, that will boost
exports to Mexico of U.S.-built cars and parts by $1 billion the first year, increasing
U.S. jobs by 15,000. Only one of sixteen Mexicans owns a car. As their standard of
living rises in coming years, this will be a huge market for us. There are those who
argue that Mexican citizens are too poor to afford any significant amount of U.S.
goods, that NAFTA will open a market that does not exist. The facts are that of
Mexico's 90 million people, many are poor, but with its growing middle class, Mexico
is buying seventy percent of their imports from the United States. As a nation, Mexico
purchases more U.S. goods than any of our trading partners in Europe or Japan.
Caterpillar says signing the agreement will mean 1,200 more jobs in Illinois. If
NAFTA is approved, the ten to twenty percent Mexican tariffs on Caterpillar products
will be dropped but not on Caterpillar's principal competitor in Japan, with clear
benefits to our country. A sample of my mail from other Illinois companies illustrates
the potential: L.R. Gross of Nalco Chemical in Naperville writes: "NAFTA will help
Nalco create high-skill jobs in the area of production, distribution, sales, marketing and
research. Every additional $1,000,000 in sales creates four to five new Nalco jobs.
The majority of these jobs will be in the United States." Lauren S. Williams of the
NutraSweet Company of Deerfield says: "NAFTA will have significant positive benefits
for the NutraSweet Company
We have no plans to manufacture our products in
Mexico when NAFTA is implemented. Our ingredients are imported into Mexico and
incorporated into products by local food manufacturers. And we see great potential
for growth in this market. For example, while Mexico has per capita soft drink
consumption second only to the United States, the diet portion of the market is only
about two percent, compared to almost thirty percent in the U.S." John Kennedy of
James Electronics in Chicago: "NAFTA will have no effect on a manufacturer's
decision on opening plants in Mexico. We can do it today with or without the treaty.
I established a sister plant in Mexico in 1989
125 miles south of the border. It
has not taken jobs from Chicago, but has added over 100 jobs here." John Bryan of
Sara Lee, based in Chicago: NAFTA will "create additional higher-paying jobs in U.S.-
based yarn and textile operations." Richard White of Flexible Steel Lacing in Downers
Grove: "The elimination of Mexican tariff barriers will greatly improve our access to the
fastest growing market in North America. Our sales in Mexico have grown 60 percent
since 1992, and with NAFTA could triple between 1991 and 1995. 95 percent of
Flexco products sold in Mexico are made in the U.S.
Additional unit sales volume
to Mexico will help to lower our overall operating costs and enable further employment
growth in Downers Grove, as well as providing us a stronger competitive position in
other world markets." Charles T. Wegner IV of Jel Sert in West Chicago says that they
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"have achieved only a modest presence in Mexico
The economic and regulatory
unpredictability make it imprudent to commit to any significant or long-term activity."
But he writes that if NAFTA is approved, they expect a major effort in Mexico and
additional jobs in our country. Sundstrand of Rockford has 2,900 Illinois employees
and a total of 11,000 employees. James F. Ricketts writes: "NAFTAwill have a
positive impact upon employment levels both in the Sundstrand United States' facilities
and in the joint venture operation in Mexico." John Thompson of IBM's Chicago office:
"In 1992, IBM did approximately $1 billion worth of business in Mexico. This was a 53
percent growth rate over 1991
which is occurring in an environment of 10 percent
to 20 percent tariffs on those exports. With the elimination of Tariffs under NAFTA,
IBM will have an even greater opportunity for exports, which translates into stronger
demand for IBM's U.S. manufacturing facilities." Stuart Scheyer of the Decorel
Company in Mundelein, the world's largest manufacturer of picture frames, writes:
Werecently made a significant investment in Mexico, a 60,000-foot factory in
Durango, Mexico with 200 employees.
The 200 jobs that we have in Mexico are in
addition to an increase in workers that we have in the Chicago area. We have not
transferred a single job from the United States to Mexico." He notes that he is moving
jobs from Asia to Mexico and the United States and adds: "A Mexican worker
purchases U.S. products. A Far East worker does not." Illinois is the nation's leading
candy manufacturing state. The National Confectioners Association estimates that the
elimination of the twenty percent candy tariff by Mexico will create 750 additional jobs
in Illinois. Kent Kleinschmidt of the Illinois Corngrowers expects an increase of twenty
cents per bushel in the price of corn because of NAFTA and a savings to taxpayers of
$1.2 billion in farm subsidies. All agriculture, with the exception of fruit and vegetable
farming, is expected to benefit. Other industries that will benefit from NAFTA include
machine tools and auto parts, major factors in our nation and in my state.
Illinois exports to Mexico increased 384 percent between 1987 and 1992. In
terms of short-term job creation, NAFTA is a plus, but some industries and people will
be hurt, and we must not ignore that reality. Much of the American middle class is in
agony over the economic changes and dislocations of recent years. Families have
seen their economic security slip, and many have become bitter and cynical toward a
government that has seemed to do nothing to come to their aid.
NAFTA will not address the economic pain of the middle class in a meaningful
way. This is not a reason to oppose NAFTA; but it places a moral obligation on
NAFTA's supporters to develop a coherent plan and policy to restore economic
opportunity and security.
In the medium-term, Mexico will experience more job growth than the United
States as a result of the NAFTA agreement. As it becomes clear under NAFTA that
there is an increasingly stable political and economic situation in Mexico, there will be
more Mexican money invested in Mexico, and more money will be invested by Asian,
Western European and U.S. interests. There will be some shifting of plants,
particularly from Asia, to Mexico. Zenith has already announced that it will shift some
television production from Taiwan to Mexico. As NAFTA increases the standard of
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living for people in the large U.S.-Canada-Mexico market, corporations around the
world will want to sell in this market. The U.S. and Canada now have an edge over
Mexico in skilled workers, but that advantage is likely to diminish over the coming
years as Mexico stresses education. The United States has significant transportation
advantages that will bring many of these new businesses to us, but Mexico is likely to
be experiencing greater growth a decade from now, both in numbers of jobs and in
its standard of living. As the General Accounting Office report accurately summarizes:
"Economic researchers in general agree that NAFTA would bring a small overall
economic benefit to the U.S. and Canadian economies, and a larger benefit to the
Mexican economy." Under NAFTA, what helps Mexico in the medium-term ultimately
helps the U.S.
Long-term -- thirty years from now -- all three nations are likely to experience
significant growth if all three stress developing a more skilled work force and put their
fiscal houses in order. The standard of living in Mexico is not likely to be as high as
we have in the United States, but the gap in the quality of life will have diminished
markedly. That will make Mexico a significantly larger purchaser of U.S. products.
That means jobs.
The closest comparison to the NAFTA agreement that might provide insights is
the affiliation of Spain, Portugal, Ireland and Greece with the European Community
four poorer nations joining a wealthier central body. The average growth rate of the
four exceeded the growth rate of the other nations of the European Community by 3.7
percent to 2.8 percent. The affiliation of the four nations did not harm the central
body.
However, it is easy to exaggerate on both sides -- the impact of NAFTA. It
will have an impact that is generally positive, but it is not a patent-medicine cure-all for
what ails us. The International Trade Commission estimates that by the end of the first
year of NAFTA, there will be a net increase of 171,000 jobs in the United States, not a
huge number in a nation of 240 million people. That would reduce our unemployment
rate less than two-tenths of one percent. One important fact should be remembered:
Whether NAFTA is approved or not, if we don't improve the skills of our work force
and pay attention to the nation's fiscal problems, we will suffer a continued gradual
decline in our standard of living. If we do a better job of preparing our work force and
have the courage to face our fiscal deficit, we will experience an increase in our quality
of life. No elixir of NAFTA or anything else is a substitute for addressing our education
and fiscal problems.
What about illegal immigration?
Mexico today has a population of approximately ninety million people. Despite
a declining birth rate, eventually, Mexico will achieve a total population of more than
200 million. Nothing speeds a decline in a national birth rate as much as an increase
in the standard of living. Lifting the quality of life through NAFTA, therefore, will relieve
population pressures and lessen the expected growth of illegal immigration. And the
growth in job opportunities and wages reduces the attraction of employment in the
north. The commission to look at illegal immigration, established by Congress in
[MORE]
1986, urged a free trade agreement between the United States and Mexico, calling it
"the single most important long-term remedy to the problem." Few Mexicans come
into the United States illegally because they like our cultural life; they come because
they have little opportunity to earn a decent living in the country of their birth. NAFTA
will not solve the illegal immigration problem, but it will assist in its solution.
Are there U.S. foreign policy considerations in this vote?
The United States has been fortunate to be bordered by two oceans, by a
nation to the north we generally do not regard as a foreign nation, and a nation to the
south that we have largely ignored. To continue down that path of indifference
increasingly will be as difficult as it is wrong. A rebuff to NAFTA would hurt us in
Mexico and in all of Latin America. Our historic cold shoulder to Mexico has been a
burden to Mexico but will be a burden to us if it is continued. Former Speaker Jim
Wright of Texas has written: "Not in the past 75 years has Mexico's elected leadership
been SO staunchly and outspokenly pro-U.S." However if NAFTA is turned down,
Mexico is not likely to simply smile and docilely accept our position. If we muff this
opportunity, Mexico is likely to enter into a free trade agreement with Japan or some
other major economic entity. That would not be good for the United States and not
as good for Mexico as a trade agreement with us, but we should be aware that you
can wound the pride of a nation only so many times before it looks for other friends.
If Henry Kissinger is correct that this nation "has never had a neighbor of the
importance Mexico will acquire in the next century," we should weigh NAFTA carefully,
recognizing that approving it will help Mexico achieve greater stability in both politics.
and economics. That is in our self-interest.
What about the environmental factors?
Environmental groups are split on this. Improvement would come in the border
area; right now that is a mess. NAFTA would cause a significant increase in the use
of natural gas in Mexico, reducing the emission of carbon monoxide, nitrogen oxides,
sulfur dioxide and carbon dioxide. How effectively and strictly Mexico would enforce
the environmental side agreement is not clear, though it is a good enough gamble
that the National Wildlife Federation, the World Wildlife Fund, the Nature Conservancy,
the Audubon Society, the Environmental Defense Fund, the Natural Resources
Defense Council and Defenders of Wildlife have all endorsed NAFTA. What is
indisputable historically is that as democracies have increased their living standards,
they have become more sensitive to environmental factors, and NAFTA will increase
the standard of living in Mexico.
What about those working men and women and businesses who will be hurt by
NAFTA?
It is both morally right and smart policy to provide assistance to those harmed
by NAFTA.
Assistance to businesses should be planned through loans that are not
available through conventional credit sources. The Small Business Administration can
help, though most businesses should find assistance from the traditional thrift
institutions.
[MORE]
The problem of working men and women is more complex. It is a problem with
or without NAFTA. Economic dislocations -- and the absence of any serious policy
response from the federal government -- have created an enormous need for a
program of economic relief and revitalization. This is complicated by an increasing
bitterness and cynicism toward government that has seemed to sit idly by while our
living standard has declined.
Such a program must include a serious retraining program for dislocated
workers. Our economy is too dynamic, too globally linked for us to afford not to
provide life-long training and retraining for our workers.
That will only work if there
are jobs waiting for those trained. We need to invest more in technologies; expand
and accelerate improvements in our highways, water and sewer systems; promote
high-speed rail and the information superhighway, and insist that our trading partners
expand access to their markets for our products. We also must get our fiscal house
in order: stop running huge deficits, and reduce the growth in our national debt,
lowering the cost of capital and lifting our overall economy.
We need to demonstrate to middle-class Americans that government is on their
side.
But this problem goes beyond just the middle class. More than one-fifth of the
children of this nation now live in poverty, and the number is growing. No other
Western industrialized country has such a miserable record. This is not the result of
an act of God but the result of flawed policy. We have increasingly segregated the
nation economically, and as fewer and fewer of the poor are our neighbors, it is easier
and easier to ignore them. And our system of financing election to public office
makes political leaders more and more responsive to the economically powerful and
less and less responsive to our poorer citizens. NAFTA gives us an opportunity to
reexamine our policies.
President Clinton says he wants welfare reform. So should we all. But there is
no short-term, inexpensive way of achieving genuine reform. What we need is a
federal jobs program similar to the old WPA. Anyone out of work five weeks or longer
should have an opportunity to work on local projects four days a week at the
minimum wage, and the fifth day, he or she should be trying to find a job in the
private sector. At the current minimum wage, four days a week would mean $535 a
month -- not a great deal of money -- but the average family on welfare in Illinois
receives $367 a month; in Mississippi, $122 a month. Then, screen people as they
come into the program, and if they cannot read and write, get them help; if they have
no high school equivalency, enroll them where they can receive assistance; if they
have no marketable skills, get them into a community college or a training program
that gives them a marketable skill. We have a choice of paying people for doing
nothing or for doing something, and we have made the wrong choice, both for them
and for our society. We need to invest in our people. In every community of
unemployed, we have large unmet needs. Why not convert the liability of
unemployment into a great national asset as the nation did almost six decades ago?
Such a program would have one additional, huge advantage over the present welfare
[MORE]
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AMUNITED GRINE ap THE UNITED ED THE OF
YES
THE NAFTA
Expanding U.S. Exports, Jobs and Growth
Clinton Administration Statement
on the North American Free Trade Agreement
"In the face of all the pressures to do the reverse, we must compete, not retreat. "
President Clinton, February 26, 1993
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Administration Statement on the
North American Free Trade Agreement (NAFTA)
What Does NAFTA Mean?
It Means:
Harnessing a changing global economy for the benefit of American workers.
200,000 new higher-paying, export-related jobs for Americans.
A level playing field for U.S. exporters.
Enhanced access to Mexico, a growing market of 90 million consumers.
Creation of the biggest market in the world.
Better environmental protection.
A plan to expand U.S. trade supported by both President Clinton and
President Bush.
Effective U.S. leadership to meet the requirements of the
post-Cold War world.
NAFTA-The North American Free Trade Agreement
It's Good For America
July, 1993
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The North American Free Trade Agreement (NAFTA):
Expanding Exports, Jobs and Growth
Critics of NAFTA use scare tactics to assert that NAFTA
"The truth of our age is this-and must be this:
will put Americans out of work. The truth is quite the
Open and competitive commerce will enrich us as
opposite:
a nation. And so I say to you in the face of all
NAFTA will spur further job gains and push jobs
the pressures to do the reverse, we must compete,
related to exports to Mexico toward the 1 million
not retreat."
mark.
-President Clinton, Tobruary 26. 1993
Defeating NAFTA could cost hundreds of thou-
sands of such jobs.
"By building together the largest free trading
region in the world, Mexico, the United States and
The facts about NAFTA:
Canada are working to ensure that the future will
NAFTA will create the biggest market in the world
bring increased prosperity, trade, and new jobs
-right at our doorstep: 2 $6.5 trillion market with
for the citizens of each of our countries."
370 million people.
President Bush, July 15, 1992
NAFTA will level a playing field that remains-
despite recent Mexican market openings-substan-
rially tilted in Mexico's favor. Mexico's tariff barriers
to U.S. goods are still 2.5 times greater than our
E
very generation of Americans has embraced the
own. All tariffs will be phased out under NAFTA.
challenge of its times. None has shrunk from the
task. Our biggest challenge today is economic--
NAFTA will expand benefits the United States has
to channel a changing international economy to our
enjoyed since Mexico began to open its markets in
benefit.
1986. U.S. merchandise exports to Mexico have
risen by 228% since 1986, reaching $40.6 billion in
The Clinton Administration is committed to rebuilding
1992.
the US economy from the ground up. We must pre-
pare our entire work force to compete in the global
U.S. jobs supported by these merchandise exports
economy and make sure that nobody gets left behind
rose from 274,000 in 1986 to an estimated 700,000
in the process. We look at trade-and every other
in 1992-and these jobs are in all 50 states.
issue-from the viewpoint of what is best for ordinary
(Merchandise exports to Canada support another
Americans who work hard, play by the rules, and want
1.5 million U.S. jobs.)
a chance to get ahead. The key building blocks are
NAFTA will create an estimated 200,000 additional
economic growth and jobs.
high-wage jobs related to exports to Mexico by
The North American Free Trade Agreement
1995.
(NAFTA) is a part of this forward-looking strategy.
NAFTA will increase opportunities for American
This Administration supports the NAFTA with sup-
firms to sell to Mexico. Those opportunities are
plemental agreements because it will create high-
especially important for small and medium-size
wage U.S. jobs, boost U.S. growth, and expand the
base from which U.S. firms and workers can com-
businesses that cannot readily overcome high
Mexican border barriers.
pete in a dynamic global economy.
3
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NORTH AMERICAN FREE TRADE AGREEMENT
Mexico is already our second largest market for
Mexico's average tariff against U.S. exports is cur-
manufactured exports-beating even the more
rently 2.5 times higher than the equivalent U.S. Lar-
affiuent Japan. NAFTA will further increase oppor-
iff against imports from Mexico. (See Chart 1.)
tunities for U.S. manufactured exports in Mexico.
By contrast, over 50% of our imports from Mexico
NAFTA will help us promote sustainable develop-
already enter duty free. Our average tariff on
ment in North America-economic growth with
imports from Mexico is only 4%.
cnhanced environmental protection.
Complex Mexican domestic licensing requirements
NAFTA will gradually ease many of the pressures
further impede imports into Mexico from the
in Mexico that currently contribute to illegal immi-
United States.
gration across our border.
Mexico currently has no obligation to continue
recent market-opening moves on which thousands
L Creating the Biggest Market in the World
of U.S. jobs already depend. NAFTA will not only
With NAFIA, the United States, Canada and Mexico
lock in current access but expand that access
will create the biggest market in the world-a
NAFTA will eliminate especially burdensome tariffs
combined economy of $6.5 trillion and 370 mil-
and non-tariff barriers in 2 number of key sectors
lion people
where the United States is competitive vis-a-vis
Our competitors are expanding their markets in
Mexico-such 2S autos and agriculture.
Europe and Asia. NAFTA is our opportunity to
NAFTA will require relatively Little change on our
respond and compete.
part-while requiring Mexico to sweep away
By increasing our export opportunities, NAFTA will
decades of protectionism and overregulation:
enable us to take advantage of U.S. economic
Half of all U.S. exports to Mexico will bc cligible
strengths and remain the world's biggest and best
for zero Mexican tariffs when NAFTA takes effect
exporter.
on January 1, 1994.
U.S. exports eligible for tariff-free entry into Mexico
IL Levelling the Playing Field
include some of our most competitive products:
Mexico's trade barriers are now much higher than
- Semiconductors and computers
ours. NAFTA will level a playing field now tilted
- Machine tools
heavily in Mexico's favor:
- Aerospace equipment
- Telecommunications equipment
CHART 1
Mexico's Average Tariff Barriers Against U.S. Exports
- Electronic equipment
are 2.5 Times Higher than Equivalent U.S. Tariff
- Medical devices
Barriers Against Imports from Mexico
Within the first five years after NAFTA is imple-
mented, two-thirds of U.S. industrial exports will
Mexico DUE
enter Mexico duty-tree.
Under the NAFTA, Mexico will open its market sig
nificantly to U.S. manufactured exports. For exam-
ple, for automotive parts, Mexico will eliminate
U.S. 4%
75% of its duties over five years and phase out the
rest over ten years.
NAFTA also will require Mexico to open its market
to U.S. service exports (U.S. service exports to
4
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NORTH AMERICAN FREE TRADE AGREEMENT
Mexico were $8.9 billion in 1992). This will benefit
such industries as enhanced telecommunications
CHART 2
services, insurance, banking, accounting, and
U.S. Employment Supported
advertising.
by Merchandise Exports w Mexico
1000
Under NAFTA, our access to Canada's service mar
300
With NAFIA
ket also will be more open than it is under the
800
existing U.S.-Canada Free Trade Agreement.
700
Removing Mexican restrictions against U.S.
Thousand Jobs
600
Widness
exports means that U.S. companies no longer will
500
NAFTA
have to invest in Mexico or manufacture in
400
Mexico to supply the Mexican market.
300
200
NAFTA will eliminate Mexican requirements that force
100
our companies in Mexico to:
0
1986
1987
1988
1989
1990
1991*
1992°
1993
1991
1995
Purchase Mexican goods instead of U.S.-made
"Estimated
equipment and components;
Export their production, usually to the United
CHART 3
States, instead of selling directly into the Mexican
market; and
U.S. Jobs Supported by Exports to Mexico
Pay More Than Other U.S. Jobs
Produce in Mexico to sell in Mexico. For example,
11.20
11.01
11.32
the current Auto Decree has the effect of barring
10.83
10-02
automotive imports from the United States through
9.43
a complex series of investment requirements that
will be phased out under NAFTA.
III. Creating Higher-Wage U.S. Jobs
Average Houry Wager (f/br.)
A strong consensus of the economic studies that have
looked at the labor effects of NAFTA have found it will
AB Industries
Manufacturing
Services
result in increased jobs or increased real wages-or
both.
All U.S. private sector, non-agricultural employment
= Employment supported by merchandise exports to Mexico
Our experience confirms the findings of these studies
Since Mexico began to open up its economy and pre-
Defeating NAFTA could cause a sharp drop in
pare for NAFTA, the number of American workers pro
exports to Mexico and thus the loss of hundreds
ducing merchandise exports to Mexico has risen from
of thousands of U.S. jobs:
274,000 in 1986 to an estimated 700,000 last year. (See
Without NAFTA, we anticipate a reduction in U.S.
Chart 2)
exports and related jobs. Mexico could suffer capi-
With NAFTA we anticipate 200,000 MORE export-
tal flight, disinvestment, and a loss of confidence
related jobs by 1995.
in its economy. A less healthy Mexico would be
Wages of U.S. workers in jobs related to exports to
less able to afford imports produced in the United
Statcs.
Mexico are 12% HIGHER than the national aver-
age (See Chart 3.)
The precise impact is difficult to measure.
However, in the first two years of the Mexico debt
NAFTA will further open the Mexican economy so that
crisis (1981-1983), U.S. exports to Mexico dropped
we can push employment related to exports to Mexico
toward the 1 million mark.
by almost half.
5
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NORTH AMERICAN FREE TRADE AGREEMENT
If even a quarter of U.S. exports to Mexico were
The Wage Issue
lost by 1995, U.S. export-related jobs would fall
The idea that U.S. workers can't compete with low-
from the current level of 700,000 to 500,000 a loss
wage Mexican workers is a myth. If companies
of 200,000 high-wage jobs (and a sharp contrast
decided where to locate based solely on wages, invest-
with the 900,000 projected jobs with NAFTA).
ment would flock to countries much poorer than
Protecting and Assisting U.S. Workers
Mexico. Haiti and Bangladesh would be job and man-
ufacturing powerhouses. That hasn't happened.
NAFTA not only will create a large number of new jobs
in export industries, but also will ensure that our
U.S. workers earn high wages because we are the most
import-sensitive industries have substantial room for
productive workers in the world. Americans can meet
adjustment.
the challenge of international competition. NAFTA will
enhance U.S. productivity and increase U.S. wages.
NAFTA provides for transition periods of up to 15
years in eliminating tariffs and other barriers on the
Mexico currently imposes no barriers on foreign
most sensitive U.S. product sectors, such as house-
investors who wish to set up production in Mexico for
hold glassware, footwear, and some fruits and veg-
export. Mexico goes even further in encouraging for-
etables.
eign investment to service the domestic market by
restricting access through imports. NAFTA will elimi-
For other products, U.S. tariffs will be phased out
nate such incentives to foreign investors.
over 10 years or less. Only tariffs that are already
very low will be eliminated immediately after the
Despite the openness of the U.S. market and ability of
agreement enters into force.
U.S. and other foreign investors to set up shop in
Mexico now, the United States is not being swamped
This gradual removal of barriers will provide com-
with imports made by low-paid Mexican workers:
panies and workers time to respond to changing
competitive conditions.
If the United States were going to be flooded with
such imports, it already would have happened.
NAFTA contains special rules allowing a temporary
reinstatement of U.S. tariffs or other measures to
In fact the reverse is true: U.S. exports to Mexico
protect U.S. workers and farmers in the case of
have increased far more than U.S. imports from
injury from a sudden surge in imports from Mexico
Mexico.
or Canada. President Clinton has directed U.S.
The United States' largest bilateral surplus in manu-
trade negotiators to seek a supplemental agree-
factured products is with Mexico.
ment to be sure this provision is used effectively.
Immigration
The United States will maintain domestic laws pro-
viding for penalties on dumped or subsidized
To the extent that our workers compete with low-
imports that injure U.S. industry.
paid Mexicans, it is as much through undocu-
mented immigration as trade. This pattern threatens
Finally, NAFTA includes strict rules of origin that
low-paid, low-skill U.S. workers.
will prevent products of non-NAFTA countries from
receiving preferential treatment under NAFTA.
The combination of domestic reforms and NAFTA-
related growth in Mexico will keep more Mexicans
Although NAFTA's net effect on U.S. jobs will be posi-
at home.
tive, it is likely also to lead to some job displacement.
For those workers who may face job loss, the Clinton
It is likely that a reduction in immigration will
Administration is committed to having a strong. fully
increase the real wages of low-skilled urban and
funded worker adjustment program to assist the
rural workers in the United States.
transition to new market realities.
'n addition, the United States, Canada, and Mexico will
establish a North American Commission on Labor.
(See section VI.)
6
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NORTH AMERICAN FREE TRADE AGREEMENT
IV. Increasing Opportunities to Export to
Mexican consumers prefer U.S. goods:
Mexico
70 cents of every dollar that Mexico spends on for-
cign products is spent on U.S. goods. Given its
NAFTA will "lock in" and expand trade gains
location, this preference is likely to continue.
achieved to date. Since Mexico began to open up its
economy in 1986:
Mexico purchases more imports per person from
the United States than does the more affluent
U.S. exports to Mexico have expanded enormous-
European Community countries and Japan. For
ly, rising from $12.4 billion in 1986 to $28 billion in
example, last year, each Mexican, on the avcrage,
1990 and a whopping $40.6 billion in 1992.
purchased more than $450 worth of U.S.-made
The U.S. trade balance with Mexico has shifted
products. By contrast, the average Japanese spent
from a $5.7 billion deficit in 1987 TO a $5.6 billion
$385 on U.S. products, despite the fact that aver-
SURPLUS in 1992. (See Chart 4.)
age Japanese incomes are five times as high as
average Mexican incomes.
CHART 4
Key sectors benefitting from NAFTA include auto-
U.S. Merchandise Trade with Mexico:
motive, agriculture, financial services, textiles, and
From Deficit to Surplus
communications:
15
U.S. telecommunications exports jumped 50% in
U.S. Paports
1991. Mexico is the industry's second largest export
U.S. Imports
Surplus
market after Canada.
35
Detroit's Big 3 predict that their combined exports
Illinon U.S. $
could rise from 1,000-plus to over 60,000 vehicles
25
NAFIA
in NAFTA's first year alone.
U.S. Deficit
Negotiations
Began
Mexico was primarily a bulk commodity market for
:5
U.S. agricultural exports prior to 1987. Now it is
Mexico
one of the United States' largest and fastest growing
Joined
GATT
high-value markets. High-value products now
5
1983
1984
1985
1986
1987
1988
1989
1990
1991
1957
account for almost 70% of all U.S. agricultural sales
versus 40% in 1987.
Mexico is important to the U.S. economy because it
Small and Medium-Size Businesses
is our:
The significant expansion of the Mexican market
Third largest export market and the fastest grow-
will benefit small and medium-size businesses in
ing major export market:
particular. These companies usually lack the resources
Since 1986, U.S. merchandise exports to
to penetrate the thicket of Mexican trade barriers and
Mexico have increased by 228% (to $40.6
regulatory restrictions. By lowering costs and dissolv-
billion)-2.3 times faster than U.S. exports
ing barriers, NAFTA will help smaller businesses to
to the world.
penetrate the Mexican market without having to invest
in Mexico.
Second largest market after Canada for manufac-
tured exports (amounting to $34.5 billion in 1992).
V. Enhancing Environmental Protection
Third largest market for agricultural products (after
Japan and Canada), reaching $3.7 billion in 1992
NAFTA and its supplemental agreements will help
(a 242% increase since 1986).
ensure that economic development takes place in a
way that protects and improves the environment.
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NORTH AMERICAN FREE TRADE AGREEMENT
The NAFTA text itself takes 2 first step in recognizing
The supplemental agreement on the environment will
the relationship between trade and the environment:
provide for effective enforcement, public access to
judicial forums to enforce environmental laws, trans-
It contains explicit endorsement by the three coun-
parency in the development of environmental laws,
tries of the principle of sustainable development
and other improvements.
and calls for the "upward harmonization" of stan-
dards.
Moreover, the United States, Canada, and Mexico will
establish 2 North American Commission on the
No existing Federal or state regulation to protect
Environment to:
health and safety will be jeopardized by NAFTA. In
fact NAFTA rules allow the participating countries
Foster public discussion of environmental con-
(and their states and provinces) to enact tougher
cerns;
environmental standards.
Strengthen domestic enforcement of national envi-
If a dispute arises that has environmental implica-
ronmental laws;
tions, NAFTA provides for scientific boards to guide
Promote an integrated North American approach
panelists considering the dispute.
to the environment;
NAFTA gives precedence to the trade provisions of
Provide a focal point to expand and strengthen
certain international environmental agreements
existing environmental Inidatives; and
(including those on endangered species and the
use of CFCs) in the event they conflict with
Formally give environmental advice to trade repre-
NAFTA's rules.
sentatives from the three NAFTA countries.
NAFTA allows countries to impose strict environ-
In addition, the United States, Canada and Mexico will
mental standards on investment and NAFTA coun-
establish a North American Commission on Labor
tries agree not to weaken environmental protection
that will:
to chract investment
Foster discussion and better appreciation of worker
rights and labor standards in each NAFTA country.
VL Beyond NAFTA: Supplemental
Encourage domestic enforcement of national labor
Agreements on the Environment, Labor and
laws; and
Import Surges
Promote the raising and strengthening of labor
President Clinton supports NAFTA as part of a growth
standards in North America.
strategy for the United States but believes that NAFTA
The supplemental agreements cannot resolve
can be enhanced. That is why the Administration is
overnight all environmental and labor problems.
seeking supplemental agreements on import surges,
But defeating NAFTA and the supplemental agree-
the environment, and labor. These separate agreements
ments would only aggravate these problems.
will provide additional assurance that NAFTA-enhanced
Never has the United States had a comparable
growth will be sensitive to environmental and labor
opportunity to promote improved environmental
concerns.
and labor conditions. If NAFTA and the supple-
The agreement on import surges would establish a
mental agreements are successfully concluded and
tri-national committee to help ensure the effective use
enacted, we will have an unparalleled opportunity
of NAFTA'S provisions allowing temporary rellef in the
with our neighbors to advance a broad agenda for
event of injurious import surges.
economic growth and environmental Improve-
ment for our countries and all our people.
The President envisages agreements that will create
commissions on the environment and labor. The
powers and functions of these commissions will help
improve conditions for workers and the environment
and will improve enforcement of national laws.
8
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NORTH AMERICAN FREE TRADE AGREEMENT
VIL NAFTA and American Leadership
NAFTA's defeat would shock the Mexican econo-
my, depress wages and living standards, reduce the
In the post-Cold War world, American leadership will
Mexican capacity to purchase U.S. products, and
be measured in part by the creativity and aggressive-
stimulate immigration. It could also create tensions
ness of our trade policy. Bold, original, and forward-
on a host of critical issues from illegal drugs to oil.
looking, NAFTA is worthy of a world leader.
NAFTA's defeat would also throw sand in the eyes
In North America, division between foreign and
of our allies throughout Central and South America,
domestic matters narrows every day. American
who are striving to open their markets and democ-
communities are inevitably affected by what hap-
ratize their societies. Anti-Americanism, protection-
pens in Canada and Mexico. Their problems spill
ism, and authoritarianism may well increase. A
over the border to harm us-just as their success
NAFTA defeat would be a major, self-inflicted set-
adds to our welfare.
back to American leadership
By increasing the flows of commerce and culture
and by forging new cross-border friendships
Conclusion
among labor and environmental organizations, the
NAFTA will promote prosperity and democracy in
NAFTA will create jobs and improve our competitive-
neighboring Mexico. Americans who favor freedom
ness. It. will create the largest, richest market in the
and good government in Mexico should favor
world. Mexico's strong and growing demand for U.S.
NAFTA.
products has created a $5.6 billion U.S. trade surplus.
With a stronger Mexican economy and higher Mexican
NAFTA has been negotiated by two Administrations.
wages, demand for U.S. goods will continue to expand
It stands as a testament to the ability of the United
Increased access to the rapidly growing Mexican mar-
States to design a bipartisan foreign policy craft-
ket will create extraordinary new opportunities for U.S.
ed to the requirements of the post-Cold War
companies and workers. Taking advantage of these
world. Its defeat would signal to the world that
opportunities will lead to increased prosperity in the
Washington is mired in inertia and gridlock.
United States.
NAFTA's defeat would raise serious questions
about America's commitment to global leadership,
NAFTA IS Good For America
thereby undercutting our influence throughout the
world.
Questions and Answers about NAFTA
Q. How can Mexico, a low-income country, be such a
Q. Will NAFTA result in massive U.S. job losses to low-
large market for U.S. exports?
wage Mexican workers?
A. Mexico now is our third-largest trading partner.
A. No. NAFTA will increase jobs, productivity and
Although Mexican per capita incomes are low rela-
wages in the United States as well as in Mexico
tive to incomes in the United States, Mexico is a
and Canada. If lower wages were the only reason
country of 90 million people (who prefer U.S. to
that companies moved to other countries, Haiti and
other foreign products) and a developing country
Bangladesh would be economic powerhouses by
with an improving economic outlook. On a per
now. Other factors such as high worker productiv-
capita basis, Mexico purchases more U.S. products
ity in the United States and high non-wage costs
than our trade partners in the European
in Mexico (including transportation, infrastructure,
Community and Japan. NAFTA will help the United
and support service costs) make U.S. workers more
States take further advantage of the growing
competitive than their Mexican counterparts.
Mexican market for U.S. exports.
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NORTH AMERICAN FREE TRADE AGREEMENT
Moreover, under NAFTA's rules of origin, only
Q. Are the benefits of recent U.S. export expansion over-
products that have substantial North American
stated? IS most of this growth due to exports of parts
materials will receive preferential treatment. With
that are assembled in Mexico and then shipped back
the free and fair trade and investment environment
to the United States?
created by NAFTA. workers in all three North
American countries will be better able to succeed
A. The bulk of U.S. exports to Mexico is for consump
tion in the Mexican market and not for return to
together with non-North American producers
the U.S. Indeed, in 1992, U.S. exports of compo-
Q. How many workers would need assistance because
nent inputs for production sharing arrangements in
of NAFTA?
Mexico (i.e., Maquildoras) comprised an estimated
22% of all U.S. exports to Mexico, compared with
A. NAFTA will create many more jobs in the U.S. than
32% in 1987. While incorporated into products
are lost The number of positions that will be lost
eventually exported back to the United States, these
due to NAFTA is likely to be very small. American
components still support U.S. jobs related to their
workers are strongly competitive in world markets;
production An estimated 83% of the growth in U.S.
U.S. barriers to imports from Mexico are already
exports to Mexico in the last five years was for
ver:- low; and Mexico's productive capacity is very
Mexican consumption, not re-export.
sma relative to that of the United States and will
-even with healthy growth-remain so for
Q. IS the United States primarity exporting muchinery
decades to come.
and equipment that Mexico will use to create indus-
Since NAFTA will be phased in over a fifteen year
tries that could then lead an export assault on our
markets?
period, a substantial part of the position losses is
likely to be absorbed by attrition through voluntary
A. In percentage terms, capital goods have been the
retirement or resignation. Certainly any job dis-
slowest growing major export category to Mexico
placement of working Americans by NAFTA will be
in the last five years. Although still the largest com-
barely perceptible relative to other changes in the
ponent of U.S. exports to Mexico, capital goods
U.S. economy, such as defense conversion, techno-
have decreased from 40% of total U.S. exports to
logical advance and changes in consumer tastes.
Mexico in 1987 to 33% in 1992. In contrast, capital
While the net benefits are clear, the Administration
goods comprise 40% of U.S. exports to all develop-
recognizes that some U.S. workers may suffer dis-
ing countries and 39% of U.S. exports to the world.
location. For any U.S. worker who is in fact dis-
The United States enjoys 2 significant competitive
placed by NAFTA, the Administration is committed
trade advantage in many areas of capital goods.
to provide the assistance needed for him or her to
In any event, U.S. exports of capital goods to
adjust to changing market conditions.
Mexico should not be viewed as a liability for the
U.S. economy. Such exports support production
Q. WE wages in the United States fall in order to com-
and high-paying jobs in the United States and will
pete with lower-wage Mexican labor?
do so for many years to come. Mexico's need for
A. High wages in the U.S. reflect the productivity of
imported capital goods is likely to continue as long
American workers, which is the highest in the
as the Mexico maintains a healthy, expanding econ-
world. Since U.S. jobs supported by exports are, on
omy. Even the United States, the world's most pro-
average, higher-paying, require higher skills than
ductive economy, must expand and replace a part
other jobs, and NAFTA's promotion of exports will
of its capital equipment each year.
lead to nct job creation, NAFTA will strengthen
Finally, U.S. capital goods are on the cutting edge
rather than depress U.S. average real wages.
of technology. Exports of capital goods support
Without NAFTA, hundreds of thousands of
good, high-paying jobs.
Americans will lose opportunities to find good-pay-
ing jobs producing exports for the Mexican market
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NORTH AMERICAN FREE TRADE AGREEMENT
Q. What has been the effect of the 1989 United States-
United States. These are not jobs "lost" by American
Canada Free Trade Agreement on U.S. exports?
workers, but rather U.S. jobs foregone by Mexican
A. Before the agreement, Canada had tariffs on
workers for whom NAFTA will provide an accept-
able economic alternative at home.
imports that were two or three times higher than
those of the United States (similar to Mexico today).
Without NAFTA and a stronger Mexican economy,
After the agreement to eliminate tariffs and other
pressures for illegal Mexican emigration to the
barriers on all United States-Canada trade flows and
United States would only continue to increase.
many restrictions on investment and services, U.S.
merchandise exports grew 27% between 1988 and
Q. In the short term, would eliminating Mexico's barri-
1992 (from $71.6 billion to $90 billion). U.S. service
ers to U.S. agricultural imports lead to more rural
exports to Canada increased by 78% to $17.2 bil-
Mexican unemployment and increase pressures to
lion during the same time period. Also, since the
migrate to the United States?
agreement, there have been numerous calls from
A. The NAFTA agreement contains the longest phase-
both sides of the border to accelerate the sched-
uled phase out of tariffs.
in period (up to 15 years) for Mexico to liberalize
agricultural trade policies with the United States and
Q. What long-term impact will NAFTA have on illegal
Canada. This gives Mexican farm laborers time to
immigration from Mexico?
adjust and will help minimize short-term immigra-
tion effects. With or without NAFTA, agricultural
A NAFTA will promote economic growds and increase
reforms will continue to reduce Mexican agricultur-
wages in all three countries. This will create more
al employment. NAFTA will enhance the opportu-
economic opportunities for workers in Mexico-
nities for displaced Mexican agricultural workers to
the single most important, long-term remedy to ille-
find other jobs in the Mexican economy
gal migration from that country. According to some
scholars, significant real wage increases could also
Q. Wont't increase trade flows from NAFTA worsen the
occur for U.S. rural and lower skilled urban work-
flow of illegal drugs into the United States?
ers as a result of reduced emigration from Mexico
A. While NAFTA will reduce tariffs, it will not relax
to the United States.
customs controls on the border. AS trade between
Some economic studies of NAFTA considering the
the United States and Mexico has increased in
immigration issue have been misconstrued to sug-
recent years. cooperation in counternarcotics and
gest that hundreds of thousands of Americans
law enforcement has improved. By promoting U.S.-
would lose their jobs because of NAFTA. In fact,
Mexican cooperation, the NAFTA can foster a posi-
these studies do not show such results. The "U.S."
tive atmosphere for further bilateral efforts to fight
job losses turn out to be hundreds of thousands of
drugs.
Mexican workers who decide to remain in Mexico
because of the enhanced job opportunites created
by NAFTA; without NAFTA, they would have
crossed the border to compete for jobs in the
For More Information, Contact:
Office of the U.S. Trade Representative, 600 17th St., N.W. Washington, D.C. 20506
11
frenag ta
OFFICE OF THE UNITED STATES
TRADE REPRESENTATIVE
EXECUTIVE OFFICE OF THE PRESIDENT
WASHINGTON
20506
December 7, 1994
Alan Helene
421 E. 58th Street
Apartment 22d
New York, New York 10022
Dear Alan:
As promised, enclosed is the letter and report we submitted to
the Senate Appropriations Committee regarding the steps that are
being taken to encourage Mexico to increase its $50 duty
exemption limit.
I look forward to receiving the materials you described.
All good wishes.
Sincerely,
Nancy A. LeaMond
Assistant U.S. Trade Representative
for Congressional Affairs
Attachment
CC: Melanne Verveer
THE UNITED STATES TRADE REPRESENTATIVE
Executive Office of the President
Washington, D.C. 20506
DEC I
Chairman Ernest F. Hollings
Subcommittee on Commerce, Justice, State and Judiciary
United States Senate
Washington, D.C. 20510-6027
Dear Chairman Hollings:
The Senate Report accompanying H.R. 4603, the 1995 fiscal year
appropriation bill for Commerce, Justice, and State, the
Judiciary and related agencies, requested that the United States
Trade Representative (USTR) report to the Senate Appropriations
Committee by no later than December 1, 1994 regarding the steps
being taken to encourage the Government of Mexico to alter its
policy regarding the duty exemption limit for its residents
returning from the United States. The attached report is being
submitted in fulfillment of this requirement.
USTR would be pleased to answer any questions the Subcommittee
has regarding this report.
Om Michael Kantor
Sincerely,
CC: Senator Pete V. Domenici
Report to the Committee on Appropriations
United States Senate
Mexican Provisions on Duty-Free Imports by Travellers
Submitted by the Office of the United States Trade Representative
December 1, 1994
Summary
The Senate Report accompanying H.R. 4603, the 1995 fiscal year appropriation bill for
Commerce, Justice, and State, the Judiciary and related agencies, noted the Appropriations
Committee's great concern, "about the move by Mexico to limit to $50/day the value of
merchandise that persons returning to Mexico from the United States may bring back into
that country duty-free" and observed that "Mexico's policy is having a severely adverse
effect on all types of retail business along the United States border with Mexico." In
concluding, the Report requested that the United States Trade Representative (USTR) report
to the Senate Appropriations Committee by no later than December 1, 1994 regarding the
steps that are being taken to resolve this matter. This communication is submitted in
fulfillment of that requirement.
Resolving the problems associated with Mexico's $50 per crossing exemption has been one
of our top bilateral trade priorities. The United States Trade Representative has raised the
issue with senior Mexican government officials on a number of occasions, as have the
Secretaries of State and Treasury, and the Commissioner of Customs. A number of
members of Congress as well as state and local officials in the border region have also
discussed the issues with their counterparts and with officials in Mexico City. The USTR
and other senior officials have also met with retailers from the U.S. border region
concerning this issue. The Mexican Government has been very responsive to U.S.
Government requests for consultations on this subject, and has provided substantial
information explaining its duty exemption policies. Mexico also has noted the many areas
where its provisions are comparable or more generous than those of the United States and
our common North American Free Trade Agreement (NAFTA) partner, Canada.
The issue is complex, and includes not only the impact on U.S. retailers but also legitimate
Mexican concerns about customs fraud and smuggling. Despite significant effort and good
will, it has not proven possible to resolve the matter during the term of the Salinas
Administration, which leaves office the day this report is being submitted. We have raised
the duty exemption issue with very senior members of the incoming Zedillo administration.
They are cognizant of the importance of this issue to the border region, and have given their
assurances they will continue to seek a mutually acceptable resolution.
1
enforces a $400/month limit for duty-free entry of goods brought back into
this country from Mexico. The Committee understands the concern of
Mexican officials which led to enforcement of this restriction. However,
Mexico's policy is having a severely adverse effect on all types of retail
business along the United States border with Mexico.
The Committee is deeply concerned about the lack of progress the United
States Trade Representative has been able to make with his Mexican
counterparts on this matter. The Committee expects the trade representative
to place a high priority on expeditiously resolving this matter. The
Committee expects the USTR to report to the Committee no later than
December 1, 1994, regarding the steps that are being taken to resolve this
matter.
Before consulting with the Government of Mexico regarding its duty exemptions, Executive
agencies compared the duty exemption regimes for the three NAFTA partners: the United
States, Mexico and Canada. A summary chart follows.
NAFTA Obligations
The NAFTA requires Mexico, Canada and the United States to eliminate tariff and customs
fees for substantially all trade in goods which meet NAFTA origin rules. The NAFTA does
not apply, however, to the duty exemptions the Parties provide for non-commercial
transactions with other NAFTA parties involving goods that are not eligible for NAFTA
preferential treatment. Thus, Mexico's current duty exemption procedures, and its decision
to enforce the $50 limit in 1992, are not inconsistent with its NAFTA obligations. However,
the NAFTA does provide certain tariff preferences for non-commercial imports from
NAFTA partners above the duty-exemption limits.
For the United States, non-commercial imports in excess of the applicable duty-free limits
($400 per 30 day period) up to a limit of $1,000, are assessed a flat duty of 10 percent. For
residents returning from Mexico, this rate was reduced to 9 percent for 1994, and will be
further reduced in equal stages and eliminated in 2003. For imports valued above $1,400,
the actual rate of duty, rather than a flat rate, is applied. Thus, at the end of the NAFTA
transition period, the effective duty-exemption limit will rise to $1,400 for residents returning
from Mexico. Similar provisions were applied to Canada when the U.S.-Canada FTA was
implemented in 1989. The preferential duty rate for imports above the duty exemption level
has been reduced over the last six years to 4 percent for U.S. residents returning from
Canada and will be eliminated in 1998. For U.S. residents returning from abroad (other than
Mexico) after an absence of less than 48 hours, the exemption limit is $200; a $400 limit
applies for longer absences.
Mexico assesses a flat charge of 32.8 percent for imports above the duty exemption limit and
below $1,000. This includes a 20 percent duty, a 10 percent valued added tax (on both the
3
A COMPARISON OF THE NAFTA COUNTRIES' DUTY-FREE EXEMPTIONS
United States Residents Returning
Mexico Residents & Non-Residents
Canada Residents
from Mexico
Amounts
$400 USD, or a portion of such amount, per
In addition to goods listed as part of the passenger's
A) After 24 hours absence, $20 Canadian
person, every 30 days, including liquor and
luggage:
dollars (C$). No exemption can be claimed if
tobacco. It may be pooled with family
the total value of goods exceeds C$20.
members.
A) $50 USD per person, per crossing by land; or
B) C$100 after 48 hours absence.
If any of the $400 exemption has been used in
B) $300 USD per person, per trip, for air and sea arrivals
the last 30 days, the exemption is $200 per
C) C$300 after 7 days absence, claimed once
crossing, including liquor and tobacco. No
In both cases, personal exemptions may be pooled with
each calendar year.
pooling of the $200 exemption with other
members of the family.
family members is permitted. If the value of
Exemptions may not be pooled with members
the good(s) exceeds $200, duties are charged
In addition:
of a family.
on the total value of goods being imported.
C) $350 USD per month, per family residing in the border
In the case of infants or small children, the
30 days after the $400 exemption was totally
strip, of certain consumer goods, such as food, medicine,
exemption may be applied only to goods for
or partially used, an exemption of up to $400
and clothing (in addition to the allowances for soft drinks,
their use.
may again be claimed.
liquor, wine, beer and tobacco), regardless of the number
of members in the family.
Liquor &
Every 30 days or crossing, the following may
In addition to the $50 or $300 USD exemptions,
Included in the C$100 or C$300 exemptions,
Tobacco
be included in the exemptions above, up to:
passengers are allowed to bring in, per crossing, up to:
each adult may bring up to:
- One liter of liquor, wine or beer; and
- 3 liters of wine or liquor; and
- 1.14 liters of liquor or wine, or 8.5 liters of
beer; and
- 200 cigarettes and 100 cigars.
- 20 packs of cigarettes, or 50 cigars, or 250 grams of
tobacco.
- 200 cigarettes, 50 cigars and 400 grams of
tobacco.
Taxes
1) Duty-free articles are excluded.
Taxes are levied only on the value of dutiable goods in
A special 12% to 15% duty rate (including
Due
excess of the exemption. The importer has two options:
GST) on the first C$300 in excess of the
2) Articles with the highest duty rates are
exemption.
counted toward the exemption.
1) With the services of a Customs Broker, to classify the
merchandise and pay the corresponding tariff (0% to 20%),
Sales taxes applied at the country where the
3) Articles exceeding the $400 exemption, and
plus a 10% of valued added tax on the value of the goods
goods were purchased are included in the
up to $1,400, pay a flat 10% duty rate (9%
and on customs duties, and a .8% of customs fee; or
computation, unless such taxes were refunded
from Mexico, or 4% from Canada).
to the importer.
2) Through a simplified procedure, without the assistance
4) Beyond $1,400, articles are taxed with the
of a Broker, to pay either a 20.8% combined rate, or
corresponding tariff.
32.8% combined rate if the goods are not marked or
labeled as made in the USA or Canada. This simplified
procedure only applies when the value of the goods does
not exceed $1,000 USD ($4,000 for computers).
most notably its strong desire to reduce Customs fraud and smuggling along the border and
to ensure effective and efficient administration of its customs laws.
Mexico has also pointed out that the United States runs a substantial trade surplus along the
border. According to statistics provided by the Secretariat for Commerce and Industrial
Development (SECOFI), Mexican residents spent $4.02 billion dollars in the U.S. border
strip in 1992, while U.S. residents spent slightly more than half this amount, $2.13 billion in
Mexico's border region. SECOFI believes this deficit has continued for 1993 and 1994.
Mexico has suggested that a constructive approach would be to consider the issue within the
Trilateral Heads of Customs Conference framework. A cooperative effort by the three
NAFTA partners to standardize all possible Customs duty exemption procedures,
requirements and provisions may offer the best prospects for success. Similar views have
been expressed by Mexico's new President, Emesto Zedillo. Mexican press reports note that
following a meeting with Texas Governor Ann Richards on October 10, Zedillo stated his
willingness to review the "franchise" rights of border residents, but added that, "This
measure calls for similar action by U.S. officials so as to ensure reciprocal conditions on
both sides of the border."
This Administration believes such a review to be worthwhile and appropriate and should
include both Mexico and Canada. As a result, U.S. Customs has agreed to place this issue
on the agenda for discussion at the next meeting of the U.S./Mexico/Canada Trilateral
Coordination Team (scheduled for February 1995) and the next Trilateral Heads of Customs
Conference (Spring 1995). In addition to the upcoming trilateral meetings, it is likely that
the United States and Mexican Customs Administrations will hold a "bilateral Customs
Meeting" in early 1995. U.S. Customs will raise the exemption issue during these
discussions.
USTR fully supports efforts to expand trade among the members of the NAFTA. In
particular, a decision by Mexico to restore its higher duty exemption levels for border
residents will benefit both Mexican consumers and U.S. retailers. All three NAFTA partners
would also benefit from greater harmonization of exemption limits and regulations.
USTR intends to make resolution of the duty exemption issue one of its top priorities with
the new Administration of President Zedillo and the Government of Canada. USTR supports
the efforts of the U.S. Customs Service to include this issue on its trilateral meeting agenda
early next year, and will provide any assistance, support and expertise this agency can offer
as we work toward greater harmonization of duty exemption standards, and build on the
successes we have enjoyed to date as the NAFTA expands trade, creates jobs for our
workers and benefits consumers throughout North America.
1
La Jornada, Mexico City, October 11, 1994.
6