NAFTA misunderstood but still necessary, expert says

NAFTA misunderstood but still necessary, expert says

As the debate in Washington and on the presidential debate circuit continues over the North American Free Trade Agreement (NAFTA), policymakers would be wise to look at the agreement in global terms, said an industry expert.

“The problem is about perception,” said Lawrence M. Friedman, an adjunct professor at the John Marshall Center for International Business and Trade Law and partner at the Chicago firm of Barnes/Richardson, which specializes in global trade law.

“NAFTA is now a bigger question than just North American trade,” he said, speaking to Chicago business leaders at a luncheon hosted by the Association for Corporate Growth Chicago.

NAFTA was born in 1994 as a restructuring of the Canada/U.S. Free Trade Agreement to include Mexico. It is the largest trade bloc in the world in terms of combined purchasing power parity and GDP of its members.

As a result of NAFTA, trilateral trade among Canada, Mexico and the U.S. rose from $297 billion in 1993 to $930 billion in 2007 while U.S. manufacturing output rose 58 percent from 1993-2006, up from 42 percent between 1980-1993. Canada is now the number one trading partner of the U.S. and Mexico is third, meaning 35 percent of all U.S. exports stay in North America.

“That sounds like a pretty good track record,” said Friedman. “It sounds like something that people would get behind, but it’s not.”

Critics of NAFTA have focused on the abundance of plant relocations since the agreement’s inception, the rise of outsourcing in manufacturing and services and faulty imports as well as unsafe and unregulated working conditions abroad.

“When you think about it though, how many of these things are actually North American issues?” Friedman said. “For the most part, in the last eight years or so, these are issues that have been directed more at Asia than North America.”

The United States has free trade agreements across the globe. There is the Central American free trade agreement, as well as agreements with Australia, Chile, Jordan, Morocco, Singapore, and many more. Yet the U.S. has no such agreements with China, India or Japan, the sources for many of the current free trade concerns.

As a result, many opponents of NAFTA have falsely associated the tainted products, sweat shops and environmentally harmful factories of Asian countries with the agreement the U.S. has with its neighbors.

“So-called free trade is being used as a synonym or misnomer for globalization, for outsourcing,” said Friedman. “If in fact we had a free trade agreement with China, as we do in Mexico, we would have a provision on labor and the environment. We’d have leverage, which we don’t have in the normal agreements.”

Friedman pointed out the recent free trade agreement between the U.S and Peru as an example of how such a deal gives the U.S. an opportunity to leverage for policy changes in foreign countries.

“Peru really did bend over backwards to accommodate the needs of the U.S. legislature by changing their labor standards,” he said.

Both Democratic presidential candidates, Sens. Hillary Clinton (N.Y.) and Barack Obama (Ill.), have called for a strengthening of NAFTA’s labor and environmental agreements along with improved enforcement. Obama has taken it one step further, saying that he’ll work with Canada and Mexico to fix NAFTA and has threatened to pull out of the agreement if a renegotiation does not take place.

He also believes that all trade agreements should be negotiated on behalf of the workers and communities rather than multi-national companies.

“There is some truth to that,” Friedman said.

The NAFTA document itself has innumerable rules and stipulations as to what constitutes an American product, said Friedman. It was negotiated industry by industry.

“There’s an entire chapter in NAFTA dedicated to one single company,” he said. “They have different rules than everybody else.”

Yet, while a retooling of the document may be necessary, it isn’t the only reasons Democrats are currently holding up future free trade agreements with countries like Panama and Colombia. One factor focuses on trade adjustment assistance for those communities that are hurt by relocations and outsourcing due to NAFTA.

“Congress wants a more robust trade adjustment assistance to make sure that communities are taken care of,” said Friedman.

On the Republican side, presumptive presidential candidate Sen. John McCain (Ariz.) believes there is no need to change NAFTA. This is a common refrain from those in Washington who represent border states, Friedman said.

“They see the investment. They see the people,” he said. “They know that the plants that are relocated to the Mexican side of the border are often owned and operated by the U.S. so that profits are returning.
You can’t understand NAFTA by following the flow of goods. You really need to follow the flow of money.”

Whether changes in policy are necessary or not, Friedman believes that NAFTA bolsters a steadfast economic reality: trade between two countries creates winners and losers, but it leaves both nations with greater overall prosperity.

Jeremy Stoltz, Staff Writer

Posted on Monday, June 02, 2008 (Archive on Monday, June 09, 2008)
Posted by jstoltz Contributed by jstoltz

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