NAFTA Works

And not just by moving production to Mexico.

In dramatic contrast to a new round of global trade negotiations, which could be a couple of years away from getting to the table, trade among the U.S., Canada, and Mexico, the three NAFTA nations of North America, is advancing at a truly remarkable rate. For example, trade between the U.S. and Canada, each the other's biggest single-nation trading partner, is now more than US$1 billion per day. "Instead of simply thinking east-west in our trade, economic, and commercial patterns, we think of north-south. And that's a real shift for Canada from where we were even 10 or 15 years ago," says Robert G. Wright, Canada's deputy minister for international trade, Ottawa. Between 1994, when NAFTA debuted, and 1998, the most recent year for which complete statistics are available, U.S. trade with Canada advanced 56% to $329.9 billion from $211.7 billion, reports the U.S. Commerce Dept. And during the same period, U.S. trade with Mexico increased a stunning 113% to $173.4 billion from $81.5 billion. The rate of U.S. trade growth with Mexico exceeded all others among America's top 10 trading partners. And with Canada, only trade with China (up 112%) and Germany (up 61%) grew faster. U.S. companies now have virtually "unlimited access" not only to the 274-million-person U.S. market, but also to the 33-million-person Canadian market and the 75-million-person Mexican market, observes New York-based Mark Neville, the partner in charge of the international trade and customs practice at KPMG LLP. But, as impressive as they are, the statistics are only part of the six-year-old story of NAFTA. Companies are making some equally significant strategic moves. Big corporations, for example, are using NAFTA -- which envisions the elimination of most tariffs and other barriers to trade within North America by 2004 -- to grow business in North America and beyond "more than they are developing a manufacturing facility in Mexico just to reduce costs," says Mexico City-based Francisco Cortina, KPMG's lead partner in the firm's Mexico NAFTA practice. Within the North American operations of Paris-based Schneider Electric SA, a global electrical products manufacturer, NAFTA has produced changes in processes, procedures, and structure. "We used to have highly integrated manufacturing facilities in Mexico. [With NAFTA] we were able to focus them on their value-added and, in some cases, bring that work back to the U.S. and put it onto our automated equipment," says Chris C. Richardson, president and CEO of Square D, one of four international brands, and of Schneider Electric's North American Div. Indeed, by rationalizing production and leveraging volume in the U.S., Mexico, and Canada, the company has been able to become less vertically integrated at each manufacturing location. "And if you can drive scale into component manufacturing . . . [it] will drive your costs lower," Richardson emphasizes. Since NAFTA began, Transmission Technologies Corp.'s (TTC) exports have grown between 30% and 50% and the company has become a global supplier of vehicle transmissions and related products, says Dave Hadley, the Farmington Hills, Mich.-based firm's director of sales and marketing. NAFTA "became an input in helping us crystallize a focus for the long term," he states. Significantly, a NAFTA-driven analysis figured in TTC's 1997 decision to retain shift-lever machining in Knoxville, Tenn., and not move the production to one of its two facilities in Mexico. The prospect of lower Mexican labor rates didn't offset such items as freight and duty charges and the company's desire to stay close to "just-in-time" customers in the U.S. "And we ended up maintaining positions for 200 people" in the U.S., Hadley adds. Indeed, during NAFTA's first six years, Mexico has not captured hundreds of thousands of U.S. jobs with the giant sucking sound that billionaire Texas businessman and presidential candidate Ross Perot forecast during the 1992 campaign. Even in the textile and apparel industries, in which 100,000 jobs and 300,000 jobs, respectively, have disappeared since 1993, NAFTA is not to be blamed, contends Gary L. Shoesmith, associate professor and director of the Center for Economic and Banking Studies at Wake Forest University's Babcock School of Management, Winston-Salem, N.C. For example, an 11.5% increase ($11 billion) in textile shipments suggests that "increased automation and productivity, not trade," are responsible for the loss of jobs, Shoesmith says. He relates a similar story for apparel. Shoesmith adds that NAFTA "has resulted in lower prices for U.S. consumers and created many export opportunities for U.S. companies, all the while being mistakenly blamed for hundreds of thousands of American job losses."

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