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  Global Economic Viewpoint



Robert A. Pastor is professor and founding director of the Center for North American Studies at American University, in Washington, D.C. He is the author of "Toward a North American Community: Lessons from the Old World for the New," and he is writing a new book, "The North American Idea."

By Robert A. Pastor

WASHINGTON, D.C. -- In a debate before Tuesday’s Ohio and Texas primaries, Sens. Barack Obama, D-Ill., and Hillary Clinton, D-N.Y., expressed skepticism of free trade and sharp criticism of the North American Free Trade Agreement (NAFTA).  

Though intent on restoring the reputation of America as a cooperative partner in the world, they concluded by sending an ultimatum to our two neighbors,Canada and Mexico: Either re-negotiate the labor and environmental provisions to make them enforceable, or forget NAFTA.         

Their criticism of NAFTA is unwarranted, but it was particularly disappointing that they did not seize the opportunity to define a new positive approach to our neighbors and to address the new North American agenda that has emerged since NAFTA. But there will be another chance. 

Notwithstanding the promises of its proponents, NAFTA’s goals were to reduce and eventually eliminate trade and investment barriers, and it did that. From 1993 to 2006, trade among the three countries tripled -- from $289 billion to $846 billion. Foreign direct investment quintupled, tying the economies closer together and forging continental firms. If one measures success by whether an agreement achieves its goals, NAFTA was a success. 

Of course, the main concern with free trade is the effect on jobs. But in the first seven years of NAFTA -- the period when trade soared -- the number of new, relatively higher-paying jobs in the U.S. grew by 22.7 million. NAFTA cannot claim all -- or perhaps even much -- of the credit, but it surely cannot be blamed for net job loss.

Over the decades, there has been a steady decline in jobs in manufacturing and agriculture, but most economists conclude that is due more to technology than trade, and it reflects a natural progression to a more productive, service-oriented economy.  

Free trade promotes competition in an expanding market. Firms grow, and some fail. As workers, some people win, and others lose. But as consumers, we all win with cheaper and more diverse products. If people lose their jobs, they sometimes blame trade, even if the real cause is poor management. If their lives are improved by trade, they are more likely to attribute their success to their own skills.

Those who lose are more likely to complain, and that explains the political logic of trade. When asked in polls if NAFTA has benefited their countries, however, a majority of the public in all three countries have said yes, but they also have said yes when asked if the other countries benefited more than theirs.

There is nothing wrong with improving the enforcement of labor and environmental provisions, but as a prescription for correcting the mistakes of trade agreements, it is filled with ironies.

First, the United States was the author of these provisions, largely for political reasons, and Mexico and Canada accepted them. Second, the U.S. is the main culprit in failing to comply with the agreement. Third, their purpose is to have all three governments uphold their own policies, but they don’t need an international agreement for that. And fourth, better enforcement won’t solve our trading problems. 

Indeed, the provisions do not affect U.S. trade or jobs. U.S. firms do not move to Mexico to escape environmental laws or for lax labor laws. They do so for several reasons, one of which is the lower cost of labor. But if that were the only reason, all would move to China. 

The sad part of the debate is not that the assessment and the prescription were wrong; it was that they missed the real issues. NAFTA accelerated economic and social integration, creating a continental market, but the three governments have not kept pace. Trade has tripled, and two-thirds is on trucks, but they have not built new roads. 

The income gap between Mexico and its northern neighbors has not narrowed. Immigration from Mexico to the U.S. has grown worse, but so too have the flow of guns from the U.S. to Mexico. The border, which was supposed to have been flattened by NAFTA, has developed steroid-sized speed bumps since 9/11, turning the North American advantage into a disadvantage.     

None of these issues are mentioned in NAFTA, and the time for debating it is long past. The problem is that the three governments have failed to address this extensive post-NAFTA agenda. Indeed, they have been intimidated by parochial, anti-globalist forces, and they have sought protection in private meetings with CEOs, thereby provoking the very suspicion that the critics fear.  

Some critics fear that the governments are secretly conspiring to merge the three countries into a North American Union. The real problem is that they are doing almost nothing to promote the North American idea.

One of the most important tasks for the new president is to restore America’s prestige in the world, but that will not happen until the world sees that we treat our neighbors with respect.

There are other compelling reasons for the new president to focus on our continent and to meet with his or her counterparts to define a vision and a program for a future North America. 

  • First, no two countries are more important to the U.S. in trade, energy, migration or security than Canada and Mexico. 
  • Second, to compete against China and Europe, we need to partner with our neighbors and transform our free-trade area into a customs union with a common external tariff.  
  • Third, the security of our continent requires a new trilateral approach at both borders and the perimeter.
  • Fourth, we need to build a few North American institutions to propose plans on transportation and infrastructure, education, dispute settlement, and immigration. 
  • Fifth, we should work together to improve the environment and provide a sturdier safety net -- wage insurance, health care, training -- to protect all our workers.
  • Sixth, we need a North American Investment Fund to close the income gap between Mexico and its northern neighbors, because that is the only way to stop immigration and establish a community.

The North American agenda is so full and soimportant that we should stop debating the past and get on with ourfuture.

© Robert A. Pastor