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EXPERTS STILL SPLIT ON NAFTA 20 YEARS LATER
Tripling of North America trade has come with challenges, controversy

By Elizabeth Aguilera | SDUT
12:01 A.M.OCT. 27, 2013

Two decades ago, the launch of a landmark trade agreement in North America spurred some people to predict economic calamity for the United States — untold lost jobs, crippled industries — and others to forecast greater joint prosperity for Americans, Canadians and Mexicans.

Today, amid the start of a major trade conference in La Jolla where that historic pact will certainly be discussed, many experts believe the deal was generally successful. But others continue to raise concerns such as trade imbalances, border restrictions that impede greater U.S.-Mexico collaboration and perhaps inadequate attention to the human cost of sending more U.S. jobs abroad or making other significant shifts in various industries.

The North American Free Trade Agreement is credited with making it easier for U.S. companies to compete internationally by taking advantage of cheap labor in Mexico, helping Mexico to achieve economic and political stabilization and easing the movement of products along the northern border with Canada.

About 6 million new jobs and trillions of dollars in trade between the United States and its next-door neighbors have been attributed to NAFTA since it took effect in 1994. The deal solidified Canada as the United States’ top trading partner and propelled Mexico into the third spot.

But the overall tripling of trade on the North American continent has come with challenges and controversy.

Critics of NAFTA said hundreds of thousands of Americans indeed lost jobs in the early years of implementation, while backers point to new jobs that arose to support the growth in trade. Detractors also cite the United States’ persistent trade deficits with Mexico and Canada, which contrast with the trade surpluses foreseen by NAFTA supporters when the pact was being rolled out.

In the San Diego region, the cut-flower industry was annihilated by NAFTA and avocado farmers faced stiff new competition from their Mexican counterparts, said Eric Larson, executive director of the San Diego County Farm Bureau.

“It’s become the way of the world market and open borders,” he said.

Those borders are not quite open, though, said James Clark, director general of the Mexico Business Center at the San Diego Regional Chamber of Commerce. “NAFTA was good for what it was, but it was incomplete. It never addressed the movement of people,” Clark said.

The migration and travel needs of laborers, executives and others in business and trade cycles were not included in the agreement.

Ultimately, the trade pact is widely seen as succeeding in forging stronger economic ties between the U.S., Canada and Mexico. Some financial experts said a united North American bloc can better pursue common interests with other parts of the world, including the Pacific Rim and Europe.

“(NAFTA) built economies of scale for North America to be competitive in our rapidly changing world,” said Peter Cowhey, dean of the School of International Relations and Pacific Studies at the University of California San Diego. Cowhey also served as the U.S. trade representative in the Obama administration between 2009 and 2010.

“NAFTA has been very helpful in facilitating what ought to be deep relationships and making them a deep success,” Cowhey said.

BENEFITS, DRAWBACKS

At the North American Competitiveness and Innovation Conference in La Jolla, which will run through Wednesday, top commerce officials from the NAFTA countries are set to talk about how to further solidify the U.S.-Canada-Mexico trade bloc. They include U.S. Secretary of Commerce Penny Pritzker, Mexican Secretary of Economy Ildefonso Guajardo and Canadian Minister of Industry James Moore.

The conference agenda also includes sessions dealing with how to improve the California-Baja mega region and how to continue expansion of sectors such as the automotive and green-energy industries between all three nations.

“NAFTA was a big trade liberation that helped us integrate with Mexico and Canada,” said Irena Asmundson, chief economist for the California Department of Finance.

At UC San Diego, Cowhey said each participating country has faced hurdles related to NAFTA, with the bulk of changes happening between the U.S. and Mexico. Many workers had to switch to different jobs because some industries shrank, while others grew because of the trade pact.

“There were significant adjustment costs for both countries, but they aren’t surprises. This just happens with expanded trade,” he said. “The question is, was the effect positive for both countries?”

Various economic experts believe yes. They said the U.S. economy became more agile, domestic productivity rose and American consumers benefited from cheaper goods made abroad. In Mexico, the government shed numerous protectionist policies and the manufacturing and services sectors grew.

NAFTA critics said this pattern of a richer nation outsourcing more of its labor needs to poorer ones could become unhealthy in the long term.

They are concerned that a broad trade policy can mask the need for individual countries to craft their own robust economic-development strategies.

For example, domestic investment in Mexico declined to just under 20 percent in 2009, said a report that year by the Carnegie Endowment for International Peace.

Some experts said domestic investment should reach at least 25 percent for a country to have strong economic growth.

Authors of the Carnegie report said even though NAFTA was successful in increasing trade, foreign direct investment and productivity, “the outcome of Mexico’s development strategy under NAFTA has been a disappointment. NAFTA’s promise of a broad-based dynamic growth has fallen short.”

They also noted that NAFTA-related employment gains in the manufacturing and services industries were offset by employment losses in the agriculture sector.

The overview picture for Mexico is more complicated, with additional factors contributing to the Mexican economy. For instance, Mexican leaders have touted in recent years the growth of their nation’s middle class as well as the burgeoning ranks of engineers and highly educated and skilled professionals.

BORDER INFRASTRUCTURE

Fiscal experts said a critical part of continued growth between the U.S. and Mexico is border infrastructure, particularly in San Diego County.

They said when compared to other similar binational regions in the world, such as Hong Kong, the San Diego-Tijuana “mega region” is held back by infrastructure limitations.

In San Diego, city and business leaders are on a mission to increase foreign trade after a report this year said the area is not living up to its potential. The study, sponsored by the Brookings Institution, ranked San Diego as 17th in total export value but only 55th in export intensity.

Canada and Mexico are the top two export markets for San Diego, and experts expect that relationship to intensify as high-tech industries increasingly look to move their manufacturing to Mexico rather than China.

“The most important thing for San Diego and San Diegans to realize is that Mexico is not a poor country,” Cowhey said. “It is a sophisticated place to do business. We have to be prepared to do business with Mexico in the same level and seriousness in which we do business with Spain or Italy as economies.”

This is seen in the perspective shift at maquiladoras in Tijuana, which have traditionally been low-cost, low-skilled centers of factory activity.

“With costs in China going up, it’s a renewed opportunity to design, develop and manufacture (here),” said Flavio Olivieri, executive director of the Tijuana Economic Development Corp. He considers NAFTA a benefit to the cross-border mega region.

Some of the challenges have included heightened security along the U.S.-Mexico border after the 9/11 terrorist attacks.

“The solutions are not coming as fast as they could,” Olivieri said. “NAFTA was designed as a trade agreement and not as a partnership. It’s time to take it up a notch, to a partnership.”

At Sigmatron, which specializes in electronic components, open space on the factory floor awaits more commerce.

Raj Upadhyaya, executive vice president of Sigmatron’s West Coast divisions, said the company moved into the 112,000-square-foot space last year. It was looking for something smaller, but took a deal on the site and aims to grow into it.

“China’s labor rate is going up and it’s a great chance for us and Mexico to work together,” he said. “They need to concentrate on how to make life easy for the businessman.”

At nearby SMK, which produces more remote controls than any other factory in the world (up to 1.3 million a month), experts are looking to Mexico to take advantage of its strategic position.

“NAFTA has to continue to change,” said Federico Serrano Banuelos, who manages the site. “There is an opportunity for three countries to be seen as an economic bloc.”


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