NAFTA: boon or boondoggle?.

Examining the Pros and Cons 

The North American Free Trade Agreement (NAFTA) continues to elicit heated debate in the U.S., Mexico and Canada, as an array of business groups, economists, trade unions and environmental groups spar over the ultimate impact of this trade accord.

Because of its proximity to the Mexican border, California -- particularly Southern California -- stands to be one of the regions in the U.S. most affected by the treaty.

NAFTA would lower the trade barriers that separate the U.S. from Canada and Mexico, its first- and third-largest trading partners, respectively. Its proponents argue that the resulting free-trade zone would create the world's largest and richest market, representing 360 million consumers and $6 trillion in annual output, and would significantly increase America's global competitiveness.

Opponents contend that NAFTA would accelerate an already-existing flow of jobs and business from the U.S. to Mexico and, by permitting manufacturers to operate under Mexico's presumably less-stringent pollution controls, wreak havoc on the North American environment. And while they acknowledge that the pact may produce some long-term economic benefits to all three trading partners, they point out that such benefits are of little solace to newly laid-off workers.

"NAFTA will accelerate the industrial hemorrhage that's already taking place in this country," argues Pete Goodman, a Los Angeles spokesman for the Fair Trade Coalition, a group of trade unions, environmental organizations and community activists that oppose the trade pact in its current form. "Trade means reciprocity. But we're not sending down what we produce; we're sending down whole industries. They're not sending industries back. That's not trade, it's deindustrializing this country."

He points out that, over the past three years, California has lost some 500,000 jobs to Mexico and Mexican-border plants nominally based elsewhere in the U.S., and predicts that the state will lose thousands of additional jobs if NAFTA is implemented.

In contrast, advocates of the treaty note that 184,000 California jobs currently are supported by manufactured exports to Mexico and Canada. They add that an estimated 61,300 new jobs have been created by exports to Mexico and Canada since 1987, and that thousands of additional new jobs will open up once NAFTA takes effect.

While they concede that some job losses in labor-intensive industries will occur, NAFTA's proponents argue that those losses will be more than offset by new jobs created as exports expand. To bolster their argument, they point to the U.S. Commerce Department's estimate that each $1 billion in exports creates more than 19,000 net new U.S. jobs. In 1992, the U.S. posted a $4.5 billion trade surplus with Mexico. NAFTA's passage, say economists, could increase that surplus to nearly $10 billion a year.

Although it continues to oppose NAFTA's passage as the treaty currently stands, key sectors of the powerful American Federation of Labor (AFL-CIO), the country's largest labor organization, have begun to resign themselves to the apparently inevitable integration of a common market with Canada and Mexico and are trying to adapt to the changing situation.

"From our point of view, to kill NAFTA is not the solution," an industrial trade union leader recently told the Washington, D.C.-based Journal of Commerce. "Integration is going to happen with or without NAFTA and now we have an opportunity to change the rules."

Reflecting organized labor's concerns, President Clinton has stated that he will not submit NAFTA to Congress for its approval unless all three nations first agree on policies that will prevent U.S. firms from leaving the country for manufacturing areas with lower pollution standards or looser trade practices.

Critics of NAFTA are, however, skeptical of such side agreements and argue instead for renegotiation of the treaty itself, contending that an overhaul of the pact is needed to prevent the loss of U.S. jobs and the lowering of environmental standards.

Some U.S. workers, a fair number of whom will be Californians, will indeed lose their jobs, concedes Jack Kyser, chief economist of the Economic Development Corp. of Los Angeles County. However, he adds, "concern over job loss is largely misplaced. Yes, labor costs are lower, but so is the level of training.

"The risks for California have been overstated," he adds." For example, everyone is worried that the apparel industry is going to bail out of Los Angeles to Mexico. But the emphasis today is not only on cost, but on fashion and quality. And in that regard, Mexico doesn't look nearly so tempting to mainstream apparel producers." Moreover, Kyser notes, Mexico's transportation infrastructure is in no shape to handle a mass inflow of U.S. industry.

"It's a scare tactic to think all of these jobs are going to flood down to Mexico," agrees Michael White, an international trade consultant and spokesman for the Greater Los Angeles World Trade Association Center. "The population of Mexico is not, all of a sudden, going to be elevated to a level that's going to compete with the U.S. workforce.

"It's difficult to determine what industries in the state initially will be adversely affected by NAFTA," White notes. "But I'd have to say that those businesses that are going to be hurt the most are those that have so far failed to understand the inevitable globalization of trade."

Rather than concentrate on short-term concerns, Kyser agrees, "We should focus instead on the flip side. Mexico represents a huge market for a lot of U.S. companies, large and small -- and that's what Southern California businesses need to look at." he adds.

California's small businesses should prepare themselves to take advantage of NAFTA, White adds. "The pact will provide small- and medium-size American companies with an ideal opportunity to take advantage of international business. To small business, broadening trade with Canada and Mexico is like learning to swim in the shallow end. Trading with our neighbors is not as scary or as complex as trying to work internationally with a company in Asia or Europe."

Because a free trade agreement already exists between Canada and the U.S., Mexico is likely to feel the greatest economic impact from the trade agreement.

In Southern California, the sectors that are likely to benefit the most from NAFTA include transportation-related industries. Many goods that move from Mexico to Asia go through Southern California, as do goods going from Mexico to Canada. That cargo volume should increase dramatically with NAFTA.

"What's more," Kyser notes, "if a firm has reason to relocate to Mexico, it's probably already done so."

Small businesses also should take advantage of the fact that Los Angeles has the second-largest Spanish-speaking population in the world, White adds. "Only Mexico City has more Spanish speakers -- and that's a huge advantage for California businesses. There's a natural link between Southern California and Mexico that few other parts of the country have.

"In addition, there's a phenomenal amount of business done between Canada and the U.S., and we have a huge expatriate Canadian population in Southern California," he points out. "Canada is now the United States' second-largest trading partner. Its importance will grow as NAFTA takes hold, and we should mobilize to take advantage of that."

Other businesses likely to benefit from NAFTA are those involved in environmental services -- and once again, California businesses are well-poised to take advantage of these new opportunities.

"California's environmental technology is among the most highly sophisticated in the world," White says. "And our environmental service companies will be able to benefit from the environmental protections to be built into NAFTA."

Before charging into international trade, small businesses must first assess their own capabilities and objectives," he continues. "They must determine if they're willing to invest the time and capital to succeed in the international market over the long term. And it's important that companies understand that they probably won't see results for 10 months to two years."

Second, businesses must figure out what questions to ask and where to ask them. "Start with the Department of Commerce and trade organizations," White advises. "There are 78 international business organizations in Southern California, ranging from the regional groups such as the California-Canada Chamber to industry organizations such as the West Coast Metal Importers Association.

"Do some research," he recommends. "Go to the library, check out relevant courses at UCLA Extension, Orange Coast College, Cal-State Fullerton -- many colleges in the area offer courses that can help the would-be importer-exporter."

Other potential sources of help and information include the Greater Los Angeles World Trade Association Center in Long Beach; the Los Angeles office of the Export Small Business Development Center, a unit of the Small Business Administration; and the California Commerce and Trade Agency in Sacramento.

"My advice to small business is 'don't be afraid to take advantage of NAFTA,'" Kyser says. "Mexico represents a huge market. This is what businesses need to look at." And White recommends that those who are nervous about NAFTA keep in mind that "the international sector is the only bright spot in the California economy.

"You do what you're good at," he adds. "And in California, that's international business. We could do better, and NAFTA is key to that improvement."