NAFTA’s reputation hinders Bush on Central America pact

Mark Drajem

Monday, June 13, 2005 | 9:27 a.m.

The North American Free Trade Agreement's tarnished reputation has become one of the biggest impediments to President Bush as he starts his final push to win approval of a similar accord with Central America.

House members such as Democrat John Spratt of South Carolina and Republican Howard Coble of North Carolina, who both supported the 1993 agreement to cut trade barriers with Mexico and Canada, say they are leaning against the Central American Free Trade Agreement because their constituents keep reminding them what a mistake NAFTA was.

"NAFTA was grossly oversold by its advocates, and as a result, when people see pain going on in the economy, they are quick to attribute that pain to NAFTA," Republican Rep. Phil English of Pennsylvania said in an interview.

NAFTA was originally proposed by President Ronald Reagan and negotiated during the presidency of Bush's father, George H.W. Bush. Bill Clinton narrowly won congressional approval for the accord by promising it would add "high-paying" U.S. factory jobs, develop a Mexican consumer base for U.S. exports and stem the flow of illegal immigrants.

Instead, U.S. manufacturers have shed almost 3 million jobs, per capita income in Mexico has lagged, illegal immigration has more than doubled, and a trade surplus with Mexico in 1993 slid into a deficit by 1995 -- where it has remained ever since.

Eric Farnsworth, who helped negotiate NAFTA while at the State Department in 1992, says the irony is that by many yardsticks NAFTA has been beneficial. Total trade between the U.S. and Mexico has more than tripled, to $267 billion, according to the Commerce Department; exports to Mexico have more than doubled and U.S. investment in the country has almost quadrupled to $61.5 billion.

"We did oversell NAFTA, but in the 10 years that it has been in effect, NAFTA has been successful," says Farnsworth, now vice president of the Council of the Americas in Washington.

For the past decade, though, unions have been "on an unrelenting campaign" against NAFTA, Farnsworth says. And in CAFTA, he says the public is being presented with an accord "that literally sounds alike." John Sweeney, president of the AFL-CIO, the nation's largest labor organization, blames NAFTA for the loss of U.S. manufacturing jobs, and said in a June 9 interview that lawmakers who support CAFTA "certainly would be held accountable in their home district."

The Central American accord would end duties on 80 percent of the $15.7 billion in U.S. exports to Guatemala, Costa Rica, El Salvador, Honduras, Nicaragua and the Dominican Republic; expand patent protections; and allow greater market access for U.S. banks and insurers. It would also allow a 50 percent increase in sugar imports from the five Central American nations, phased in over 15 years, and make permanent the duty-free access to the U.S. market that most products from the region already enjoy.

The Senate Finance Committee will begin debate Tuesday after months of delay owing to opposition from labor, sugar and textile groups. So far, CAFTA has been endorsed by only four Democrats, compared with 102 who voted for NAFTA; the No. 2 House Democrat, Rep. Steny Hoyer of Maryland, predicts that fewer than 20 members of his party will vote for CAFTA.

Rep. Xavier Becerra of California, who says he regrets voting for NAFTA, opposes CAFTA because he says it doesn't have strong enough labor provisions and won't raise living standards.

"We are hoping we can convince the administration that the votes aren't there," so it will renegotiate the deal, says Becerra, a Democrat representing parts of Los Angeles.

It isn't just Democrats who have concerns. English, who hasn't decided if he will vote for CAFTA, says there is "close to a public consensus" that NAFTA is a failure. A February poll, taken for the anti-CAFTA AmericansForFairTrade.org by Ayres, McHenry and Associates, found 51 percent of registered voters believe NAFTA "has been bad for the U.S. economy," compared with 37 percent who see it as a boon.

"We do hear a lot of things and anecdotes about" NAFTA's failure, U.S. Commerce Secretary Carlos Gutierrez said in an interview. "But we need to look at facts, and the facts are that the economy has grown substantially since NAFTA." The North American "region of the world is outperforming the European Union and other areas, and that wouldn't be happening if NAFTA weren't successful," he says.

Mickey Kantor, who was Clinton's trade representative and negotiated a variety of companion accords with Mexico to help sell NAFTA to Congress, says: "Is it perfect? No. But has it fulfilled what I saw as its promise? Absolutely." Clinton, who declined a request for an interview, hasn't taken a public position on CAFTA.

Peoria, Ill.-based Caterpillar Inc., the world's largest maker of earthmoving equipment, has seen its exports to Mexico more than triple. U.S. automobile exports have surged to 160,000 vehicles a year from only 4,000 when NAFTA was signed. And Procter & Gamble Co., the biggest U.S. household-goods maker, says NAFTA has allowed it to establish a broad North American market and double sales in Mexico in seven years.

"Anytime anything goes wrong in the U.S. economy, it's convenient to blame NAFTA," says Scott Miller, director of government relations at Cincinnati-based Procter & Gamble. "But every number I see tells me that NAFTA was a success."

That dichotomy can be seen in the U.S. textile industry. The industry has shed more than half its jobs since the agreement went into effect in 1994; at the same time, U.S. textile exports to Mexico tripled as American textile makers sold their fabric to Mexican sewing factories, where it was turned into clothing and exported back to the U.S. duty-free.

"NAFTA was very good for the U.S. textile industry," says Cass Johnson, president of the Washington-based National Council of Textile Organizations, which has endorsed CAFTA. "But there is a sense that NAFTA is to blame for a lot of job losses."

Only two of the 23 lawmakers from North and South Carolina, the two largest textile-producing states, have announced support for CAFTA, even after the endorsement by Johnson's group, the largest textile-industry lobbying organization.

Gary Hufbauer, an economist at the Institute for International Economics in Washington whose 1992 study on the probable impact of NAFTA was used by Clinton to justify his public case for the accord, says many of its shortcomings stem from Mexico's failure to enact the kinds of free-market policy changes needed to spur growth.

In 1992, Hufbauer predicted that the U.S. trade surplus with Mexico would increase as the Mexican economy grew by 6 percent a year. Instead, growth has averaged 3 percent a year, and the accord's benefits haven't filtered down to the poorest in the country, Hufbauer says.

Sen. Max Baucus of Montana, the top Democrat on the Finance Committee, says that "people wonder what benefits they've gotten" from NAFTA and the series of trade agreements that followed. Baucus who voted for NAFTA, last week called on the Bush administration to renegotiate CAFTA. "People are angry," he says. "They find these agreements suspect."

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