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Epochal Foreign-Policy Implications of NAFTA : As free trade agreement goes, so go U.S. relations with Latin America

September 07, 1993

Bogged down in political struggles, sometimes against the opposition Republican Party and sometimes against his fellow Democrats, President Clinton has not devoted much time or energy to getting the North American Free Trade Agreement through Congress. Last week he said this will change, which is reassuring. For if NAFTA is rejected, the repercussions could be severe both for this country and Latin America.

THE PLUS ON JOBS--WHY AMERICA WILL BE THE NET GAINER: Domestically, NAFTA will be a job creator. According to the Institute for International Economics, the difference between jobs gained and jobs lost as a result of NAFTA--which will eliminate tariffs and other trade barriers between the United States, Mexico and Canada over the next 15 years--would be a net gain for the United States. Presently, U.S. exports to Mexico support roughly 600,000 American jobs. If exports to Mexico grow at a conservative rate of 13% annually (California's exports to Mexico have grown at 24.4% per year for the last five years) that could create an additional 400,000 jobs in this country by 1995. Clearly, NAFTA is good for the United States.

But a closer look at epochal changes now taking place in Latin America offers equally compelling reasons to approve the trade agreement. If NAFTA is rejected, the United States will be in danger of losing a still-growing export market. Other nations would reap the benefits of Latin America's economic liberalization.

Japan, for example, has already begun to widen its Latin American trading network. Having established a foothold in Mexico in the 1960s, Japanese businesses have continued to grow along our southern border as well as in central Mexico. And Japan is also looking further south for business opportunities.

We should not forget that the Pacific Rim extends all the way to South America, so there are other countries besides Mexico, most notably Peru and Chile, that are potentially important economic players in the region. In the long run, if the United States does not get its act together, it may run the risk of an expanding Japanese presence in South America with first rights to an increased share of resources such as minerals and fishing.

IF THE U.S. BLOWS THE OPPORTUNITY, OTHERS WILL HAPPILY PROFIT: For the past three years, Japan has been Chile's largest export market. In fact, after more than 20 years of U.S. dominance, Chileans are exporting more to Japan than to this country. Peru has also received increased Japanese aid and investment in recent years, at least partly as a result of Japanese interest in helping the government of President Alberto Fujimori, a Peruvian of Japanese descent.

Peru under Fujimori--along with Chile, under President Patricio Aylwin, and Argentina, under President Carlos Menem--have in recent years rejected the protectionist state policies of the past, abandoning them in favor of radical programs of privatization, strict fiscal discipline, lower inflation, foreign investment and open markets. But the pacesetter in this regard is Mexico, under President Carlos Salinas de Gortari, who also gets the most credit for NAFTA, having first broached the proposal to former President George Bush.

But these bold economic experiments are fragile. All these Latin American countries are just starting to reverse decades of failed statist policies, and they have not reached the point where their new economic initiatives benefit most of their population. So there is great political pressure on all of them to reverse course. A rejection of NAFTA could be the negative signal that makes that happen. It would be taken as a sign that the most prosperous nation in the Western Hemisphere is turning its back on its neighbors--and best customers--in favor of protectionist trade policies. And that could return Latin America to the statist, and often anti-U.S., policies of the past.

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