BUSINESS

THE LAST HURDLES

TIME AND ENTHUSIASM FOR A NEW FREE TRADE PACT ARE RUNNING SHORT

JOHN DALY,DEIRDRE McMURDY,BRENDA DALGLISH August 16 1993
BUSINESS

THE LAST HURDLES

TIME AND ENTHUSIASM FOR A NEW FREE TRADE PACT ARE RUNNING SHORT

JOHN DALY,DEIRDRE McMURDY,BRENDA DALGLISH August 16 1993

THE LAST HURDLES

BUSINESS

TIME AND ENTHUSIASM FOR A NEW FREE TRADE PACT ARE RUNNING SHORT

It was a case of what Yogi Berra once called “déjà vu all over again”—Canadian, U.S. and Mexican trade officials meeting behind closed doors in an elegant downtown Washington hotel in a makeor-break effort to hammer out a comprehensive three-way trade deal among their countries. Last August, it was Canada’s dour, bespectacled trade minister, Michael Wilson, who met with tough-talking U.S. Trade Representative Carla Hills and Jaime Serra Puche, Mexico’s polished and articulate commerce secretary, to draw up the final terms of the North American Free Trade Agreement (NAFTA). Last week, some of the names had changed, but the circumstances were eerily similar. Canada’s dour, bespectacled trade minister, Tom Hockin, met with tough-talking U.S. Trade Representative Mickey Kantor and Serra Puche to resolve their remaining differences over new environmental and labor standards agreements to be included in the pact. And as was also the case last August, officials from all three countries looked beyond the conclusion of their talks and conceded that they faced uphill battles in promoting the new, revised NAFTA at home.

As the talks dragged on over last weekend, missing the self-imposed Aug. 6 deadline, differences over the proposed labor and environmental side deals threatened to scuttle the agreement. President Bill Clinton insisted upon the side deals soon after he took office in January, and in theory they were supposed to make NAFTA easier to sell. He argued that they would prevent businesses from moving to Mexico to take advantage of lax enforcement of pollution and labor laws. To accomplish that, U.S. negotiators tabled proposals in April for a trilateral commission with the power to impose trade sanctions to enforce pollution and labor standards. Canadian and Mexican negotiators objected immediately, arguing that sanctions would give U.S. protectionists another tool to attack imports. Clinton’s proposal also failed to satisfy unions and environmentalists who are still steadfastly opposed to the deal. And with time running short before the scheduled January 1, 1994, implementation date for NAFTA, it has also cost Clinton vital support among pro-freetrade Republicans in Congress, where he is

struggling to get any legislation enacted. As a result, says Joseph Jockel, director of the Canada Project at the Center for Strategic and International Studies in Washington, “A lot of people in the administration would be happy if NAFTA just went away.”

With the sanctions issue still unresolved, both Kantor and Hockin issued ultimatums prior to last week’s meetings. Testifying before a congressional committee the previous day, Kantor called himself the “T. Rex of trade,” vowing to hold out for labor and environmental standards with real teeth. For his part, Hockin told reporters he would “never, never, never” agree to sanctions. The Mexicans, in turn, pushed a compromise proposal that would allow the commission to levy fines rather than sweeping sanctions. “It is all very well to have teeth,” said Hermann von Bertrab, head of the NAFTA office at the Mexican Embassy in Washington, “but how sharp do they have to be?”

Of the three sides, Mexican negotiators faced the most difficult dilemmas. Mexican President Carlos Salinas de Gortari’s government has the most to lose from either strong sanctions or the failure of NAFTA. Salinas’s six-year term expires next year, and he has staked his ruling party’s political future on a trade deal that would give Mexico free access to U.S. markets—NAFTA would eliminate most continental tariffs and investment barriers over the next 15 years. And over the past five years, companies outside of Mexico have invested more than $30 billion in the country, largely based on the assumption that they would have unrestricted access to the huge American market.

By contrast, Hockin could afford to take a hard line against the U.S. proposals. The Canadian government has little to lose if the Americans and the Mexicans fail to resolve their differences. The Canada-U.S. Free Trade Agreement, struck in 1988, would remain in place. And while Canada would not gain tariff-free access to Mexican markets, Canada’s total trade with Mexico is just $3.5 billion a year compared with its $226 billion in annual trade with the United States. Even under NAFTA, approved by Parliament without the side agreements in June, most experts say that ratio would not rise dramatically.

As well, with a federal election looming, Prime Minister Kim Campbell and her ministers have recently tried to distance themselves from the pro-U.S. policies of Brian Mulroney. “Canadians don’t seem to be very enthusiastic about NAFTA, so the Conservatives would probably do better if NAFTA does not become a very active issue in the election,” said Simon Reisman, Canada’s chief negotiator during the U.S.-Canadian free trade talks and now an Ottawa consultant. “If it goes on the back burner, it won’t hurt the Tories.”

Aside from politics, Hockin was also responding to warnings from companies who might be targeted under the new side deals. Hydro Quebec has expressed concerns about sanctions, claiming it has already been hurt by environmental lobbying against the $13-billion Great Whale electric power project at James Bay. In 1992, under pressure from lobbyists, New York state cancelled a proposed 21-year, $20-billion contract with Hydro Quebec—although it cited economic reasons.

For Clinton, NAFTA and the side deals are just two of many potential flash points that lie ahead in his ongoing battle to steer his programs through Congress. Last week, Clinton waged a last-minute blitz to win support for his beleaguered budget package. In the end, he eked out a victory in both the Senate and the House of Representatives. In the Senate, Vice-President Al Gore had to cast a tiebreaking vote to win approval for an extensively revised version of Clinton’s plan to eliminate $496 billion (U.S.) from the U.S. federal deficit over the next five years. Earlier in the week, the House of Representatives had voted 218 to 216 to approve the package.

Many experts argue that Clinton’s struggle to get his budget and other major programs through Congress does not augur well for NAFTA. The budget was the centrepiece of his economic program, yet even after watering down many provisions, he was unable to win support from Republican congressmen or senators. Moreover, 41 Democrats in the House of Representatives and 6 Democratic senators voted against him. Declared Jockel: “The President obviously is not the master of Congress.”

Longtime supporters of the deal also complain that Clinton has no strong personal commitment to the pact. During last year’s Presidential primaries, unions and environmentalists applauded Clinton for criticizing the agreement. But he then endorsed it near the end of the campaign, while also vowing to address unspecified “deficiencies.” In January, he announced that he wanted to conclude separate labor and environmental agreements, but provided no details. Finally, in April, Kantor tabled proposals for sanctions. ‘The grudging support for NAFTA is very Clintonesque,” said Wesley Smith, a policy analyst for the right-wing Heritage Foundation in Washington.

BUSINESS

“He has been sloppy and careless. His ambivalence is reflected in his behavior.”

The sanction proposals were intended to win over traditionally protectionist Democrats in Congress, including House Majority Leader Richard Gephardt.

But those proposals have alienated many pro-freemarket Republicans who supported the Bush deal.

Several of those Republicans, including Senator John Danforth of Missouri, have announced that they will vote against NAFTA if the sanctions stand.

Aside from Kantor, however, few senior officials in Clinton’s administration appear to be interested in NAFTA’s darkening prospects. Last month, White House political consultant Paul Begala was reportedly urging key Democrats on Capitol Hill to postpone consideration of NAFTA until after the debate on Clinton’s controversial health care package. The administration will

likely introduce that in late September, which would further delay a NAFTA vote. And much of the external impetus for NAFTA is also subsiding. The European Community, which once seemed a formidable rival trading bloc, is now reeling from the collapse of the European Exchange Rate Mechanism in late July.

As a result, supporters of NAFTA argue that unless Clinton strongly endorses the pact soon, it appears to be headed for defeat. Caiman Cohen, vice-president of the Emergency Committee for American Trade, a 26-year-old organization that lobbies on behalf of 60 large U.S. corporations on trade issues, was blunt: “There are not enough votes there now.” He added that unless Clinton promotes the deal aggressively, most congressmen and senators will fall prey to the popular and simplistic arguments of Texas billionaire Ross Perot, who has denounced NAFTA as “a giant sucking sound of jobs being pulled out of the country.” And as the negotiators pored over the final technicalities of the proposed three-way pact, they were no doubt aware that there is still plenty of time for politicians to undo their efforts.

JOHN DALY

DEIRDRE McMURDY

BRENDA DALGLISH