Dwarfing NAFTA

Dec. 21, 2004
Americas pact promises more commerce and jobs -- and intensified opposition to freer trade.

Across the Rio Grande river from the Texas town of Laredo, the quiet, 500-person community of Colombia, Mexico, has great expectations. It's projecting 200% growth during the next 10 years as NAFTA traffic increases over the Colombia International Bridge. By the year 2030 Colombia's population will exceed 300,000, asserts FIDENOR, the Mexican nonprofit trust that is developing the town and the rest of the state of Nuevo Len. But much sooner than 2030, a project far grander in scale than the development of the Mexican border community could be completed. By yearend 2005 a Western Hemisphere free-trade area extending from the top of Alaska to the tip of Argentina may be an economic and legal reality. Experts expect this so-called Free Trade Area of the Americas (FTAA) even in its first years to dwarf the now seven-year-old NAFTA, which encompasses the U.S., Canada, and Mexico. A potent 34-nation, two-continent expanse with a collective US$12.5 trillion GDP and $3.4 trillion in trade, the FTAA would embrace 857 million consumers, more than double the 412 million consumers within NAFTA's borders. Cuba, the only country in the Western Hemisphere that is not a democracy, has not been included in FTAA discussions so far. If the 31 other democracies in the hemisphere behave anything like the three partners in NAFTA have, an FTAA "will produce a tremendous upsurge of interregional trade" and "a great deal of aggregate job creation," predicts G. Philip Hughes, deputy national security affairs adviser to then Vice President George H. W. Bush and former vice president of Manchester Trade Ltd., a Washington-based consulting firm. Between 1994, NAFTA's first year, and 2000, total U.S. trade with Canada and Mexico advanced an impressive 92.5% to $660.65 billion from $343.18 billion. U.S. trade with Central and South America also rose during the period, but a more modest 70.5% to $136.78 billion. Currently U.S. exports to Central and South America total $60 billion, notes Frank J. Vargo, vice president for international economic affairs at the National Assn. of Manufacturers (NAM), Washington. And based on trade performance under NAFTA, NAM estimates that during the first 10 years of an FTAA, U.S. exports to Central and South America would more than triple to almost $200 billion, 80% to 90% of them manufactured goods. President George W. Bush, whose father championed NAFTA, is putting plenty of political capital behind creation of a free-trade area of the Americas. From both his campaign speeches and "the body language of his administration since taking office" it's apparent that Bush "takes the southern hemisphere more seriously than any other administration up to now," observes Hughes, a senior director at the Washington-based White House Writers Group, a communications consulting firm. Indeed, at last month's Summit of the Americas in Qubec City, Bush publicly and privately worked the hemisphere's other chiefs of state, seeking their commitments to tough negotiations that are slated to begin next May (see "Timeline for FTAA," above). Bush believes the people of the U.S., Canada, and Mexico have greatly benefited from NAFTA. "Now we must extend those opportunities to all with a free-trade agreement for the entire Western Hemisphere," the U.S. president said in his weekly radio address on Apr. 21. "This will be good for American workers, from farmers and ranchers to high-tech entrepreneurs. It will also be good for the poor in other countries, increasing their wages and opportunities." Trade's Detractors The biggest mistake Bush could make, however, is to underestimate the current degree of opposition to trade liberalization. Pressures are building in the U.S. Congress, for example, to protect steel, lumber, and other basic commodities. And in Qubec City last month, following in the wake of the last two years' well-publicized anti-free-trade protests in Seattle and Washington, D.C., demonstrators again took to the streets and attacked the FTAA, charging it would cost workers their jobs and compromise the environment. Some statistics support their position. For example, between 1994 and 2000 NAFTA eliminated 766,000 actual and potential jobs -- mostly for non-college-educated workers in manufacturing, figures Robert E. Scott, an international economist at the Economic Policy Institute, a liberal-leaning Washington think tank. Meanwhile, for U.S. manufacturers whose primary market is domestic, it's vital that U.S. laws designed to counteract unfair foreign trade practices not be weakened by an FTAA, emphasizes Stephen A. Jones, an international trade litigator with the Washington law firm of King & Spalding. Specifically, he contends that as tariffs come down throughout the hemisphere, laws allowing the U.S. to counter foreign subsidies and statutes permitting the U.S. to impose anti-dumping duties take on new importance and "need to remain in place." As work continues on an FTAA, "it won't be enough for the Bush Administration to proclaim they are for free trade," warns Thomas F. "Mack" McLarty III, a former White House chief of staff, the Clinton Administration's special envoy for the Americas, and a participant in the 1994 Summit of the Americas in Miami that took the first steps toward a free-trade agreement for the Americas. For example, McLarty, vice chairman of Kissinger McLarty Associates, is urging Republicans and Democrats in Washington to work together to reconcile free-trade goals with the labor and environmental concerns that since 1995 have denied the White House what used to be known as "fast-track" negotiating authority. Termed "trade promotion authority" by the Bush Administration, the arrangement permits Congress to approve or veto, but not to amend, trade pacts. It is considered by most other nations, notably including Brazil, South America's largest economy, to be a prerequisite to serious bargaining on an FTAA. "The real significance of the Qubec City summit will be measured by what happens afterward, and most notably the vigor demonstrated by the White House to seek the trade promotion authority needed to push an FTAA toward its final stages," says Georges Fauriol, director of the Americas program at the Center for Strategic and International Studies, a conservative, Washington-based, public-policy organization. Business needs to be fully engaged as well, indicates Karen Schnietz, an assistant professor at Rice University's Jesse H. Jones Graduate School of Management in Houston. "What business has just not done -- and what labor and environmental opponents [of liberalized trade] have been much better at -- is trying to influence public opinion," she says. "Business and other supporters of free trade need to start going out and making the case for how free trade benefits consumers," she states. "Most consumers have no sense of how much more they pay for apparel, cars, or winter vegetables as a result of various measures of protection." An FTAA meets the three most important criteria for trade negotiations, claims NAM's president, Jerry J. Jasinowski. "It directly affects companies' bottom lines, it is eminently 'doable,' and it is urgent," he asserts. "Today's U.S. exporters face tariffs in South America that are often 30% or higher. If our European and Japanese competitors eliminate those surcharges [through trade negotiations] and we don't, our products are going to be wiped off the shelves virtually overnight."

Timeline For FTAA: Creation of a Free Trade Area of the Americas is expected to progress over nearly five years. April 1, 2002 Deadline for establishing negotiating guidelines. May 15, 2002 Deadline for product-sector and sector-specific market-access negotiations to begin. January 2005 Negotiations conclude. December 2005 Agreement takes effect.

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