NAFTA characterized as success for all parties after first 2 years

The Outlook

December 01, 1996|By Jay Hancock

THE NORTH American Free Trade Agreement, 2 years old in January, set the stage for lowering commercial barriers among Canada, Mexico and the United States. The pact has attracted much political lightning. Ross Perot feared "a giant sucking sound." Pat Buchanan wanted to dismantle NAFTA. Clinton and Dole favored it but were defensive.

Economics is supposed to be a science, but unlike other sciences, its theorems can't be tested in controlled experiments. The debate on NAFTA has mostly been about extrapolation, projections and educated guesses.

But the lab of the real world has now produced two years of empirical results. Among them: Mexico's economy has been stuck in recession but now seems to be recovering. The United States has booked huge trade deficits with Mexico, but unemployment is low and the stock market is booming. Canada's economy is improving.

Does this tell us anything about NAFTA? What's the outlook?

Jeffrey Schott

Senior fellow, International Institute for Economics

I feel that NAFTA is working very well.

I also think that most people who talk about NAFTA confuse what has happened in our bilateral relationship with Mexico since NAFTA went into effect with what has happened because NAFTA went into effect.

The problems that have arisen since NAFTA went into effect were basically related to macroeconomic issues in Mexico. The problems in Mexico are primarily of domestic origin. Now that doesn't change the situation of the public perception that the Mexican crisis followed a year after the signing of NAFTA.

But if one takes a serious look at it, one sees that the causal relationship is very weak.

The other thing to say about NAFTA is that the United States has done very little to change its policies as a result of NAFTA.

What the NAFTA has primarily done is open the Mexican market to United States trade.

The United States was already in conformity with the NAFTA rules, while Mexico had to undertake dramatic changes in its trade regime to basically adapt its laws and regulations to Canadian and U.S. norms.

It was a very asymmetrical deal.

If one is looking at it as a crass mercantilist, Mexico had to do everything and the United States had to do very little.

Maureen Allyn

Chief economist, Scudder, Stevens & Clark

I don't have much hard evidence for it, but I do believe it has been pretty much a success from the U.S. point of view. It would be very hard to find evidence that it has harmed this economy. We've been doing great.

If you look at the corporate sector, which has been able to benefit from production rationalization, I think [NAFTA] has been a huge factor in its long-term profits expansion.

NAFTA is one of the tiles in the mosaic of the economy. It's a huge thing, this economy, and even with something as big as NAFTA it's hard to pinpoint it as a single cause. What we've seen is an absence of negatives.

We have not seen a loss of jobs. There wasn't a big sucking sound. We continue to see very subdued inflation, and NAFTA is not the only thing behind that but again it is one of the factors.

I'm sure you will find people who feel they have been hurt by NAFTA, but the overall economy gets the benefit, spread over 250 million people.

From the vantage point of Mexico, it's a little less clear as to how much they've gained. They've had a rough couple of years, but clearly this pain can't all be attributed to NAFTA.

But I think the resilience with which that economy is starting to come back is promising.

I think the benefits may still be in the future, but I think it would still be too early to call it a success from Mexico's point of view.

Peter Morici

Director, Center for International Business,University of Maryland

If the purpose of NAFTA was to raise incomes, then it was a good thing.

It has generated exports in areas where we pay higher wages than average, and it has generated imports in areas where we pay lower wages than average.

In this country, we don't have a jobs problem; we have a skills problem. We have a low 5 percent unemployment rate, but many [Americans] are underemployed. Our problem is creating enough jobs in high-paying export industries, and NAFTA helps us do that.

NAFTA has helped Canada become a more cost-competitive economy.

They're reducing their deficits and doing what they need to do.

In Mexico, after a serious macroeconomic crisis there, they came through with the correct medicine.

And now Mexico's economy is growing very briskly, and over the long term a prosperous Mexico and a prosperous Canada make us a more secure place to be. The last quarter of growth in Mexico was over 7 percent. They're pulling out.

Pub Date: 12/01/96

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