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25 IRET Congressional Advisory 1 (1993)

handle is hein.taxfoundation/iretcgadv0024 and id is 1 raw text is: IRETI November 12, 1993 No. 25 NAFTA: A GOOD DEAL WITH A BUM RAP The House of Representatives is about to vote on the North American Free Trade Agreement (NAFTA). If it passes, NAFTA would benefit all three parties - the U.S., Canada, and Mexico. Failure to adopt it would set back global progress on trade, weaken employment and wage growth throughout North America, and jeopardize the economic reforms of the Mexican government. The geopolitical consequences NAFTA is ceri would be highly adverse. Jobs. The A NAFTA is not perfect. ecnomies of Because of the North and Mexico w American content rules, the ...... trade expansion among the agreement participants will result in some trade curtailment with European and Asian trading partners. Numerous cushions for favored industries (including many in the United States) will delay tariff reductions and the free flow of investment across borders for 10 to 15 years. Some non-tariff barriers are removed unevenly. For example, Mexico's trucking firms will be able to operate in all 50 U.S. states after three years, but U.S. trucking firms will need to wait six years for full access to Mexico. Nonetheless, NAFTA is a useful and important first step toward reducing government intrusion into international commerce. Failure to adopt the treaty in its present form would not preclude another effort at a better treaty at a later date, but it would certainly make such an effort extremely difficult and a better outcome highly unlikely. Rejection would also set back efforts to develop a free trade zone throughout the Western hemisphere. Furthermore, it would cause the United States to lose the moral high ground at the Uruguay Round negotiations and to sink to a level, very muddy playing field with the Japanese and the French. Economic effects The effect of NAFTA on U.S. employment has become the key issue. Opponents assert that NAFTA would result in huge U.S. job losses. In fact, NAFTA is certain to increase U.S. jobs. Job gains have already begun. NAFTA proponents calculate an immediate advantage of the (ain to increase U.S. ains hae aleady r' NAFTA, the the U.S., Canada, ill all be lar-ger- and other-wise. pact for U.S. employment on the order of tens of thousands to as many as 200,000 jobs. Currently, 18% of U.S. sales to Mexico are tariff free versus 50% of Mexican sales to the United States. Furthermore, Mexico's tariffs on U.S. products (averaging 10%) are higher than U.S. tariffs on Mexican products (averaging under 2% - 4% on about half of Mexican products and 0% on the half covered by the GSP - Generalized System of Preferences for goods of developing nations). Mutual tariff elimination, therefore, must benefit the net U.S. trade balance with Mexico and provide net gains in U.S. employment in the traded goods sectors. But this calculation is both too simplistic and too modest. The real wage and employment gains for the U.S. from the trade pact are in fact larger than the modest employment gains expected merely from differential tariff reductions. Institute for Research on the Economics of Taxation IRET is a non-profit, tax exempt 501(c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote economic growth and efficient operation of the free market economy. 1730 K Street, N., Suite 910, Washington, D.C. 20006 Voice 202-463-1400 * Fax 202-463-6199 0 Internet www.iret.org

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