NAFTA Clouds Prospects of New Pact
By Paul Blustein
The North American Free Trade Agreement is working poorly or so many Americans say in recent polls.
That perception, hotly disputed by Clinton administration officials and many economists, is bedeviling President Clinton as he heads to Mexico Monday in the first of three trips to Latin America he plans to take over the next year.
A key reason for the president's trips is to advance a proposal that would create a western hemisphere-wide free trade area by 2005, which Clinton launched more than two years ago at the Summit of the Americas in Miami.
The trip to Mexico is focusing attention on the results of NAFTA hardly a political boon for the president's ambitious trade agenda. For while NAFTA has produced no "giant sucking sound" of jobs vanishing southward as predicted by former presidential candidate Ross Perot, experts agree that its benefits have fallen well short of promises made during the heated 1993 debate over the agreement.
Even advocates of free trade with Latin America concede that their cause has never quite recovered from the beating it took when Mexico's economy plunged into recession following a sudden run on the peso in late 1994. The Mexican crisis deflated administration claims that a robust Mexican economy would shortly provide a major source of growth for U.S. exports and jobs.
"No one in the administration talks about 'NAFTA extension' anymore. NAFTA has become a dirty word politically," said C. Fred Bergsten, director of the Institute for International Economics, who argues that the bad rap is unjustified.
The planning of Clinton's Mexico trip reflects some of the administration's unease about NAFTA's unpopularity, which was underscored yesterday in a Wall Street Journal/NBC News poll showing that 43 percent of Americans believe NAFTA has had a negative impact on the United States, compared with 28 percent who believe it has had a positive impact.
Administration officials are billing the president's trip as a broad-based visit that will feature attention to U.S.-Mexican cooperation on non-trade issues such as drugs and immigration. And Charlene Barshefsky, the president's trade representative, is staying home to seek congressional support for "fast-track" legislation that the administration needs to negotiate a free trade deal with Chile and other Latin countries.
Barshefsky is urging lawmakers to look beyond NAFTA to forging free trade with Latin America, which is growing fast and attracting overtures from other trading partners about special trading arrangements. "Our competitors would like nothing better than for us to sideline ourselves, debating NAFTA and our relationship with Mexico for several more years while they move ahead," Barshefsky told a Senate hearing Wednesday.
The president's nemesis on the issue is the leader of his own party in the House, Rep. Richard A. Gephardt (D-Mo.), who says the impoverished economic conditions he witnessed on a trip to Mexico confirmed his low opinion of NAFTA.
Gephardt, who is regarded as the leading rival to Vice President Gore for the Democratic presidential nomination in 2000, is appealing to labor and other key anti-trade constituencies by insisting on strict conditions for fast-track legislation. "We shouldn't blindly extend an agreement [NAFTA] that isn't working," Gephardt said in a speech last month.
Prime among the statistics cited by Gephardt and other NAFTA critics is the fact that the U.S. trade balance with Mexico swung from a surplus before NAFTA to a deficit when Mexico fell into recession in 1995. Last year, the deficit reached $16.2 billion.
NAFTA supporters maintain that it's unfair to blame the pact for the trade shift, because it stemmed from factors unrelated to NAFTA the drop in the peso, for example, which made Mexican goods cheaper compared with U.S. goods, and the Mexican recession.
The proper way to evaluate NAFTA, according to proponents, is to compare the way Mexico stuck to its free-trade policies during the recent crisis with how it walled off its economy during its last crisis in the 1980s. Because President Ernesto Zedillo's government kept its promise to reduce trade barriers, U.S. exports to Mexico rose to a record $56.8 billion last year as the Mexican economy began recovering.
"There is no evidence that anyone has ever produced that we would be better off, either economically or in terms of our overall relations with our neighbor, Mexico, without NAFTA," said Ira Shapiro, the deputy U.S. trade representative.
But critics observe that NAFTA advocates predicted in 1993 that the U.S. surplus with Mexico would burgeon, generating big job gains.
"NAFTA has been a flop by the measurement of the promises made by the proponents," said Jeff Faux, president of the Economic Policy Institute. Perhaps 250,000 jobs have been lost due to the flood of imports from Mexico, Faux said a "relatively modest" number in an economy that typically creates 100,000 to 200,000 jobs each month, he acknowledged, but a sharp contrast with administration rhetoric.
Clinton's trip to Mexico will remind Congress and the public of those unfulfilled promises, said Lori Wallach, a trade specialist at Public Citizen, a group founded by Ralph Nader. "NAFTA will be the 800-pound gorilla sitting on Clinton's lap as he points to everything else," she said.
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