COVER

THE FIGHT FOR OPEN MARKETS

JOHAN DALY November 29 1993
COVER

THE FIGHT FOR OPEN MARKETS

JOHAN DALY November 29 1993

THE FIGHT FOR OPEN MARKETS

Bob Franks voted in favor of the North American Free Trade Agreement (NAFTA) in the U.S. House of Representatives last week. But like a lot of his colleagues, the 42-year-old first-term Republican congressman from New Jersey had trouble making up his mind. He also had a lot of conflicting advice. In mid-October, President Bill Clinton invited Franks and a dozen of his colleagues to the White House and presented the case for NAFTA. “It was a factual discussion,” said Franks—with no offers of federal construction projects for his district or other favors to distract him. Later, Clinton asked Franks to the White House for dinner a couple of times, but Franks had other engagements. A week after Clinton’s briefing, Texas billionaire Ross Perot strolled into Franks’s office near the Capitol, and urged him to vote against NAFTA. But a few days later, Franks announced that he would vote Yes. Shortly be-

fore the vote last week, six of Franks’s pro-Perot constituents tried one last time to change his mind— and to remind him of the crushing defeat of Canada’s pro-NAFTA Tory government in October’s federal election. Franks took the warning in stride. “It’s

understandable,” he said after his visitors left. “It’s an outcome of the deep economic uncertainty in the country.”

Despite the convincing vote in favor of NAFTA in the House last week, by 234 to 200, those uncertainties remain—both in the United States and abroad. All that remains is that the U.S. Senate pass the treaty and it will then go into effect Jan. 1,1994. NAFTA has received parliamentary approval in Canada and approval in Mexico is guaranteed. Once in operation, the massive trade deal between Canada, the United States and Mexico will eliminate almost all tariffs among the three countries over

A presidential push brings a win for NAFTA the next 15 years. And as Clinton left for the 15-member Asia-Pacific Economic Co-operation (APEC) summit meeting in Seattle last week, he declared that the approval of NAFTA

would give him “a strengthened hand to fight for more open markets around the world.” But in his gruelling campaign to prevail on Capitol Hill—most of it waged against his own Democratic Party—Clinton cut dozens of private last-minute side deals with individual congressmen to protect vulnerable U.S. industries ranging from textiles to peanut butter. As a result, many of his supporters and opponents question his commitment to unrestricted trade. Declared U.S. consumer advocate Ralph

Nader: “For the President to promise protection to win votes for NAFTA is to take the concept of irony to its extreme.” Indeed, in the final days before the vote, both Clinton and his opponents in Congress stepped up their attacks on al-

legedly “unfair” foreign competition. NAFTA opponents denounced Mexican President Carlos Salinas de Gortari’s government as a corrupt dictatorship that deliberately holds assembly-line workers’ wages below $1 an hour and waives enforcement of environmental laws—all in an effort to attract foreign investment. “The working people who stand against this treaty know when the deck is stacked against them,” said Michigan Democrat David Bonior in an emotional speech in the House. Clinton and his congressional allies condemned those attacks as the “politics of fear.” But they played to those same fears, insisting

that the supplemental side agreements on labor involving minimum wage standards as well as stricter environmental laws hammered out by U.S., Canadian and Mexican negotiators last August could be used to force Mexico to clean up its act.

Clinton went even further than that. To secure the last few votes he needed from congressmen worried about the impact of NAFTA on agricultural producers in their districts, he promised to launch a series of trade investigations and other measures against Mexico and Canada. At first glance, some of the measures hardly seemed worthy of the attention of the President of the United States. Among Clinton’s proposed measures: limits on sudden imports of Mexican cucumbers, tomatoes, sweet corn and peppers during the winter; labelling regulations requiring frozen food producers to identify vegetables grown in Mexico; and ceilings on imports of Mexican sugar and com syrup. Turning to Canada, he promised to investigate Canadian grain transportation subsidies. American dumm wheat farmers allege that those subsidies have allowed Canadian exporters to undercut them on price and capture about 20 per cent of the U.S. market for dumm (used mainly to make pasta flour). Clinton also threatened to impose limits on imports of Canadian peanut butter made with lowpriced Chinese and African peanuts. The value of those imports totalled just $14.9 million in 1992, about one per cent of the U.S. peanut butter market.

In Canada, even ardent free-trade supporters balked at such heavy-handed tactics. Said Simon Reisman, who was Canada’s chief negotiator in the 1988 Canada-U.S. free trade talks; “It’s very disturbing that [Clinton] should be throwing the babies out of the back of the sleigh. Some of them are Canadian babies and I don’t like that.” Clinton’s tough talk also provided ammunition for Canadian opponents of NAFTA. They say that Chrétien should back away from the deal and refuse to proclaim NAFTA, which received majority approval in the previous Parliament. “It’s protectionism of the worst kind,” noted Ontario Premier Bob Rae, who has said that

his government will challenge the deal in the courts on jurisdictional grounds. And in Saskatchewan, where much of Canada’s dumm wheat is grown, provincial Agriculture Minister Darnel Cunningham said that Clinton was bribing his way to victory.

Given that the President needed every vote he could muster to pass NAFTA, Canadian officials seemed content to dismiss his sudden focus on relatively minor issues as Washington politics. But Clinton’s dramatic come-from-behind victory in the NAFTA vote also posed more profound challenges to Prime Minister Jean Chrétien on the eve of the two leaders’ first official meeting at the Seattle summit. During the federal election campaign. Chrétien vowed to renegotiate NAFTA to satisfy his concerns about five issues: environmental and labor standards, energy exports, and the way that the agreement will deal with subsidies and dumping (generally, pricing exported goods at less than their fair selling price at home). Before his departure for the meeting. Chrétien de dared: “For me, having no mies on dumping and no rules on subsi_

dies, we’re always subject to pressure or movement by the American government.”

He added: “We want rules that are understood and respected by everybody.”

While Clinton readily agreed to clarify the definitions of dumping and subsidies and to contemplate a side deal on Canadian water supplies to the United States, he remained adamant about sticking to the energy provisions now in the trade deal. During his campaign, Chrétien declared that he wanted to change NAFTA’s energy provisions so that Canada, like Mexico, would become exempt from commitments to supply the United States with oil and gas during shortages.

Despite such quibbles with NAFTA, however, Chrétien clearly shares Clinton’s interest in expanding trade opportunities in Latin America. In fact, expanding trade is a key plank in the Liberal economic platform, and the NAFTA document contains a clause that allows other countries to join the freetrade zone without renegotiating the whole deal from scratch.

Even before Chrétien and Clinton arrived in Seattle, they and their trade advisers were already looking beyond North America. White House officials, flush with their victory in the NAFTA vote, painted visions of a grand “triple play” in trade negotiations. The first step: the NAFTA agreement itself, followed by agreements with the 116 member nations of the General Agreement on Tariffs and Trade (GATT), and a further deal with the 17 member Pacific Rim countries that form the APEC forum. Clinton vows to use NAFTA as a lever to break down barriers to U.S. products in countries around the world when GATT meets in Geneva next month. Those talks, aimed at reaching a new global accord, have been under way since 1986 and face a Dec. 15 deadline. In his statement to reporters at the White House after the vote in the House of Representatives, Clinton argued that the United States must break into new markets to remain the world’s leading economic power. Said Clinton: ‘We have to compete, not retreat.”

That statement sounded eerily similar to the pro-free-market pronouncements of Clinton’s two Republican predecessors, Ronald Reagan and George Bush, whose administration negotiated the agreement before Clinton took of-

the proportion three decades ago— and the ratio is dropping.

Even on the most superficial level, the battle of NAFTA lobbyists exposed the waning political clout of the unions. In their final push before the big vote, AFLCIO leaders and other union opponents of the deal operated out of a dingy, unused hearing room with only one telephone in the Rayburn Building, across the street from the Capitol itself. By contrast, supporters of the deal occupied an elegant ground-floor meeting room in the Capitol building filled with up-todate communications gadgetry. As well, the’ halls were packed with men and women with cheery-looking “NAFTA Yes” and “U.SA NAFTA” buttons pinned on to their elegantly tailored suits.

But while Clinton and his newfound Republican and corporate supporters

fice last January. And by taking a huge political gamble—and winning—on NAFTA, Clinton continued his push to shift his party’s economic policy to the right. In the House vote, Clinton received more support from Republicans than from his own party: Republicans voted 132 to 43 in favor of NAFTA, while Democrats voted 156 to 102 against it.

The vote was a particularly sobering setback for union leaders, traditionally the Democrats’ strongest supporters and the biggest contributors to their campaigns. But in pushing for NAFTA, Clinton concluded that the Republicans and their allies from large corporations were more valuable to him than his old union backers. That assessment was based on the hard political and economic realities of the 1990s: only 15.8 per cent of American workers are now unionized, less than half

prevailed in the House vote, the debate over the economic impact of the deal— and how to cope with the dislocation that it will create—rages on. Clinton acknowledged that in his remarks immediately following the vote. “We must make sure that this pact works to America’s advantage,” he declared. And to do that, Clinton urged the congressional coalition that passed the pact to help him create “a world-class re-employment system” some time early next year.

In the United States, just assessing the scope of the dislocation caused by NAFTA will be at least as difficult. Detailed estimates of the net gain or loss in U.S. employment under NAFTA range from a loss of 490,000 jobs predicted by the left-leaning Economic Policy Institute to a gain of 171,000 jobs forecast by the right-wing Institute for International Economics in Washington. Those net totals are minuscule in comparison with the total U.S. workforce of 119 million. But both supporters and critics of NAFTA agree that they will likely mask more dramatic shifts.

Even the most enthusiastic supporters of NAFTA concede that low-skilled assembly-line jobs in manufacturing are certain to shift south to Mexico—or beyond— from the United States and Canada. The day after the House passed NAFTA, Stephen Bell, managing director of the Washington office of the investment dealer Salomon Brothers Inc. summed up the situation bluntly: “You ask me about the 48-year-old autoworker with a highschool education who lives in Detroit or East Chicago and goes to work for sevenand-a-half hours every day to insert ball bearings in the rear axle of a car? There is no future. It’s already gone.” Bell and other NAFTA proponents ar-

gue that those job losses will be offset by new high-skilled, high-wage jobs in banking, telecommunications and other “knowledge-based” industries. But Bell, who served as chief of staff of the U.S. Senate budget committee from 1981 to 1986, added that many of the displaced workers will be impossible to retrain, and that they will likely end up on social assistance. “You may have to give them a stipend to live on,” said Bell. “These transfer payments are bound to increase as five, six, seven, eight per cent of the population simply find themselves unable to compete in this new world.” In the tumultuous debate before the NAFTA vote in the House last week, opponents of the deal deplored that type of hardheaded assessment. Michigan Democrat Bonior, whose district depends on the auto industry, brought tears to the eyes of some listeners as he lament-

ed the loss of assembly-line jobs. ‘The work of America is still done by people who pack a lunch, punch a clock and pour their heart and soul into every paycheque,” he said. “We can’t afford to leave them behind.”

But despite their passionate pleas, none of the NAFTA opponents offered even the broadest outline of an alternative deal. All of them called for “a better NAFTA,” one that is more than just an “investment agreement” allowing international corporations to siphon capital into Mexico. They argued that trade deals must also address social and political issues, and that negotiations should not be conducted behind closed doors by trade specialists. But even economists sympathetic to those concerns questioned whether a more active Congress would really help to produce such an agreement Jeff Faux, president of the Economic Policy Institute, said that a more open process might yield better trade policy, but it also might

simply produce more protectionism. He added that simply killing NAFTA would only slow the migration of U.S. and Canadian assembly-line workers’ jobs to Mexico. ‘We have to have a training strategy to enhance their ability to compete globally,” Faux said.

That is what Clinton promised when he asked his coalition of supporters on NAFTA to back his “re-employment system.” But few business leaders or leading Republicans expect that that will happen. William Kristol, a former adviser to Republican vice-president Dan Quayle and now a Washington political consultant, said that his party’s backing for Clinton on NAFTA was likely a one-shot deal—a simple case of following through on one of George Bush’s initiatives. “Remember, Churchill supported Stalin for a few years,” Kristol said. Even after the glowing tributes to Clin-

ton’s spirit of bipartisanship following the NAFTA vote, most Republicans and leading corporate executives remain philosophically opposed to linking trade treaties to programs for displaced U.S. workers or for any campaign for political reform in Mexico or elsewhere. During last week’s House debate, Nebraska Republican Fred Grandy condemned “the neo-colonial posture” of NAFTA opponents who wanted to use the agreement to force more political reform in Mexico. “It’s like telling a diabetic: no insulin until you get better,” he said.

There certainly was no shortage of that kind of pure idealism on either side of last week’s epic NAFTA debate. But after all the deal-making and arm-twisting it took for Bill Clinton to prevail, it became clear that politics will never be in short supply in any trade deal.

JOHAN DALY

WARREN CARAGATA