Pros and Cons: NAFTA Debate Reaches a Crescendo 'Opportunities for Americans to Compete' NAFTA -- YES

September 12, 1993|By EDWIN L. ARTZT

The North American Free Trade Agreement (NAFTA) -- now pending approval from Congress -- will link the United States to our first and third largest trading partners, Canada and Mexico.

It will create opportunities for Americans to do what they do best -- compete in an open and growing marketplace.

NAFTA will build on the success of the Canada Free Trade Agreement. That accord, which took effect in 1989, helped bring about a 19 percent increase in U.S. exports to Canada, and it helped create more than 264,000 new U.S. jobs.

Procter & Gamble's experience indicates that NAFTA will enable us to expand significantly our business in and exports to Mexico. Since that country opened its market in 1986, our export of

goods and services to Mexico has grown from almost nothing to more than $100 million, and should approach $200 million once NAFTA is well established. Elimination of Mexican duties will allow us to supply Mexico a broader range of our brands than is now feasible.

The result will be more than a doubling of U.S. jobs supplying our business in Mexico -- from about 1,500 to more than 3,500. Our calculations show that for every two employees we have in Mexico, there is one job in the United States keeping our Mexican business supplied -- and these jobs are in the high-pay/high-skill sectors.

In contrast, P&G's imports from Mexico over the past three years (excluding green coffee beans that are not available here on a commercial basis) have overaged only $30,000 per year. Further, the great majority of our products are already duty-free if imported from Mexico, and NAFTA provides us with no incentive transfer production to Mexico.

It appears the situation for Maryland and for the country, as a whole, will be comparable to this pattern. For instance, since 1987, Maryland's merchandise exports have tripled, rising from $17 million to $51 million. Over 18,200 Maryland jobs are supported by manufactured exports to Mexico and Canada.

In the United States since 1986, exports to Mexico have more than tripled, from $12 billion to $45 billion, improving the U.S. trade balance with Mexico by $13 billion. This growth has already increased U.S. employment by about half a million jobs.

NAFTA will remove Mexico's remaining 10 percent average duties and their non-tariff barriers, resulting in increased employment in this country. These new jobs pay about 12 percent more than the average U.S. wage and are broadly distributed nationwide. A series of comprehensive economic studies, using a variety of analytical techniques, support this conclusion:

* The Institute for International Economics projects a net gain of 175,000 U.S. jobs.

* The University of Maryland projects a net gain of 64,000 U.S. jobs.

L * KPMG Peat Marwick projects a net gain of 61,000 U.S. jobs.

* Professor Rudiger Dornbusch of MIT projects a net gain of at least 150,000 U.S. jobs.

Most of these studies were confirmed in a "peer group" review conducted by the International Trade Commission that noted, "Despite the different approaches taken in these studies, there is a surprising degree of unanimity in their results regarding the aggregate effect of a NAFTA. All three countries are expected to gain from NAFTA."

Fears of massive job loss or declines in our standard of living are simply unjustified. Quite the contrary, an analysis of the difference between the U.S. and developing country wages, the labor cost element per product cost, and the average 3.5 percent U.S. duties shows that jobs that are under pressure to move abroad have already gone or will do so without NAFTA.

An additional benefit is the NAFTA will raise Mexican wages and standard of living, decreasing pressure for unauthorized immigration to the United States.

Some have charged that companies will relocate to Mexico in search of lower environmental costs. This would be a poor strategy because Mexico's environmental laws are about as rigorous as ours -- and in some areas they are more rigorous. The problem has been lack of resources to enforce them properly. We know from out own experience that Mexico is committed to dealing with its environmental problems and has increased its enforcement. As its economy develops, Mexico will apply even more enforcement resources. The recently-negotiated side agreement on the environment will provide the economic and political incentive to enforce Mexico's environmental laws.

Finally, it's important to implement the agreement by January 1. This gives the United States direct benefits as early as possible and allows us to negotiate quickly accessions with other key Latin American countries. These accessions will increase our exports and our competitiveness in relation to Europe and the Far East.

As chairman and chief executive of a company with more than 55,000 employees in the United States, Canada and Mexico, I have followed NAFTA's progress with great interest, and I firmly believe it is good for America and our neighbors. We're pleased that negotiations on the NAFTA side agreements are now complete. We're optimistic that they will add up to a stronger overall agreement leading to move jobs and increased economic growth in the United States, Canada and Mexico. It's time for President Clinton and the Congress to move this agreement forward without delay for implementation on January 1.

Edwin Arztz has been chairman and chief executive of the Procter & Gamble Company since January 1990. Prior to that, he was responsible for Procter & Gamble's international operations.

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