ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Wednesday, March 12, 1997 TAG: 9703120036
SECTION: EDITORIAL PAGE: A-11 EDITION: METRO
SOURCE: ALAN TONELSON
WITH CHILEAN President Eduardo Frei having completed his visit to Washington, a new national debate over the contentious North American Free Trade Agreement is beginning in earnest. President Clinton soon will ask Congress for authority to extend NAFTA membership to the entire Western Hemisphere, beginning with Chile, and the accord's opponents are mobilizing to stop him.
The debate is focused largely on NAFTA's impact thus far on trade, jobs and wages in the United States and Mexico. Canada is NAFTA's third member. Unfortunately, this debate conceals more than it reveals and obscures the best ways of improving future trade agreements.
To portray NAFTA as a big U.S. job-creating success, supporters point to the surge in American exports to Mexico since NAFTA's signing (from $41.6 billion, the year of NAFTA's signing, to $56.8 billion in 1996), and the strength of these exports despite Mexico's peso crisis.
To portray NAFTA as a net destroyer of U.S. jobs, opponents emphasize the big post-treaty swing in bilateral trade - from a $1.67 billion U.S. surplus in 1994 to a $16.2 billion deficit in 1996.
Yet the U.S. export figures misleadingly suggest that most U.S.-Mexican trade involves exchanges of finished goods between unrelated buyers and sellers - as when Boeing sells a jetliner to a foreign airline. Such exports clearly create American jobs by adding new orders to existing sales.
Most U.S. exports to Mexico, however, are completely different. Even before the financial crisis, most Mexican consumers were too poor to buy many imports from anywhere. Mexican imports of consumer goods recently have ranged only between 10 and 16 percent of total Mexican goods imports.
As made clear most recently by a UCLA study sponsored by the Clinton administration, the great recent expansion in two-way U.S.-Mexican trade has been ``driven almost entirely'' by another form of U.S. export: the supply by American manufacturers of Mexican factories that they own or subcontract with, and that sell most of their output right back to the United States.
A whopping 85 percent of Mexico's total exports, including oil, are sent to the United States. At least as revealing, by 1993 (the latest available figures), 30 percent of total Mexican manufacturing production was being sold to the United States - up from 23 percent in 1990. In industries such as autos and electronics, the figures are much higher.
Moreover, about a third of U.S. exports to Mexico before and after NAFTA have consisted of capital goods, which are used to build Mexican factories. When an American company moves an existing plant across the border, the transported equipment is counted as a U.S. export.
It's easy to see why shipping factories abroad destroys U.S. jobs on net. But the other type of intra-company export has more subtle effects. These exports consist of U.S.-made parts and components of products that are shipped to Mexican factories for further processing.
If the finished products were consumed in Mexico, they would have the same kinds of job-creating effects as traditional exports, like the aircraft sales. But the return of these finished goods to the U.S. market means that the parts and components exports are not really exporting at all. No additional customers are being supplied. Worse, because most Mexican factories' output is then re-exported, the flood of U.S. supplies will continue even when Mexico's economy shrinks - thus the high U.S. overall exports since the peso crisis.
These new trade patterns mean NAFTA opponents need new arguments as well. Because of the soaring U.S. trade deficit with Mexico, bilateral trade remains a net job loser for Americans. But the job loss is surely less than that generated by a comparable deficit with other countries whose products don't have such high levels of U.S. content.
NAFTA expansionists counter primarily that these facts tell only part of the story. NAFTA has benefited American companies and workers, they say, by helping U.S. businesses increase market share worldwide. They explain that by using low-wage Mexican labor for certain work, U.S. companies can counter cost advantages enjoyed by foreign competitors due to the latter's low-wage work forces and protected home markets.
Unfortunately, this Mexico-sourcing strategy isn't working nearly well enough. America's continuing sky-high worldwide trade deficit in goods (a record $187.6 billion in 1996) reveals that U.S. companies are still losing market share at home and abroad. A prime example is the U.S. auto industry. Despite massive production shifts to Mexico, its domestic market share recently has fallen and its exports outside North America remain modest.
NAFTA opponents must realize scrapping or changing NAFTA alone will do little for U.S. jobs or wages. Today's inequitable trading arrangements would still force U.S. companies to send many manufacturing jobs to low-wage countries. NAFTA by itself clearly cannot offset these inequities. U.S. policy-makers must press harder for their elimination worldwide. Simply encouraging production in Mexico isn't trade policy. It's defeatism.
ALAN TONELSONis a research fellow at the U.S. Business and Industrial Council Educational Foundation in Washington, D.C. He wrote this for Newsday.
- L.A. TIMES-WASHINGTON POST NEWS SERVICE
LENGTH: Medium: 91 linesby CNB