NAFTA ruling could be blessing in disguise

Robert Kuttner

July 07, 1993|By Robert Kuttner

FEDERAL District Judge Charles Richey's ruling last week requiring an environmental impact statement on the North American Free Trade Agreement (NAFTA) could be a blessing in disguise for the Clinton administration. If the ruling forces tougher environmental protections on NAFTA, the deal will be easier to defend. And if Judge Richey's ruling kills NAFTA, it will spare the administration political responsibility for a dubious trade agreement.

Even before the ruling, NAFTA-watchers in Congress and the administration put the odds of the agreement's passage at less than 50-50, particularly in the House. Congressional Democrats have scant political reason to support NAFTA and strong reason to fear that it will cost their constituents jobs.

Ross Perot's attack on NAFTA strongly resonates with precisely the working-class Democrats whom Bill Clinton needs to hold in 1996 and whom congressional Democrats must retain in 1994. If NAFTA does squeak through, it will depend on an odd coalition of Republicans and conservative Democrats, with most Democratic legislators in opposition.

NAFTA was the brainchild of the Bush administration. It was intended to extend the 1988 free-trade deal with Canada to include Mexico; this would shore up pro-American Mexican leaders such as current president Carlos Salinas, as well as the ++ broader free-trade ideology.

By eliminating most trade barriers, NAFTA would undoubtedly increase U.S. investment in Mexico. But it is far from clear that it would produce net economic gain for the United States. The basic problem is low Mexican wages combined with rising Mexican productivity.

The U.S. sponsors of NAFTA imagined low-wage jobs migrating to Mexico and higher-wage jobs expanding here. But Mexico produces numerous products requiring advanced technology and skilled workers. It is already the world's leading exporter of auto engines.

Unfortunately, Mexican factory workers, using the same production technology as their American counterparts, are paid between one-seventh and one-tenth of U.S. wages. As a result of Mexico's high unemployment rate and high birthrate, workers are so plentiful that wages remain depressed even as productivity rises.

Therefore, the shift of jobs and capital to Mexico will not be offset by increased Mexican purchases of American products -- which few Mexicans can afford to buy. The more likely result is a net job drain and continued pressure on Americans to lower their own wages lest more jobs move south.

Bill Clinton might have rejected NAFTA as a badly flawed Republican initiative. But he has now made it his own. If NAFTA passes and the result really is Mr. Perot's "great sucking sound" of jobs exiting the United States, Mr. Clinton will get the political blame.

Even if U.S. unemployment remains high for reasons largely extraneous to Mexican trade, NAFTA will be a handy whipping boy. In Canada, economists are still sorting out how much of the rising unemployment was the result of the Canada-U.S. Free Trade Agreement and how much reflects the recent recession. But former Prime Minister Brian Mulroney, a strong backer of the free trade deal, was nonetheless consumed by the political fallout.

As a candidate, Mr. Clinton took a middle ground on NAFTA. He supported it, but with reservations about its labor and environmental effects. The administration decided to seek side agreements to raise standards in Mexico, as a precondition to supporting the deal.

Strong measures to improve wages, working conditions, and environmental protections would make sense, both substantively and politically. Substantively, such measures would narrow the artificial attractions of cheap labor and dirty production luring U.S. industry to locate in Mexico. Politically, it would give Democratic legislators cover for a pro-NAFTA vote.

But the actual U.S. negotiating demands, let alone the final text of the side agreements (expected by late July), are mainly window dressing. The proposed text includes toothless three-nation commissions that would process labor and environmental complaints. It contains vague, hortatory language, but does little to raise enforceable standards in Mexico.

When NAFTA came up for preliminary approval last year, House Majority Leader Richard Gephardt provided the crucial margin of support. Representative Gephardt, who is skeptical about NAFTA, went along only on the condition that labor and environmental safeguards would be added. The 30 or so Democratic votes that Mr. Gephardt brought with him produced a narrow margin of victory. Mr. Gephardt has not taken a public position yet on the final vote, but he has told colleagues that he expects NAFTA to be defeated.

President Clinton will also lose black legislative support on NAFTA. The 40-member Congressional Black Caucus, seething about Mr. Clinton's abandonment of Lani Guinier and unhappy with cuts in social programs, recently voted to reject NAFTA. Disaffected black congressmen, irritated at being taken for granted, are aware that voting down Mr. Clinton's budget would be overkill -- but a vote against NAFTA would serve as a potent warning shot across the administration's bow.

By warmly embracing NAFTA and proposing only the most feeble environmental and labor standards, President Clinton has painted himself into this political corner. He still has a few weeks in which to hold out for much tougher side agreements, and to scrap NAFTA if the Mexicans refuse.

Otherwise, NAFTA becomes a lose-lose proposition for Mr. Clinton. He will seem politically inept if NAFTA is defeated, and economically inept if NAFTA is approved.

Robert Kuttner writes a column on economic matters.

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