August 12, 1993
"NAFTA Fears are More Hype Than Fact - To Succeed in a World of Tough
Competitors, Nations Must Find Ways to Accelerate the Evolution from Industries
and Jobs of the Present to Those of the Future"
San Jose Mercury News
By Timothy Taylor
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EVERYONE SEEMS to agree that the North American Free Trade Agreement will
increase the overall size of the U.S. and the Mexican economy. The difference
of opinion is over the sources of that gain.
Supporters of the treaty emphasize that trade allows nations to specialize
in their areas of relative strength and to capture larger markets, leading to
gains in economic efficiency. NAFTA opponents are concerned that while large U.S.
corporations and their shareholders will benefit from trade, these gains will
come at the expense of workers and the environment, as U.S. firms exploit Mexico's
lower wages and less rigorous environmental standards.
These fears have always been more hype than evidence, as two just-released
studies make clear. One is "A Budgetary and Economic Analysis of the North
American Free Trade Agreement," by the non-partisan Congressional Budget
Office. The other is "NAFTA and the Environment," a collection of essays
edited by Terry Anderson, an economist at Montana State University.
NAFTA will displace about 20,000 U.S. workers from their jobs each year over
the 10 years after it is enacted, according to the consensus of economic studies
from the budget office report. In the ebb and flow of the U.S. economy, about
2 million Americans are displaced from jobs every year; NAFTA displacements will
add just 1 percent to that number. However, the agreement will be, on balance,
a net job creator, adding perhaps 30,000 jobs a year over 10 years -- although
the effects will be scarcely perceptible amid the 120 million jobs in the U.S.
Of course, the people displaced by NAFTA are not likely to be well- positioned
to take advantage of the new opportunities. Low-wage industries, like producing
fresh vegetables or sewing clothing, are most likely to be hurt by Mexican competition,
while the auto, textile and petroleum industries will be among those helped.
To succeed in a world of tough competitors, nations must find ways to accelerate
the evolution from industries and jobs of the present to those of the future.
This country does not particularly excel at pushing for the continuing education
of all its workers, and assuring that displaced workers are retrained and placed
in new jobs. But NAFTA is not the cause of this problem, and blocking NAFTA is
no solution to it.
Some NAFTA opponents also claim to be concerned about Mexican workers, but
those protestations ring hollow. It is surely a warped and imperialist vision
that would "help" Mexican workers by denying them the chance for skills,
jobs, and income that NAFTA would bring.
A number of environmental organizations have endorsed NAFTA, including the
Environmental Defense Fund and the National Resources Defense Council. William
Reilly, administrator of the Environmental Protection Agency during the Bush administration
and now a senior fellow at the World Wildlife Fund, recently defended NAFTA as
good for the environment in a letter to the Wall Street Journal.
But others paint a gloomier picture, one where U.S. companies, overburdened
by environmental regulation, slip over the border, to be greeted by a Mexico so
desperate for jobs and investment that it winks at pollution. Fortunately, this
nightmare vision is wrong on both its economics and its politics.
Environmental protection costs are only 1 or 2 percent of total business outlays,
so the chance to reduce these costs is not likely to trigger a stampede over the
The real question is whether there are certain industries where the cost of
U.S. environmental laws is substantially higher, where low-wage Mexican labor
might be especially attractive, where the costs of relocating are not too high,
and where Mexican environmental law is weak. The Office of the U.S. Trade Representative
examined a list of 445 industries, to discover which ones met these four criteria.
The office found exactly one industry likely to move for environmental reasons,
the "gray and ductile foundry industry."
Frankly, I have no clear idea of what a gray and ductile foundry is, but I
concur with the judgment of Bruce Yandle, a Clemson economist writing in the Anderson
volume, that "there is no case for wholesale out-migration of U.S. plants
to Mexico. The facts simply do not support the argument."
Moreover, a number of statements by President Carlos Salinas de Gortari confirm
that Mexico has no interest in becoming a haven for polluters. Major environmental
legislation was passed in 1988; Mexico's spending on enforcing the law has increased
by a factor of 10 since that time; NAFTA itself had a number of environmental
protections even before the recent "side agreements." In fact, Salinas
received the 1991 Earth Prize from the Nobel family and the United Nations for
To be sure, Mexican environmental standards are below American levels. But
as nations become richer, they also become cleaner and greener. For example, 65
million Mexicans are currently without sewage facilities. Keeping Mexico poor
by blocking trade will not build a single sewage treatment plant, or provide the
funding and impetus for other environmental improvements.
Opposition to NAFTA is an attempt to avoid certain exaggerated risks by blocking
any change at all. But if NAFTA bogs down now, both workers as a group and the
environment will suffer.
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