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Unlike my good friend JEDI, I am a big supporter of free trade, with NAFTA being a prime example of how free trade can benefit us all (notice how I said can, not will). Although free trade is anything but perfect, it is much superior to its alternative - no free trade. Below are a few segments of a paper that I had to do for my Global Economics class this past semester...

Despite the doomsday warnings about what would happen under NAFTA, hundreds of thousands of U.S. jobs have not been destroyed, the U.S. manufacturing base has not been weakened, and U.S. sovereignty has not been undermined. Instead, total NAFTA trade has increased, U.S. exports and employment levels have risen significantly, and the average living standards and productivity of American workers have improved.

NAFTA's effect on trade
NAFTA is good because trade is good. It's that simple. Freer trade has proven, time after time, to enrich all parties involved in the transaction. And there is no doubt that NAFTA has boosted trade among its three member countries — the United States, Canada and Mexico — and their combined 400 million people. NAFTA has continued to open the U.S.-Mexico border to increased commerce. Two-way trade between the United States and Mexico has risen 113 percent from the year before NAFTA was implemented (1993) to its fifth year (1998).

Mexico and Canada purchased 30% of U.S. exports and supplied 33% of U.S. imports. Thanks to NAFTA, Mexican tariffs—which had averaged 10 percent before the trade agreement—now average less than 5 percent, while average U.S. tariffs have fallen from 4 percent to about 2 percent. The largest post-NAFTA gains in U.S. exports to Mexico have been in such high-technology manufacturing sectors as transportation and electronic equipment, industrial machinery, plastics and rubber, fabricated metal products, and chemicals. NAFTA also has been a boon for major U.S. agricultural states like Montana, Nebraska, and North Dakota, and traditional southern textile states like North Carolina and Alabama.

Now, let me add that no trade agreement proves its true spirit overnight. It takes time, both to erase barriers gradually and to let domestic economies adjust. And NAFTA allows up to 15 years for some of its market-opening reforms to take hold.

NAFTA's effect on the U.S.
In his unsuccessful Presidential run in 1992, Ross Perot took a stand against NAFTA, claiming that NAFTA would eliminate an estimated 5.9 million American jobs. Thankfully, such predictions have failed to materialize. Five years after the beginning of NAFTA, the Department of Labor said that approximately 200,000 American job losses could be directly attributed to NAFTA – a number that was nowhere close to the 6 million industrial jobs that Perot believed would be “sucked away” to Mexico. The truth is that the United State's unemployment rate is near all-time lows, and the economy continues to grow at a slow but steady pace. In fact, the U.S. government estimates that over this five-year period, 18 million new jobs were created in the United States and 7 million jobs were lost due to ongoing changes in the dynamic U.S. economy. The 11.1 million net new jobs created over NAFTA's first five years has led to a decrease in the number of unemployed from 8.5 million to 6.0 million.

The vast majority of those created jobs could not all be credited to Mexico. However, the job gains could be attributed to numerous productivity-enhancing economic decisions taken over the last few years, and NAFTA was one of such decisions. Productivity increases when investment goes up and inflation goes down. Investment has increased due to the reduction of tariffs that had prevented some U.S. goods from making their way to Mexico. Inflation has decreased due to increased product competition that is coming from Mexican imports. Both the U.S. and Mexican governments report that unemployment has decreased in the first three years of NAFTA. The U.S. unemployment rate at the beginning of 1994 was 6.3%; last month, that number had fallen to 4.6%.

What about the Environment?
Two agreements were added to the final NAFTA negotiations in response to several U.S. environmental groups' concerns about cross-border pollution. One was the North American Agreement on Environmental Cooperation, which created a commission to enforce environmental laws. The commission was not fully staffed until 1995 and has had a slow start, but since 1995, Mexico has closed down 72 maquiladoras and suspended operations of 219 others for environmental problems. The other agreement created the Border Environment Cooperation Commission and the North American Development Bank to address pollution problems along the U.S.-Mexican border. The development bank had a slow start as well, but by mid-1996, it had an $80-million budget and was considering loans to border communities for eight projects designed to reduce water pollution.

I feel that considerable progress has been made over the past five years to address three decades of deteriorating environmental conditions along the U.S.-Mexico border as well as in the interior of Mexico. Only in the last decade has Mexico had environmental laws which were adequate, and only since 1993 have these laws been supported by appropriate implementing regulations, standards, and institutional infrastructure to make them effective. Beginning in 1994, Mexico began a serious effort to enforce its environmental laws, particularly for new companies, thereby diminishing any incentive for firms to relocate to Mexico to avoid environmental enforcement. There is still plenty of work to do, but progress is undoubtedly being made.

What about labor/investment in Mexico?
Another concern for some was that Mexico's relatively cheap labor force would lure U.S. factories across the border. U.S. corporate investment in Mexican manufacturing facilities rose from $1 billion in 1993 to $2.5 billion in 1994, then fell to $1.5 billion a year later in the peso crisis fallout. In contrast, business investment in the United States exceeded $700 billion that year. The North American Agreement on Labor Cooperation (NAALC) rests on sound labor laws of the United States, Mexico, and Canada. This pact was also approved as a side agreement of NAFTA and permits citizens of any NAFTA country to request that their government examine how the labor laws in a partner country are being enforced. This agreement does not rewrite any country's labor laws, but puts public pressure on enforcement and, in the case of lack of enforcement of health and safety as well as child labor laws, can lead to trade sanctions.

The problem is that people often fail to relate the broad benefits of trade to their own livelihoods, communities and country. The litany of trade's ability to create higher-paying jobs and better opportunities means little to those who lose jobs, or to communities that lose a factory, even an inefficient one. While studies prove that trade liberalization generates more and better jobs, trade liberalization also can be downright painful for high-cost industries. But attempting to avoid that pain by sheltering such industries from change only postpones the day of reckoning. The better approach is to help people who lose their jobs to retrain and find new ones.>>>

To add to what I have to say about the subject, here is an editorial that the WSJ ran a couple of weeks ago...

It is easy to misunderstand what was going at the Summit of the Americas in Quebec City. The thousands of protestors were not concerned citizens fighting to save the jobs of American steel workers or French farmers. They were not championing world peace and free health care (although they may be for both). And while their ebonics-sounding chants ("one two three four, we don't want free trade no more!") focused on stopping world trade, their agenda is more fundamental--they want to end markets and capitalism and establish global socialism.

They are one part 19th-century Luddites arguing that trade and global commerce (for the Luddites it was machines and the industrial revolution) will cause exploitation, unemployment and poverty. And they are one part 20th-century Marxists, justifying violence (they threw Molotov cocktails at the police) and control over markets, governments and privately owned business in the name of a greater good: a society in which everyone is equal. The Quebec City protesters prefer a lower standard of living equally shared to growing prosperity unequally distributed...

The truth is that trade helps people while protectionism hurts them. With trade, people have a wider choice of goods at lower prices, and the existence of the imports both improves the quality and holds down the cost of domestically produced products. Protectionism, on the other hand, helps a narrow interest at the expense of the broad economic and social prosperity of a nation. The nations most vigorously opposing free trade are by and large the world's dictatorships, such as the former Soviet Union, Sudan, Zimbabwe and even China. For in statist nations with controlled economies the liberty and individual prosperity free trade brings is a danger to the ruling government. Yet it is such nations the Quebec City protesters want the rest of the world to emulate.

Take care and God bless,
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