Introduction
Seen from the perspective of Washington D.C., the prospects for the proposed North American Free Trade Agreement (NAFTA) appear gloomy. According to Leon Panetta, President Bill Clinton's Director of the Office of Management and Budget (OMB), the agreement is "dead." Many others in the Administration who also support the NAFTA -- most notably Treasury Secretary Lloyd Bentsen, Labor Secretary Robert Reich, and Clinton himself -- are equally concerned because congressional opposition is widespread and growing, most notably among Democrats but with a sizeable Republican contingent as well. A well- financed and -organized effort to derail the agreement is underway by a coalition of interest groups, most prominently labor and environmental lobbying organizations. The opponents' strategy is to portray the NAFTA as leading to a massive loss of jobs, the de- industrialization of the U.S., and a lowering of labor and environmental standards to those of the Third World.
In sharp contrast to this intense hostility and feverish activity in the nation's capital is the view from the statehouses. There, the political atmosphere is far more supportive of increased trade with Mexico, the NAFTA in particular being regarded as almost self-evidently good for the states. Even as the ranks of those in Washington opposed to NAFTA swell, the governors of the fifty states line up almost unanimously in support of the agreement.
The reason cited universally by the governors for their support is NAFTA's expected positive impact on their states, especially on job growth. This surprising consensus among the nation's governors has gone largely unnoticed in the debate over NAFTA, and the agreement's supporters have overlooked a valuable set of allies. More important, however, this difference in outlook reveals much about the difference in decision-making in Washington and the states. Whereas Washington is overrun by special interest groups, the governors have become champions not only of their states' interests but of the general welfare of the nation. On the issue of NAFTA, the governors better represent the interests of the American people than their elected officials in Washington.
NAFTA's Tortuous Path
NAFTA's path to congressional consideration has been a long and difficult one. First advanced as an idea by Ronald Reagan in his presidential campaign of 1980, and promoted in the mid-1980s by The Heritage Foundation, negotiations for a free trade zone among the U.S., Canada, and Mexico did not get underway until proposed by Mexican President Carlos Salinas de Gortari in 1990. Although Salinas's original proposal was for a bilateral U.S.-Mexican agreement, Canada soon requested participation to safeguard its gains from the 1988 U.S.-Canada Free Trade Agreement.
The trilateral negotiations which began in 1991 proved much more difficult than anticipated, largely because of Mexico's desire to delay the opening of many of its most sensitive and politically powerful sectors, such as financial services. The resulting agreement, although not perfect, did provide for the removal of most barriers to trade among the three countries. Substantially completed by May 1992, delays in the negotiations shelved congressional action on the agreement until after the 1992 national elections.
George Bush's defeat in November removed the agreement's key proponent in the U.S. Although Bill Clinton repeatedly expressed his support for the NAFTA in the campaign, he conditioned his approval on the negotiation of additional and unspecified "side agreements" on labor and environmental issues. Ross Perot, by contrast, denounced the agreement, predicting its implementation would result in a "giant sucking sound" of U.S. jobs being drawn south to Mexico. In one of his last acts as President, Bush signed the completed agreement on December 17, 1992, and forwarded it to Congress, where it awaited the new President.
Since assuming office, Clinton's policy has been to postpone congressional consideration of the NAFTA until the side agreements were completed. Negotiation of them began only in March. Since then, further delays have emerged, most importantly, Mexico's and Canada's opposition to the Clinton Administtration's attempts to turn the side agreements into vehicles for protectionism. As a result, Treasury Secretary Bentsen announced in April that the Administration's focus on its domestic economic package would delay a vote on the trade pact until the fall.
Enemies Organize
These repeated delays have given the agreement's enemies time to organize. Among the first to lobby the new Administration were representatives of the flat glass and sugar growing industries, each of which sought to reopen the NAFTA text for modifications in their favor. Much more serious, however, are the efforts of organized labor and other groups, such as environmental organizations, whose economic and ideological interests pit them against free trade.
The AFL-CIO makes no secret of its opposition to the agreement. The defeat of the NAFTA was proclaimed as the "number one objective" of the organization by Secretary/Treasurer Tom Donohue. A coalition of environmental and leftist organizations opposed to free trade in principle, such as the Citizen Trade Campaign, Greenpeace, and Public Citizen, have given added weight to this opposition. A well-financed and broad propaganda campaign has been launched which prominently features provocative allegations against Mexico, such as the employment of child labor, indiscriminate use of dangerous pesticides, and the abuse of human rights.
The most important issue, however, is jobs. According to the Clinton Administration, 700,000 jobs have already been created in the U.S. as a result of increased exports to Mexico. Several hundred thousand more jobs will be added by the NAFTA. Every serious study of the effects of the NAFTA (For more information see: Clopper Almond, Alberto Ruis-Moncayo, "Industrial Effects of a Mexico-U.S. Free Trade Agreement," Interindustry Economic Research Fund, 1991; KPMG Peat Marwick, Policy Economics Group, "The Effects of a Free Trade Agreement between the U.S. and Mexico," 1991; "Review of Trade and Investment Liberalization Measures by Mexico and Prospects for Future United States-Mexican Relations," United States International Trade Commission, Pub. No. 332-282, October 1990. Gary Clyde Hufbauer, Jeffrey J. Schott, "NAFTA: And Assessment" (Washington, D.C: Institute for International Economics, February 1993); Steven Globerman and Michael Walker eds. "Assessing NAFTA: A Trinational Analysis" (Vancouver, B.C.: The Freaser Institute, October 1992). ) shows the U.S. with a net gain in employment, the sole exceptions being a condemnatory brief produced by the AFL-CIO, and a 1992 study conducted by the leftist Economic Policy Institute. (Jeff Faux and Thea M. Lee, "The Effect of George Bush's NAFTA on American Workers: Ladder Up or Ladder Down?" (Washington, D.C.: The Economic Policy Institute, 1992)) Nevertheless, despite the overwhelming empirical evidence to the contrary, organized labor continues to charge that there will be a net loss of jobs. This charge resonates in the slow- growing U.S. economy, where fears of job security among the population have provided fertile soil.
As a result of the intense lobbying by anti-NAFTA forces, what was once commonly regarded as a done deal now shows signs of unravelling. Although two-thirds of the Republicans in Congress support the NAFTA, only one-quarter of Democrats do, according to informal congressional surveys. The situation is worse among the newly elected members, where one-third of the freshmen Republicans in the House oppose or are leaning against the NAFTA. According to Democrat Representative Robert Matsui of California, a NAFTA supporter, only five of 63 freshman Democrat Congressmen openly support the trade pact. The leaders of both houses of Congress, Senator George Mitchell and Speaker Tom Foley, stated in April that, although they themselves support the agreement, a vote on NAFTA would lose in both the Senate and the House of Representatives. Among congressional opponents, the most commonly cited reason for their position is fear of a loss of U.S. jobs, especially in the manufacturing sector of the economy.
NAFTA Support from the States
Yet, even as support for the NAFTA erodes in Washington, it remains solid among the nation's governors. The overwhelming majority of governors actively support the NAFTA; none has come out against the agreement. (This information was gathered by Heritage Foundation staff from March 1 to June 9, 1993, through telephone surveys to the offices of the governors of the fifty states.) Of the 50 governors offices contacted by the Heritage Foundation, at least 40 -- 20 of the 29 Democrats, one of two Independents, and all nineteen of the Republicans -- reported active support for the agreement, with the others having yet to go beyond their signing of the February 1993 National Governors Association statement backing NAFTA.
Their confidence stems from the fact that most states already have seen sharp increases in exports to Mexico over the last five years. During that time Mexico removed many of its most egregious trade barriers against U.S. goods. The NAFTA will simply accelerate the process of opening Mexico to U.S. businesses and exports. Contrary to popular belief, the principal effect of the NAFTA will not come from its elimination of already low U.S. tariffs on Mexican goods -- now averaging 3 percent -- but rather from its dismantling of Mexico's still-formidable barriers to trade, with tariffs currently averaging 11 percent and quotas limiting or excluing altogether many U.S. products. Thus, the governors and U.S. business leaders understand that with the NAFTA in place, the competitive positions of American companies will be even better than they are now.
Support from the Border States
California
California's experience is illustrative of the growing importance of the Mexican market. Last year, the state's businesses exported $6.6 billion to Mexico, an increase of 190 percent over five years. More than 110,000 Californians' jobs depend on exports to Mexico, and an additional 106,000 jobs are supported by U.S. companies operating in Mexico that draw upon the services of California's trucking, management, warehousing, and service industries. (International Trade Administration, U.S. Exports to Mexico: A State-by-State Overview (Washington, D.C.: U.S. Department of Commerce, April 1993), p. 34.) The NAFTA is projected to directly generate nearly 50,000 new jobs in California over the next ten years and to support tens of thousands more.
The opportunities of the Mexican market extend across the business spectrum. Over the past five years, California's exports have increased 489 percent in the food products sector, 382 percent in transportation equipment, 248 percent in electric and electronic equipment, 244 percent in chemical products, 169 percent in industrial machinery and computers, and 548 percent in apparel.
Specific examples are even more revealing. Cal-State Lumber Sales' business in Mexico has increased by 700 percent in recent years, allowing the company to increase its work force in California by 30 percent. (U.S. Council of the Mexico-U.S. Business Committee, The Impact of the NAFTA on California, prepared for The Trade Partnership, Washington, D.C., September, 1992, p. 5.) The positive impact on jobs extends beyond the company's own payroll. According to the company's Director of International Relations, Mary Alice Acevedo, "We buy lumber from several mills; our purchases have helped the mills keep U.S. workers on the job."
Another example is SJS Products, which distributes U.S. manufactured electro-mechanical products. This company faced sizeable layoffs beginning in 1990 because of the economic recession. SJS at that time turned to Mexico to expand its sales and, according to William McGillivray, Director of Sales for the Company, "We have not had to lay off one person since our involvement in Mexico. And all the products we export to Mexico are 100 percent U.S. manufactured." (Ibid.)
Free trade with Mexico has economic benefits that go beyond job creation. One of the most important is allowing U.S. companies to remain internationally competitive through an arrangement in which some of their production is shifted to Mexico. Called co-production, this technique is criticized for losing jobs to Mexico. However, co- production arrangements actually create jobs in those U.S. branches which supply the components and services for a company's Mexican operations. As important, such measures save existing U.S. jobs by making American companies more efficient and better able to face increasing international competition, especially from the Japanese who also use co-production in Southeast Asia and elsewhere.
Businessmen typically are more far-sighted about Mexico's opportunities than are NAFTA critics. Especially important is the realization that, given that 70 percent of Mexico's imports come from the United States, increasing prosperity there quickly translates into increased sales for U.S. companies. Leonard Rabinowitz, the co- Chairman of Carole Little Inc., an apparel manufacturer in Los Angeles, says: "People's fear that this trade agreement is a license to give away American jobs is ludicrous. They're not looking at the big picture. By providing jobs in Mexico, we can create a better marketplace there for American-made products." ("Thumbs Up for NAFTA," Women's Wear Daily, August 19, 1992.)
Given the strong backing of the trade agreement by the state's business community, it is not surprising that California Governor Pete Wilson is a committed supporter of the NAFTA. He has worked closely with the state's many businesses, and the California trade promotion office is one of the nation's most aggressive. Wilson's reasons for backing the agreement are straightforward: "Commerce between the United States and Mexico freed of the constraints of tariff and non-tariff barriers means increased trade, and increased trade translates into vitally needed jobs on both side of the border." Because of Mexico's recent trade liberalization, "between 1987 and 1990, California's exports to Mexico more than doubled -- creating tens of thousands of new jobs."
California's two Senators, however, do not share these views. Barbara Boxer campaigned on an anti-NAFTA platform, giving as her principal reason the loss of jobs that the agreement supposedly would produce. Similarly, Dianne Feinstein has voiced serious reservations about the agreement, again largely related to the feared negative effects on employment. And in California's House delegation, several representatives have taken an anti-NAFTA stance, most justifying their position as a defense of jobs. Among them: Republican Duncan Hunter and Democrats Bob Filner, Dan Hamburg, and George Miller.
Texas
Governor Ann Richards is one of the strongest supporters of the North American Free Trade Agreement, because the Texas economy is so strongly connected to Mexico's economy. In 1992 Texas exported over $18 billion worth of goods to Mexico. According to the United States Trade Representative's office, 148,000 jobs in Texas are directly dependent on exports to Mexico, and another 23,510 jobs are supported by co-production operations in Mexico. ("Production-sharing" includes maquiladoras as well as other businesses that use U.S. parts and components in production in Mexico. )
Texas exports range from consumer goods to capital equipment. Tecnol Medical Products, Inc., a Fort Worth-based manufacturer of disposable medical products, employs 850 people with annual sales of $75 million. Tecnol expects its sales to Mexico to grow by 100 percent in 1993 to $150 million. Omnitrition International, Inc., of Carrollton, Texas, sold over $5 million in nutritional and personal care products last year in Mexico through its 40,000 distributors there. (Statement from the State of Texas Department of Commerce, April 28, 1993.)
Service companies based in Texas are also taking advantage of increased business activity in Mexico. According to Robert L. Herchert, President and CEO of Freese & Nichols, a consulting engineering company from Fort Worth, "Mexico has become a very good market for engineering services and environmental-related operations. Mexico is currently our fastest growing export market. We believe this trade agreement will not only enhance but also sustain our domestic economic growth. Specifically, NAFTA will create new jobs for the U.S. economy and achieve real liberalization in services and intellectual property rights protection." (Ibid.)
Small Texas businesses will benefit the most from a NAFTA. The reason: the trade agreement will reduce the costs of transacting business across the U.S.-Mexican border. For example, CEO Eusebio Compian of American Ice Machines Inc., based in Houston, believes that "traditional cumbersome bureaucracy on both sides of the border hampers the completion of business transactions." According to Compian, "passage of the NAFTA is a necessary tool to simplify, enhance, and increase future business between our two countries. A small firm like ours [over $1.5 million in sales per year] would benefit greatly from the passage of this legislation." (Ibid.)
NAFTA Support in America's Heartland
The opposition to the NAFTA within California's congressional delegation is unusual among the border states. In the others -- Arizona, New Mexico, and Texas -- the governors' support for the NAFTA is matched by that of their congressional delegations. Governor Ann Richards, an especially vocal supporter of the NAFTA, captures the pro-NAFTA spirit of the border states well: "For Texans, the successful conclusion of the Free Trade Agreement cannot be overestimated. NAFTA will have an enormous impact on our economy, putting us literally in the geographic center of a hemispheric trade zone, one that is 25 percent larger than the European Economic Community." (Statement by Governor Ann W. Richards of Texas on the signing of the NAFTA, August 12, 1992.)
Strong bipartisan support for NAFTA in such border states as Texas is often dismissed by critics as being the result of regional self-interest because this area generally is considered as having the most to gain from increased trade with Mexico.
However, some of the strongest supporters of the NAFTA are located in the Midwest, the very heartland of U.S. manufacturing that NAFTA opponents allege will be devastated by Mexican competition. The governors of the industrial states of Wisconsin, Illinois, Indiana, Michigan, and Ohio all are strong supporters of the NAFTA.
Michigan
Of these, Michigan is the most interesting case, for the state is depicted routinely as a certain loser from the NAFTA, and its congressional delegation leads the opposition to the agreement. However, according to the Michigan Department of Commerce, by 1992 the state's rapidly increasing exports to Mexico had actually generated 31,000 jobs, double the amount of Mexico-related jobs that existed in Michigan only five years ago. And those exports were largely manufactured products, most prominently fabricated metal products, transportation equipment, industrial machinery, and other capital goods.
The opening of the Mexican market has had a strongly positive impact across the range of Michigan's manufacturing industries. For example, Detroit Diesel Corporation of Lansing increased exports to Mexico by 80 percent from 1991 to 1992. Employment directly related to Diesel's Mexican sales increased 46 percent, representing 26 percent of all new hiring in Diesel's Michigan operations. (J. Nancy Martin, Detroit Diesel Corporation, in letter to Export Development Authority, February, 18, 1993.)
Haworth Corporation is a furniture manufacturer in Holland, Michigan, that employs 4,000 U.S. workers, 3,500 of them in Michigan. Haworth President and CEO Richard Haworth claims that he supports NAFTA because his shipments to Mexico have increased tenfold in the last two years. The reason: Business growth in Mexico increased demand for office furniture. Says Haworth, "With Mexican tariff rates of 15 to 20 percent for U.S. office furniture products being phased out [under NAFTA] we anticipate significant progress and growth for the next several years." ("Haworth Inc., Voices Support for North American Free Trade Agreement," press release, Haworth Corporation, March 1993.)
In addition to manufactured products, the reduction of Mexican trade barriers has also led to dramatic increases sales of consumer products by Michigan companies. Steelcase Inc., Amway Corporation, Gerber Products Corp., Kitchenaid, and Vlasic Foods are only a few of the Michigan businesses which have found new markets in Mexico's rapidly expanding middle class.
As in California, the business community's enthusiasm for NAFTA is reflected in the governor's outspoken support for the agreement. According to Governor John Engler, although Michigan "is more than a thousand miles from the border, only California and Texas export more goods to Mexico than does Michigan. Among the foreign nations with which we trade, Mexico is our second largest export customer." (Statement by Governor John Engler on NAFTA, May 27, 1993.) And the benefits are concrete. Says Engler: "31,000 jobs depend directly on trade with Mexico. In 1991, Michigan companies sold their products to Mexican customers at the rate of $180,000 an hour -- and that added up to $1.6 billion by the end of the year. Today [1993] Michigan exports to Mexico are fast approaching $2 billion a year." (Statement by Governor John Engler on NAFTA, May 20, 1993.)U.S. Department of Commerce figures and analysis conducted by the Governor's own state economic development agency back him up: Over the past five years food product exports are up by 3,719 percent; textiles up by 2,975 percent; furniture and fixtures up by 1,509 percent; electric and electronic equipment up by 363 percent.
Engler also challenges organized labor's opposition to the NAFTA, saying that they "should understand that if cheap labor were the key to company location, then Vietnam or Somalia would be manufacturing meccas. They are not. Our location, knowledge infrastructure, and workers' skill level give us what I believe is the 'Michigan Advantage' -- and NAFTA will strengthen our advantages even more. We in Michigan should be concerned about union opposition because if NAFTA is not ratified, it will cost us jobs here in Michigan."
Governor Engler's strong advocacy is in sharp contrast to Michigan's congressional delegation. Although Michigan will be a big winner under the NAFTA, most of the Michigan delegation remains opposed to it. In particular, Senator Donald Riegle and Congressman John Dingell and strong allies of organized labor vocally oppose the NAFTA. Senator Carl Levin voted in May 1991 against giving the President the "fast-track" authority to negotiate trade agreements such as the NAFTA, and has expressed serious misgivings about the pact. Levin, who receives considerable financial support from organized labor, also opposed the 1988 U.S.-Canada Free Trade Agreement, the precursor to the NAFTA. Today, however, his state employs 234,000 people in jobs directly dependent on exports to Canada.
The industry most closely associated with Michigan is automobiles, one which it shares with a number of states. Critics of the NAFTA charge that Mexico's cheap labor will devastate employment in the U.S. automobile industry. U.S. companies supposedly will now move their plants south to take advantage of cheaper Mexican labor.
However, far from devastating the industry in the U.S., the NAFTA will open a range of new opportunities. It is the Mexican automobile and auto parts market, not that of the U.S., which has long been shut tight against foreign competition. As Governor Engler noted in meetings with Mexican officials last March, an American-made Oldsmobile now costs $50,000 in Mexico because of import restrictions. Any opening of the Mexican market would only increase the potential for U.S. exports to that country. In fact, the reduction of Mexican trade barriers since 1986 has increased the number of U.S. jobs directly supported by exports of automobiles and automobile parts to Mexico from around 12,000 to 75,000.
As impressive as that number is, it is much smaller than it could be because of Mexico's remaining protectionist policies on automobiles. For example, last year fewer than 20,000 of the 300,000 automobiles sold in Mexico were manufactured in the U.S. However, the NAFTA could raise that total to one million in sales annually by forcing Mexico to eliminate its export performance laws, remove the domestic content rules that require U.S. car manufacturers to use Mexican parts for cars made in Mexico and cut in half tariffs on U.S. cars and light trucks. (Alan Reynolds, "Opposition to Free Trade Hurts U.S. Industry," Detroit News, April 7, 1992, p. 3B.)
Although the U.S. automobile companies likely will continue relocating some of their existing operations to Mexico, the jobs lost will be more than offset by a net gain in employment from the export of automobiles and parts. Engler adds that U.S. automobile exports to Mexico easily could double once Mexican barriers are removed. His estimate is supported by General Motors Executive Vice President William Hoglund who notes that the U.S. Department of Commerce projects that the Big Three U.S. auto makers -- General Motors, Ford, and Chrysler -- should increase their exports to Mexico by $1 billion the first year after NAFTA is implemented, meaning 15,000 new jobs.
As in other industries, the benefits of the NAFTA to the car companies stem not only from increased exports, but also from efficiency to be gained through co-production. Although Ford and its U.S. workers will benefit from the increased sale of U.S.-manufactured cars in Mexico, Ford also will be able to use its Mexican operations to remain competitive against European and Asian rivals. Through existing "production-sharing" arrangements, Ford makes most of the components for its small cars and trucks in Michigan. These include brakes, fuel tanks, and electronic components for instrument panels. For every car Ford produces in Mexico, three-fourths of the components originate from U.S. plants. Without its co-production facilities in Mexico, Ford could not remain competitive with Japanese small car and truck imports and those jobs in Michigan would be lost. Similarly, for GM, 15,000 of its U.S. jobs are due to its current exports to Mexico. In Michigan alone, 72,000 jobs in a range of industries are connected to this type of "production-sharing" with Mexico, which the NAFTA will increase to over 75,000. (Border Trade Alliance, op. cit.)
Ohio
Ohio's two Senators strongly oppose the NAFTA. According to Howard Metzenbaum, if the NAFTA is adopted, "thousands more American manufacturers will flee the U.S. to exploit Mexico's lax labor and environmental protections." Metzenbaum's opposition to the NAFTA is consistent with his earlier opposition to the U.S.-Canada Free Trade Agreement. Yet, according to the U.S. Trade Representative's office, exports from Ohio to Canada and Mexico have created an estimated 170,000 jobs in the state.
Senator John Glenn also has expressed similar concerns about massive job loss. Yet, exports to Mexico over the past five years have risen dramatically: 1,622 percent in paper products, 412 percent in rubber and plastic products, 186 percent in industrial machinery and computers, and 181 percent in fabricated metal products. These have already created 15,000 jobs in Ohio. (U.S. Council of the Mexico-U.S. Business Committee, The Impact of the North American Free Trade Agreement on Ohio, prepared for The Trade Partnership, Washington, D.C., September, 1992, p. 2.) The Border Trade Alliance estimates the total will quickly jump to over 60,000 under the NAFTA. (Ibid.) Well- known companies like the Mead Corporation, Procter & Gamble, and Anchor Tool & Die -- all operating from Ohio -- have already benefitted from liberalized trade with Mexico over the last five years. Procter & Gamble says their exports to Mexico alone support 1,500 jobs in the U.S., and estimates the NAFTA will create an additional 2,000. (Ibid., p. 5.)
The automobile industry is important in Ohio as well. As with Ford, General Motors' Mexican operations will allow the company to compete against low-cost Asian imports and will increase employment in those U.S. plants which supply components. GM's Packard Electric Division has been able to add component manufacturing jobs at its Warren, Ohio, plant because of exports to its subassembly facilities in Mexico. Of less interest to Ohio's citizens, but nevertheless significant, is the fact that Packard Electric has also opened a components manufacturing plant in Mississippi to service its Mexican operations.
Despite the predictions of doom from the congressional delegation, Ohio Governor George Voinovich is a strong supporter of NAFTA because he has traced one in seven manufacturing jobs in Ohio to exports, many of those to Mexico.
Illinois
Governor Jim Edgar of Illinois also supports the NAFTA. Says Edgar: Passage of the NAFTA will mean "thousands of jobs for Illinois and an economic boost for our state, particularly in the long term. Illinois exports to Mexico have more than tripled in the last five years, and the elimination of trade barriers will mean our businesses and their workers can continue to prosper from that trend." (Governor Jim Edgar, "Remarks on Free Trade, 1992 Republican National Convention," August 17, 1992.)
Edgar's support is well-founded. Since he took office in 1990, Illinois' exports to Mexico have grown 137 percent, and Mexico is now its second-largest export market. Exports have increased enormously over the past five years: in food products by 2,080 percent, in fabricated metal products, 1,133 percent, in primary metals, 966 percent, and in transportation equipment, 638 percent. (U.S. Exports to Mexico: A State-by-State Overview, op. cit.) In 1992, 30,000 Illinois jobs were directly attributable to exports to Mexico, over 15,000 of those being added during Edgar's tenure. Another 84,000 jobs in Illinois are linked with production-sharing operations in Mexico in industrial machinery and computers, electric and transportation equipment, and chemicals. Chicago-based Sears, Roebuck & Company has opened several stores in Mexico in anticipation of the growing consumer market under NAFTA; also in Chicago, Baxter International's exports of medical equipment have increased 60 percent since 1988 as Mexico's tariffs on medical products have come down.
In testimony before the U.S. International Trade Commission, William Lane of Peoria-based Caterpillar explained the multiplier effect on employment in exporting Caterpillar equipment to Mexico: "Cat's 1990 exports to Mexico generated work for about 900 U.S. Caterpillar employees and 1,800 employees at the company's American suppliers. I should point out that most of this work was performed at Cat facilities in Illinois, Indiana, and Pennsylvania." (William G. Lane, International Governmental Affairs Representative for Caterpillar Inc.,"Probable Economic Effects on U.S. Industries and Consumers of a Free Trade Agreement Between the United States and Mexico." Statement before the International Trade Commission, Chicago, Illinois, April 10, 1991.) Estimates are that over 10,000 new jobs will be created over the next ten years in Illinois, directly connected to exports to Mexico. (Border Trade Alliance, op. cit.)
Illinois will also benefit from the NAFTA because of its location along the Mississippi River. As North-South commerce increases, towns like Granite City will benefit. According to Bob Wydra, General Manager of the Tri-City Regional Port District in Granite City, their three million tons of annual shipments to Mexico have created approximately 5,000 jobs in Illinois. Throughout the next decade, Tri-City officials expect increased trade with Mexico to create and sustain thousands of jobs as cost-effective modes of transportation and development. (Statement from Bob Wydra, General Manager of Tri-City Regional Port District, May 4, 1993.)
U.S. financial services and insurance firms, formerly excluded from the Mexican market, will be allowed to operate freely there under the NAFTA. The financial services industry is a sector in which Illinois companies have an enormous competitive advantage. Chicago-based Allstate and State Farm Life Insurance companies, along with Kemper Corporation, will be able to participate in what is a $3.5 billion and rapidly growing market in Mexico. Continental Bank Corporation Vice-Chairman Richard Huber expects his $1 billion trade- related financings to double two years after NAFTA is implemented. (State of Illinois, Washington office.)
Navistar International, a Chicago based truck manufacturer, entered into a long-term cooperative agreement with Dina Camiones S.A., the largest Mexican manufacturer of medium and heavy duty trucks. According to Navistar, in 1989 Dina bought $6 million worth of components. In 1990, that figure swelled to $30 million, and in 1992, the Mexican company purchased $100 million from its U.S. partner. Paul Roseland, the Vice President of Manufacturing for Navistar asserts that "As the Mexican economy continues to improve and investment in industrial infrastructure moves ahead, Mexican business will require a growing number of trucks -- that means good business for us."
Despite this broadly positive economic impact on Illinois, both Illinois Senators -- Carol Mosely-Braun and Paul Simon -- are lukewarm on the NAFTA and several Congressmen oppose the accord. They have focused on predictions by opponents that companies such as Zenith will move their operations to Mexico, thereby displacing U.S. workers. However, Zenith Chairman Jerry Pearlman predicts new jobs will be created for Zenith's television-tube producing plants. Co-production between Zenith's U.S. and Mexican operations will reduce costs and make Zenith's televisions less expensive than Asian ones which are currently assembled in Mexico with Asian components and sold in the U.S.
Support in Other States
Beyond the industrial Midwest, governors from states as economically and geographically diverse as Arkansas, Colorado, Louisiana, Maine, Maryland, Minnesota, North Dakota, Rhode Island, and Washington are as supportive of the NAFTA. And yet opposition to the agreement often features prominently in their congressional delegations.
North Carolina and South Carolina
North Carolina and South Carolina are a case in point. North Carolina Democratic Governor Jim Hunt and South Carolina Republican Governor Carroll Campbell both support the agreement. Both governors work closely with their state development offices to spur exports from such diverse industries as textiles, chemicals, industrial machinery, and transportation equipment. Companies across the range of industry, such as Tyson Foods, Northern Telecom, Kimberly-Clark, Mount Vernon Mills, and Monsanto have increased exports to Mexico and hope to improve that record under the NAFTA.
But the three Republicans and one Democrat that comprise the Senate delegation from those states oppose the agreement. Their political antennae have been oriented toward the politically powerful apparel industry in both states that may experience minor losses in employment because of Mexican competition under the NAFTA. But a focus on this sector to the exclusion of the statewide benefits to be gained by other industries ignores the fact that exports to Mexico have already grown 249 percent in North Carolina and 191 percent in South Carolina since 1987. Exports to Mexico already have created 8,500 jobs in North Carolina and 2,500 in South Carolina. North Carolina's furniture exports are up by 6,813 percent and transportation equipment by 1,359 percent over the past five years.. Over the same period South Carolina's fabricated metal exports rose by 1,222 percent, paper products by 844 percent, and electric and electronic equipment by 476 percent.
Surprisingly, the Senators' opposition also overlooks NAFTA's benefits to the textile industry. Many in the industry fear Mexican competition, but in reality Mexico's market would be more closed without the NAFTA. As Kin Cobb of Stonecutter Mills Corporation of Spindale, North Carolina, says, "I'm in the yarn department, and we haven't done much business with Mexico because we are unable to be competitive with [their] high barriers. When barriers go down, the yarn portion of our company can then do business in Mexico." (Statement from Kin Cobb, Stonecutter Mills Corporation, May 1, 1993.) In fact, Mexican government figures show that imports of U.S. textiles have risen 26 percent in the past two years, reaching $1.6 billion in 1992, with an $81 million U.S. surplus. (Estad¡sticas Anuales, Direcci¢n General de Inversi¢n Extranjera (SECOFI), 1992.) North Carolina's textile and apparel exports rose 946 percent and 524 percent respectively since 1987 and South Carolina's by similar amounts. Far from planning to ravage the U.S. market, the Mexican textile industry is in a deep recession, and its owners and workers alike fear being swept away by U.S. competitors once the market is opened by the NAFTA.
Wisconsin
Of all the states to support a free trade agreement with Mexico, Wisconsin is one of the most unlikely. Located far from Mexico's borders, it has few long-standing historical, political, and commercial ties to that country. Nonetheless, Governor Tommy Thompson has been quick to recognize the commercial opportunities for his state under a NAFTA and outspoken in his support of the agreement. Governor Thompson led a delegation of Wisconsin businessmen to Mexico toward the end of last year. Said Thompson: "In the five short days of the mission, Wisconsin companies were able to lay the groundwork for promising business deals... in everything from milking and farm equipment to Christmas trees."
According to Carlos O. Rioja, Export Director for Wisconsin- based Oshkosh Truck Corporation, the NAFTA would provide both added job security and better relations with his company's trading partners. "If the Mexican and Canadian economies improve [as a result of the NAFTA], they will be capable of buying more Oshkosh Truck products." This business was a result of a November 1989 trade mission to Mexico led by Governor Thompson. At that time, Oshkosh Truck Corporation was able to identify and conclude their first-ever contract with a Mexican company, worth approximately $1.2 million. (Statement from Carlos O. Rioja, Export Director, Oshkosh Truck Corporation, May 3, 1993.) The Paper Converting Machine Company of Green Bay also has experienced significant growth in its business with Mexico. In 1989 paper shipments to Mexico totaled $2,600,000. By 1992 shipments to Mexico reached $14,400,000. (Statement from Paul DeCaster, Manager of Marketing, Paper Converting Machine Company, April 30, 1993.)
Elizabeth Dubman, Manager of Market Development for Polar Ware Company in Sheboygan states that Polar Ware exports to Mexico grew 200 percent in the last eighteen months alone. Dubman has concluded that "there are significant growth opportunities and we are continuing to aggressively focus to expand distribution in Mexico." (Statement from Elizabeth Dunman, May 7, 1993.)
Maryland
Maryland Governor William Donald Schaefer has been a strong supporter of the NAFTA, regarding it as essential if his state's businesses are to remain internationally competitive. Maryland's exports to Mexico have increased at an average annual rate of 44 percent since 1987. (U.S. Council of the Mexico-U.S. Business Committee, The Impact of the NAFTA on Maryland, prepared for The Trade Partnership, Washington, D.C., September, 1992, p. 1.)Under the NAFTA, Maryland-based insurers GEICO Corporation and USF&G will have access to Mexico's insurance industry, which previously was closed to foreigners. The NAFTA will also benefit Maryland companies like GSM Industries that produce oil and gasfield equipment, because the agreement forces Mexico's state-owned electricity and petroleum monopolies to adopt competitive bidding practices and accept bids from U.S. companies on an equal basis. Mexico's $6 billion telecommunications industry will be fully opened to U.S. telecommunications manufacturers and services companies when the NAFTA becomes law, expanding opportunities for Maryland's Bendix Corp. Microlog Corp.,and Western Electric Company. (Directory of American Firms Operating in Foreign Countries, Vol. 3, 12th ed. (New York: World Trade Academy Press, 1991); Greater Cleveland Growth Association, The Greater Cleveland International Trade Directory, 1992-93. ) To spur Maryland exports to Mexico, Schaefer's department of commerce has sent several successful delegations of businesses to Mexico in recent years. In an April 21 speech to the Southern Governors Association, Schaefer called for passage of the NAFTA and advocated extending the NAFTA to include countries in Central and South America.
Contrasted to Schaefer's support for the NAFTA is the opposition by Maryland's two Senators: Barbara Mikulski and Paul Sarbanes. Once again, the principal reason given for their opposition is the feared negative impact on employment; but unlike Schaefer, neither has visited Mexico with businesses from the state. Nor do these Senators fully appreciate the NAFTA will create jobs for Maryland's insurance, oil equipment, and telecommunications industries.
Colorado
Democrat Governor Roy Romer is a strong supporter of the NAFTA. Since Mexico began opening its economy in 1987, Colorado's exports to it have increased by 118 percent, from $69 million to $151 million. (U.S. Exports to Mexico, op. cit., p. 36.) As in many other Western states, the NAFTA will stimulate jobs in services industries in Colorado that will grow with the expansion of North-South commercial activity. According to Eric Miller, Executive Vice President of Blackfox Investment Group in Denver, Colorado, "With Denver on the Rocky Mountain Ridge, we should focus on North-South trade instead of East-West. That is the future of this area. Denver becomes a distribution base for Mexican companies wanting access to U.S. markets and similarly for Canada." ("Selling South of the Border: Some Colorado Businesses Already Have Made the Move to Mexico, but Others May Need to Hustle for a Piece of the Action," Colorado Business, Vol. 19, No. 11, p. 43.) Other Western states like Utah, Arizona, and New Mexico also are looking to develop more sophisticated transportation, warehousing, and delivery systems along several corridors connecting Mexico with Canada.
Governor Romer is working with Colorado's mining, agricultural, and high-tech industries to locate markets in Mexico. According to Nat Bostwick, a former official with the Colorado state development office who now works for John Clark Inc., a mining equipment manufacturer in Colorado which does business in Mexico, "Mexico is one of the largest mining countries in the world. All of the [U.S. mining] companies are doing business through joint ventures. Mexico has gone from one of the most protected markets to virtually free trade." (Ibid.)
Another area for U.S. markets is Mexico's growing consumer base. Gerry Baby Products Corporation has been taking advantage of this market by selling since 1988 the car seats, strollers, carriers, and cribs it manufactures in Colorado to Mexico. Gerry expects annual sales to grow by 15 percent in the coming years because of Mexico's insatiable demand for U.S. consumer products among its growing middle class. (U.S. Council of the Mexico-U.S. Business Committee, The Impact of the NAFTA on Colorado, prepared for The Trade Partnership, Washington, D.C., September, 1992, p. 5.) Jerry Busto, President of Jerry's Discount Auto Repair and Emission Testing Corporation, also sees a growing market for auto piston seals it manufactures in Denver and is now exporting to Mexico. According to Busto, "Many people in Mexico need our product because they drive cars with worn-out diesel- powered engines that use greater than normal amounts of fuel." (Linda Walker, "Local Firm Develops Ties With Mexico," Rocky Mountain News, March 1, 1992.)
In states like Colorado, jobs created under production- sharing operations between U.S. manufacturers and Mexican assembly operations are growing. Denver-based Samsonite Corporation, which employs 1,100 workers in Colorado, is a typical example of how U.S. companies are using Mexico to remain internationally competitive while keeping jobs in the U.S. According to Tom Leonard, President of Samsonite USA, its luggage assembly operations in Nogales, Mexico, support 100 jobs at the Samsonite's Tucson Arizona facility, another 187 jobs employed by Samsonite's 64 domestic suppliers located in eighteen states. Says Leonard, "Samsonite's production-sharing operation in Nogales is essential to our competitive position, giving us an advantage over competitors, whose operations are in Southeast Asia, both in terms of quality and design protection." (The Impact of the NAFTA on Colorado, op. cit., p.9.)
The Role of the Special Interest Groups
Environmental organizations opposed to the NAFTA have been especially active in Congress, but the most powerful anti-NAFTA lobbyists in Washington are those of organized labor. The reason for organized labor's opposition to the NAFTA is that, although virtually every study indicates that overall U.S. employment will expand from freer trade with Mexico, there will inevitably be some job dislocations, particularly in those industries which are the most heavily protected and often the most heavily unionized. Thus, organized labor's opposition stems not from a concern for the general welfare of the American people, but for the interests of its own members.
The most vocal opponents of the NAFTA in the Congress are those most closely associated with organized labor, which is quick to reward those it favors with generous campaign financing. For example, Ohio's Senator Metzenbaum received $602,000 in direct contributions from labor PACs in the 1986-1992 period. ("Federal Election Campaign Reports," Almanac of American Politics (Washington, D.C.: The National Journal), pp. 2-3.) During the same period, Senators Riegle and Levin from Michigan netted over $470,000 and $678,000 respectively. (Ibid., p. 2.) These figures include only direct payments and do not include the often much larger indirect contributions and support operations. Although he faces a primary challenge in 1994, Senator Riegle has already been endorsed by the AFL-CIO, with the union's Michigan President Frank Garrison saying that the organization "is going to make damn sure Don Riegle is re- elected." ("Survivor Riegle gets labor backing as Dem.," The Observer, February 11, 1993, p. 17A.)
A cross-referencing of the most active anti-NAFTA Senators and Congressmen with a list of the recipients of large campaign contributions from organized labor reveals a remarkable overlap. Of the top forty recipients of labor campaign contributions, for example, 90 percent oppose the NAFTA. To be sure, ideological affinity accounts for most of this, as those most closely associated with organized labor usually are also philosophically opposed to free trade. But it also clearly demonstrates that there are more material incentives at work to help the representatives toe the line. This understandable attentiveness to the concerns of their most important backers, however, does put these members of Congress at odds with the interests of their states. In fact, an unusually high proportion of the funding for Metzenbaum's 1988 record-setting campaign came from out-of-state contributions. (Paul Furiga, "Most Metzenbaum Funds Are From Non- Ohioans," The Repository (Canton), August 25, 1988, p. H6.)
Because of the NAFTA's demonstrably positive impact on the general welfare and strong support throughout the local economy, organized labor's clout at the state level has not been sufficient to force a governor into open opposition to the NAFTA. But it has persuaded some governors to temporize their endorsements. Such is the case of New York's Governor Mario Cuomo. Exports to Mexico of manufactured goods have created over 23,000 jobs for New Yorkers over the past five years, and they are growing rapidly. (Border Trade Alliance, op. cit.) In addition, New York's enormous financial community will be among the biggest beneficiaries of the NAFTA as the trade pact forces Mexico's formerly closed financial sector to open to American competition. Exports are up in all categories. Even such unlikely exporters as New York's apple growers, which formerly were effectively excluded from Mexico's market because of tariff walls, have benefitted from Mexico's opening and see the NAFTA as the only way to ensure their long-term access to that growing market.
Despite the agreement's beneficial impact on New York, however, the normally outspoken Cuomo has been surprisingly reticent regarding the NAFTA. His silence is not attributable to a lack of information, as his own state development agency has been quite active in promoting business in Mexico and has kept his office informed regarding the strong support for the NAFTA among the state's businesses. Nor is he opposed to free trade: He has repeatedly protested against "Japan-bashing," being fully aware of the importance of Japan's market for New York's businesses. Instead, the reason for his reluctance to openly support the NAFTA presumably lies in Cuomo's close relations with organized labor, which has long been generous to his campaigns.
Mario Cuomo is not the only governor whose national political ambitions have produced an equivocal attitude toward the NAFTA. Their impact on positions toward the NAFTA can be seen in President Clinton's own evolving views. As governor of Arkansas, Bill Clinton was a strong supporter of free trade with Mexico. However, in his presidential campaign, Clinton's interests shifted to a national audience, leading him to pursue the votes and financial resources of the Democratic Party's core constituencies, especially organized labor. As a result, he conditioned his support of the NAFTA on the negotiation of supplemental agreements on environmental and labor issues.
NAFTA: An Engine for Small Business Growth
Small and medium-sized businesses are critically important for generating new jobs in America. Over 80 percent of new job growth during the 1980s was seen among small and medium-sized businesses. Moreover, Mexico is a very important market for small businesses because its proximity and its existing trade relations with the U.S. make doing business in Mexico less costly for small businesses.
Saniserve Corporation is a typical example of the importance of Mexico for small and medium-sized businesses. Based in Indianapolis, Saniserve is an ice cream machine manufacturer that employs 130 people. Last year Saniserve sold $490,000 worth of equipment to Mexico, and expects sales to grow to $650,000 this year. According to Saniserve's CEO Gabriel Aguirre, seventeen of his employees would lose their jobs if not for exports to Mexico. Says Aguirre, "If this continues I know I'll have to hire more people." (Statement from Gabriel Aguirre, April 21, 1993.) Aguirre plans to increase plant capacity in Indianapolis to keep up with rising exports to Mexico.
On a smaller scale, Air Hydraulics Incorporated, based in Jackson, Michigan, employs seventeen workers in the manufacture of presses and impact machines. President Michael Clark has worked closely with the Michigan state development office to boost his exports to Mexico. Says Clark, "NAFTA will make it possible for the average Mexican-owned facility to purchase machines and industrial products from the United States. Without NAFTA, only the large Mexican multinational corporations would be real prospects." Within three years Clark expects sales to Mexico to comprise 25 percent of his output. "Without NAFTA we will not have a strong export program into Mexico or Latin America. Without NAFTA we stay domestic and stagnate." (Statement from Michael Clark, April 29, 1993.. )
Chicago-based Summit Industries, a small producer of x-ray machines, has expanded exports to Mexico by 500 percent since 1987. Another small business dependent on exports to Mexico is Snider Mold Company of Mequon, Wisconsin. Snider Mold employs 45 people in high- paying jobs manufacturing moldings. It has tripled in size in the last six years, largely because of its increases in exports to Mexico (today 25 percent of their products are sold in Mexico). (Statement from James Meinert, Director of International Marketing, Snider Mold Company, April 30, 1993.) At present, Snider faces a 20 percent Mexican tariff, which will be eliminated by the NAFTA. Thus, the free trade pact will be a boon for this small company's sales to Mexico.
Conclusion
Senator Bill Bradley has termed the passage of the NAFTA President Clinton's most important foreign policy priority. This centerpiece of U.S. policy toward Latin America and international trade, however, has encountered tough and increasing opposition on Capitol Hill. A panoply of interest groups opposed to free trade -- labor unions, environmental organizations, and leftist activists -- have mounted an aggressive, no-holds-barred campaign to defeat the agreement or so radically alter it as to erect new and imposing barriers to U.S.-Mexico trade.
The climate of fear which has been successfully and skillfully cultivated in the Congress, now constitutes the single greatest obstacle to congressional approval of the NAFTA. The individual legislator faces political pressures from environmental, labor, and other interest groups. This pressure is distracting Congress from its duty to protect the general welfare not only of the nation, but if pro-NAFTA sentiments are to be believed, the individual states as well. The undoing of what was once regarded as virtually a done deal would represent a triumph of special interests over the general welfare of the American people.
As far as the NAFTA's impact on the economy, the facts speak for themselves: No independent study supports the endlessly varied contentions of NAFTA's opponents that the removal of the artificial and cumbersome trade barriers with Mexico will harm the U.S. All of the nonpartisan public and private studies agree that the benefits will be overwhelmingly positive and that not armies of unemployed workers but hundreds of thousands of new jobs will be created.
This is why nearly all of America's governors endorse the NAFTA. Democrat as well as Republican governors have experienced first hand the powerful impact of Mexico's opening markets on their state's economy. Moreover, having seen the results, they want more of the same as soon as possible. More attentive to and informed about their states' welfare than any member of Congress could be, America's governors are frustrated and mystified by Congress's opposition to the NAFTA.
In a very real sense, NAFTA is a victim of the continuing erosion of federalism -- of the steady transfer of power from the states to Washington. How else to explain the precariousness of an agreement which the states solidly support? How else to account for the astonishing influence of lobbyists who represent a collection of marginal interests?
The NAFTA has not yet been defeated. But to save it, members of Congress must begin listening not only to their lobbyists, but to the people of their states and the governors who speak for them.
