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White House Subdued on NAFTA's Impact

By Paul Blustein
Washington Post Staff Writer
Friday, July 11, 1997; Page G01

The Clinton administration, which once promoted the North American Free Trade Agreement as a major boon for American companies and workers, finds in a report to be released today that NAFTA has had a "modest positive effect" on the U.S. economy.

The report's language is markedly more restrained than administration officials have used to describe NAFTA in the past, especially in the heated national debate of late 1993 when Congress was weighing whether to approve free trade with Mexico.

During the 1993 debate, for example, Mickey Kantor, then the U.S. trade representative, predicted on "Larry King Live" that the generation of high-paying jobs under NAFTA "will have a huge impact on this country."

The administration's decision to refrain from claims of greater success in the new report reflects a recognition, privately conceded by White House aides, that the accord was oversold and that the cause of free trade has suffered as a result. Polls have shown that the U.S. public widely views NAFTA as a failure, especially since the Mexican peso crisis of late 1994 threw Mexico into deep recession and turned the U.S. trade balance with its southern neighbor sharply negative.

The report's tone and wording was carefully chosen after weeks of internal discussion, administration officials said. That's because the report, which was mandated by congressional legislation, is expected to play an important political role in the looming debate over whether to extend free trade to Chile and other Latin American countries. President Clinton faces a tough battle in September to secure negotiating authority from Congress for his initiative to create a hemisphere-wide area with no trade barriers.

By adopting a stance similar to many mainstream economists – whocontend that NAFTA's impact has been positive but only marginally so – the administration will help its cause on Capitol Hill, predicted Rep. Robert T. Matsui (D-Calif.), a NAFTA supporter who is ranking minority member on a House trade subcommittee. "I think the administration wanted to show that it's a modest positive, but let's not get too excited," he said.

The White House concluded that it was senseless to risk being accused of overselling NAFTA again, administration officials said, noting that the critics of the pact are no longer forecasting millions of jobs being lost as a result. "We're not in the heat of a congressional battle over NAFTA, where the opponents were dramatically exaggerating the negative consequences," one White House official said.

Accordingly, the report asserts that "NAFTA had a modest positive effect on U.S. net exports, income, investment and jobs supported by exports." It cites a study by the forecasting firm DRI/McGraw-Hill Inc. concluding that if the impact of Mexico's financial crisis is factored out, NAFTA can be credited with raising U.S. exports to Mexico by $12 billion in 1996 and imports from Mexico by $5 billion.

This and other studies, according to the report, "suggest that NAFTA has boosted jobs associated with exports to Mexico between roughly 90,000 and 160,000." But that figure does not account for job losses associated with increased imports from Mexico, and even so it is negligible compared with the 10 million jobs that the U.S. economy has created overall since NAFTA went into effect.

NAFTA's critics do not accept even the toned-down administration view of NAFTA's impact. An organization of labor-oriented and environmental groups, anticipating the administration's report, issued their own study late last month blasting the pact for having hurt "many more" citizens of NAFTA countries – Americans, Mexicans and Canadians – than it helped.

In that report, the Economic Policy Institute, the Public Citizen's Global Trade Watch, the Sierra Club and other organizations said that while exports to Mexico had risen 36.3 percent and exports to Canada had risen 33.4 percent from 1993 to 1996, "growth in U.S. imports from Mexico and Canada . . . was much larger – 82.7 percent and 41.1 percent, respectively." Resulting job losses could be estimated at 420,000, the report said.

The administration's report, however, disputes the suggestion that NAFTA is to blame for the deterioration in the trade balance with Mexico, citing the peso crisis and the Mexican recession instead. NAFTA at least helped minimize the adverse impact of those developments on the U.S. economy, according to the administration's report.

© Copyright 1997 The Washington Post Company

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