BUSINESS

A TRADE DEAL IN POLITICAL LIMBO

DEIRDRE McMURDY May 24 1993
BUSINESS

A TRADE DEAL IN POLITICAL LIMBO

DEIRDRE McMURDY May 24 1993

A TRADE DEAL IN POLITICAL LIMBO

BUSINESS

On the evening of Nov. 3, 1992, a raucous crowd of American expatriates crowded around a flickering television set in a smoky, upstairs room at the King’s Road Pub in Mexico City. As the returns for the U.S. presidential election began to show a victory for the Democratic party and Bill Clinton, the Americans, mostly Democrats, began discussing what the new president would bring. But although the prospect of sweeping change was clearly cause for anticipation—and even celebration—in that gathering, the reaction of Mexican government officials to the election of the first Democratic president in 12 years was considerably more subdued. And in the six months since that election, those initial reservations about the agenda of the new administration have mounted, especially concerning the North American Free Trade Agreement (NAFTA). Despite Clinton’s general endorsement of the controversial threeway trade deal among Canada, the United States and Mexico, there is growing unease in many quarters about whether NAFTA will receive congressional approval—even though Clinton’s party has a majority in both the House of Representatives and the Senate. Said Joseph Jockel, director of Canadian studies at the Centre for Strategic and International Studies in Washington: “It is far from being a done deal. The Clinton administration may be willing to push it, but that just may not be enough.”

In fact, anxiety about the fate of NAFTA has been on the rise since April 27, when U.S. budget director Leon Panetta told reporters that the deal would be “dead” if it were put to a vote in Congress now. Despite the efforts of the White House to contain the fallout from Panetta’s remarks, the ensuing panic has renewed the debate about the use of trade sanctions as a means of enforcing proposed North American environmental and labor standards. From the outset, Clinton has insisted that so-called side agreements establishing such standards must be negotiated before NAFTA is pre-

sented to Congress for approval. But while Canada and Mexico have agreed to participate in that process, which resumes this week in Ottawa, they are clearly reluctant to accept use of trade sanctions. And as political support for the trade agreement wavers in Washington, some observers say that disagreement over that principle could put NAFTA under heightened pressure as the deadline for its ratification approaches.

The roots of that reluctance run deep. As lesser partners in the deal, Canada and Mexico are equally leery of giving the United States a tool that could potentially be transformed into a protectionist weapon in a future trade dispute. And while both nations concur that enhanced anti-pollution and workers’-rights

clauses are valid additions to the NAFTA document, they do not want to relinquish any national jurisdiction over those areas to a tripartite body—despite their eagerness to counter U.S. political drift and to implement the trade deal by Jan. 1, 1994. Said International Trade Minister Michael Wilson: “There’s a range of possible approaches here, but I think trade sanctions are not the way to go—there are different ways of achieving things.”

The strong emphasis that Clinton has placed on NAFTA’s labor and environmental clauses reflects, in part, the political imperative to put his own personal stamp on the deal, which he inherited from former Republican president George Bush. But Clinton is also under significant, public pressure from Congress to give those side agreements real clout. Last week, in a speech to the Economic Strategy Institute, a Washington-based policy research group, Democrat Richard Gephardt, the house majority leader in Congress, stated that “without strong supplémentais, NAFTA can’t pass.” He added that the deadline for the trade deal should be extended if the side agreements are not tough enough.

CLINTON MAY BE BACKING NAFTA, BUT THAT MAY NOT BE ENOUGH TO SAVE THE DEAL IN CONGRESS

At least some of the apparent indiffer ence to NAFTA in congressional circles has come about because of the recent preoccu pation with Clinton's domestic economic strategy and the health care issue. Fur thermore, the opponents to NAFTA and the lobbyists for the side deals are highly or ganized and vocal. The deal's supporters, however, tend to be spread over a wide range of business and corporate interests and have, to date, shown relatively little initiative in promoting their perspective.

Despite that political drift, U.S. Trade Representative Mickey Kantor insists that the negotiation of labor and environmental standards can be concluded by July and put before Congress in August. Wilson told Maclean’s that he agrees with Kantor that major strides on the side agreements will soon be made. “Where we’re looking now and where the different views are being expressed is how we enforce the activities and the response of governments,” he said.

Already in Canada, the final stages of NAFTA’s ratification are well under way. A House of Commons committee completed a review of the legislation on May 13 and sent the bill back to the full House for a third and final reading. If the federal government limits debate on the bill, as it has done at previous stages, NAFTA could pass to the Senate as early as May 27. Parliament is scheduled to rise for the summer on June 23.

Despite the blatant political manoeuvring around NAFTA in Washington, Clinton’s recent attempts to reshape such key parts of it cut to the very heart of the new age of globalized markets and freer trade. While economists have heralded the advent of broader international markets and the merits of expanded trade blocs for some time, the infinite detail of administering such regimes still remains largely unsettled to date. And for the first time, international trade policy is now beginning to test limits in the historically sacrosanct realm of national sovereignty. In a recent collection of articles in a joint U.S.-Canadian study of NAFTA, Ties Beyond Trade, economists William Robson and Jonathan Lemco wrote: “When tariffs and other trade barriers are substantial, variations in policies such as labor standards or social benefits have a relatively small impact on competitiveness; when trade is freer, these variations loom larger.”

While the European Community (EC) has been wrangling for years to define the scope of the various multinational agencies required to regulate its open markets, the North American trade situation presents even greater challenges because of the extreme disparity between the three signatories. Unlike Europe, where many of the nations share parallel historical and,cultural experiences, there are broad differences among Canada, the United States and Mexico. Said Murray Smith, director of the Centre for Trade Policy and Law at Carleton University in Ottawa: “NAFTA is such a tough deal—and such a very different one from the EC—because the players are so utterly asymmetrical.”

Indeed, the testy debate over the development of North American environmental standards is one area where such disparities are especially acute. Analysts say that many Mexicans tend to view environmental concerns as a luxury for rich, economically developed nations. Said Roberto Salinas Leon, director of economics at the Centre for Free

Enterprise Studies in Mexico City: “There is a very gradual growth in awareness about conservation and environmental issues. We’ll need at least six-per-cent economic growth for 10 years before Mexicans are in the position to consider the environment before just getting enough to eat and drink.” Carlos Ramirez, a political analyst at the Mexican newspaper El Financiero, added: “Mexico is in transition from a state economy to a capitalist economy with social concerns—we can’t suddenly be judged by the same measures as the other North American economies.”

Some trade experts also suggest that the hard-

line approach of U.S. environmental groups, which has frequently been marked by litigation, may also be an obstacle in developing shared standards. Said Peter Morid, a professor of trade economics at the University of Maine in Orono: “American environmentalists have a real cops-and-badges style. They are obsessed with compliance and control. With a country like Mexico, you need to bring about sustainable, cultural changes in attitude instead of marching around with a rule book.” Carleton’s Smith added that the Canadian approach of “inducing compliance” rather than imposing fines and threatening lawsuits is also at odds with U.S.-style environmental enforcement.

The negotiation of a NAFTA side agreement on labor standards is fraught with many of the same sensitivities. While claiming concern about worker and union rights, organized labor in the United States is clearly attempting to reduce the wage gap that makes Mexican industrial labor and growing productivity such a threat to U.S. competitiveness. However, the labor issues are even more contentious than environmental ones, because they have a direct impact upon Mexico’s political and economic stability.

According to political analysts, close links between labor and politicians have kept Mexico’s Institutional Revolutionary Party in power for 64 years. Most recently, those ties have allowed President Carlos Salinas de Gortari to achieve significant economic reforms, including massive corporate privatization and control of the country’s once rampant inflation. And it is that restructuring that has allowed Mexico to participate in NAFTA and to become an attractive trade partner for the United States in the first place.

Yet another growing concern among NAFTA supporters is that the focus of the Clinton ad ministration is being di verted not only by domes tic issues but by other trade issues as well. The protracted negotiation of the Uruguay round of the General Agreement

on Tariffs and Trade (GAFF) by 112 coun tries is scheduled to take place in Tokyo in early July. And on May 14, in Toronto, se nior trade ministers from the EC, Canada, the United States and Japan gathered for preliminary discussions about the con tentious issue of market access. Increasing ly, as Clinton heads into what may be the most critical-and delicatephase in the evolution of U.S. trade policy for the next century, he must now add juggling to his list of political skills.

DEIRDRE McMURDY

HILARY MACKENZIE