North American Free Trade Agreement: a perspective from the U.S.

Providing an opportunity for a major competitive boost, NAFTA could write the prescription American industry desperately needs.

How does the North American Free Trade Agreement (NAFTA) affect the American metalcasting industry?

Any way you look at it, trade creates jobs and new business opportunities for the metalcasting industry. The American foundry industry is changing and restructuring at a rate never before experienced. The agreement will accelerate the changing industry into new markets and materials.

Canada and Mexico are already the two largest markets for U.S. manufactured goods and services. The agreement will ensure even greater market growth and prosperity.

At this moment, trade representatives from the U.S., Mexico and Canada are working diligently on drafting an agreement that will undoubtedly change the way business is done throughout the three countries.

They discussed local content issues, methods of settling future trade disagreements, tariff phase-outs and environmental issues. It is crucial that negotiators reach an agreement that is acceptable to Congress and the American people. For businessmen, foundrymen and all Americans, this agreement is one this country needs.

Regional Blocs

First, American industry needs to be part of a regional bloc. These blocs are the natural by-products of the globalization that has been taking place over the past decade. The Pacific Rim countries are formidable competitors, and the new European Community (EC) promises a strong potential for growth across the Atlantic. A North American Free Trade Zone--with 362 million consumers and a GNP of $6 trillion--is simply an idea whose time has come.

And what an opportune time it is. In the last 5-10 years, many American foundrymen had genuine reservations about associating themselves too closely with our neighbors to the south. Since then, however, Mexican President Carlos Salinas de Gortari and others helped bring about the "Mexican Miracle."

Their accomplishments include: a two-party democracy growing in strength; reform through political measures rather than those involving police-state tactics; the privatization of many state enterprises; a dramatic reduction in inflation and the national deficit; and active encouragement of foreign investment.

There's no better time for the U.S.--the world's leading free market democracy--to strengthen its ties to Mexico. Attention must focus now on making sure that the "miracles" succeed.

Fears of NAFTA

The biggest single roadblock to passage of an agreement is the fear that it will inspire industries to relocate to Mexico because of its low wages--resulting in increased unemployment and depressed wage rates for American workers.

For the most part, this belief is unsubstantiated, and industry should look at the EC countries--the best available model for comparison. As 1992 approached and barriers fell, there wasn't evidence of companies from high-wage Germany migrating to low-wage Portugal or Spain.

Too many other factors go into the decision of where to locate and operate a business most profitably. The wage rate may be low, but there are a number of other considerations that are vital to foundry survival. These factors include the infrastructure, available technology, education and productivity levels of the work force, available energy and, most importantly, proximity to customers.

Changing Marketplace

The metalcasting industry must change with the demands of the customer and the growing marketplace. The key to success is communication throughout the entire business chain.

Intermet Corp., Atlanta, Georgia, is a prime example of a foundry's plan to change with the market and the changing needs of our customer. This foundry launched a new and aggressive aluminum casting effort because of the changing domestic automotive industry. The company is changing to more frequent product cycles and materials flexibility, and is now locating manufacturing plants near the market. Today, its manufacturing costs are low, and quality is high.

The U.S. automotive industry covers 80% of the iron castings manufactured at Intermet. Foundries must be responsive to those customers. In this example, successful foundries will find what consumers demand from the North American auto industry and what the auto industry demands from foundries.

Opportunities 'Down South'

Mexico's domestic auto industry offers the U.S. an excellent market for increased trade. In cars exported and consumed domestically, there are some interesting trends.

The domestic Mexican car industry is growing for two reasons: cars are being consumed domestically, and cars are being exported at increasing rates.

Mexican car and truck production topped 925,000 last year, up from 829,000 in 1990 and 650,000 in 1989.

Auto-related employment, including the parts plants concentrated along the U.S.-Mexican border, has grown 60% in the last five years to 465,000 employees, according to the Mexican Investment Board.

By the year 2000, car and truck sales totals are expected to exceed 2 million units in Mexico.

Knowing this, American foundries must seize this opportunity and serve the growing Mexican auto market, in support of its customers.

Looking Ahead

What about the future? With or without NAFTA, Ford is spending $700 million to modernize and build four-cylinder engines at its plant in Chihuahua, Mexico. Nissan is spending $1 billion on parts and a new assembly plant. And Mercedes-Benz plans to assemble cars in Mexico to better compete with Japanese luxury cars such as the Lexus and Infiniti.

General Motors now employs 56,000 workers in Mexico--the country's largest private employer. In addition, America's Big Three--GM, Ford and Chrysler--are among Mexico's four largest exporters.

It's time to focus on the long-term big picture. Yes, a few jobs in a few industries will be lost to Mexico. Negotiators are setting up long phase-outs and special programs for those cases.

On the other hand, new and more jobs will be produced by free trade with Mexico. The list goes on--the agreement will improve the American trade balance, help curb illegal immigration, and provide inroads into Central and South American markets.

Foundries should take an aggressive approach to NAFTA and not be afraid of competition. Given a fair chance--which this agreement would promote--foundries will go wherever the market is and compete. Once NAFTA is fully implemented, every American will benefit from increased economic growth, lower prices, better access to expanding export markets, greater long-term competitiveness of U.S. industry and hundreds of thousands of new American jobs.

U.S. Secretary of Commerce Barbara Franklin said: "Through the NAFTA, we have taken our first step into the North America of the 21st century--a continent stronger and more dynamic than any on earth."

The Mexico/Canada/U.S. free trade zone would be the world's largest market. For American industry's sake, foundries should all do whatever they can to make sure it becomes a reality.