U.S. is considering tax on trade with Mexico Training, pollution aid sought via levy

March 26, 1993|By Chicago Tribune

WASHINGTON -- The Clinton administration, already pushing a slew of tax increases to finance its domestic agenda, is also considering a tax for an international concern: a levy on U.S.-Mexican commerce to pay for anticipated fallout from the North American Free Trade Agreement.

Though discussions are at an early stage, senior administration officials say, a tax on cross-border trade is among the options being evaluated to underwrite environmental cleanup in Mexico and worker retraining in the United States.

U.S. business groups and many Republicans say such a fee is antithetical to the trade agreement's central aim, the flow of goods and services throughout the continent without tariffs or other trade-hindering barriers.

Still, a trade tax would lock in a dependable, long-term source of money for these aims, say congressional aides, and help the accord get through Congress -- especially at a time of deficit reduction.

"I don't know if this is a linchpin, but one of the most important things is money," said a spokeswoman for House Majority Leader Richard A. Gephardt, a Missouri Democrat.

The administration concedes the accord would probably fail if put to a vote now because of lawmakers' fears that it would lead more U.S. manufacturers to migrate to Mexico, leaving more U.S. workers unemployed.

Pointing to incidents of pollution in Mexico, Mr. Gephardt and other members of Congress also predict that these factories would further despoil the environment there and, indirectly, in the United States.

To help avert those outcomes, the administration is negotiating with Mexico and Canada to come up with supplemental agreements to the trade pact. These agreements would establish trilateral commissions that would, at the minimum, oversee adherence to environmental and labor standards.

But any trilateral bodies would require money to be effective -- and to win enough votes in Congress.

The tax was first proposed by Sen. Max Baucus, D-Mont., chairman of the Senate International Trade Subcommittee, who called for a levy of less than 1 percent on trade between the countries. The money would go into a free-trade trust fund to be used as each nation wanted.

Mr. Gephardt picked up the measure later, though he said the rate should be 3 to 4 percent.

Even a levy of 1 percent could raise a significant amount. The United States exported $40.6 billion in merchandise to Mexico last year andimported $35.2 billion in Mexican goods. A 1 percent tax would have generated $758 million.

The administration has a few other funding options. They include creating a special international development bank or imposing user fees to underwrite environmental cleanup along the U.S.-Mexican border. Worker retraining could be financed through general revenues.

Congressional backers of a cross-border tax argue, however, that development banks have been unable to keep Mexico from becoming increasingly polluted.

They also note that a special tax could allow the administration and Congress to avoid annual fights on how to finance a retraining program. Such battles are likely to become more intense as the tax increases and spending cuts of President Clinton's deficit-reduction program kick in later in the 1990s.

Administration officials say they will not narrow their options until the next round of talks on the proposed side agreements in Mexico late next month. They say their choice will be determined, in part, by how much it would cost to help out-of-work Americans get jobs.

Corporations say the tax would hinder trade. Speaking on behalf of USA NAFTA Inc., a coalition of 1,100 U.S. companies that supports the free-trade accord, Sandra Masur told a House panel last week that a cross-border tax would be "the least

equitable or productive way to fund environmental initiatives."

Ms. Masur, director of international trade policy for Eastman Kodak Co., said the tax would give other nations a competitive advantage.

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