BY RICHARD GUILFORD, JD
“Someone’s going to lose a job, but many more will gain one so, in the aggregate, the world is economically better off.”
— Professor Kevin C. Kennedy
In contrast to the political furor about free trade during the Presidential election of 1992, practically nothing has been heard in the popular press since the North American Free Trade Agreement went into effect in 1994. NAFTA will quietly celebrate its 10th anniversary in Canada, Mexico and the United States at the end of 2003, and from partisan accounts, it is doing as well, and as badly, as expected.
Free Trade looks forward
Free Trade is a concept that promotes long-term economic values over the short term. It holds that international trade in a market-driven economy is a good thing and is to be encouraged; that protectionism (subsidy, tariff and restriction) is bad and should be eliminated; and that cooperative international agreements like NAFTA are the practical means to bring order to international trade. This is especially so as lesser-developed countries move toward more robust democracies and market economies.
Movement to Free Trade is not without pain
Under NAFTA, as well as the World Trade Organization and other multilateral trade agreements, the practical, local effects of free trade are often harsh. Inevitably, with the dropping of trade subsidies and protections, winners and losers rise and fall among the producers of goods and services. This results in growth of efficient economic sectors in one country to the detriment of similar sectors in another. However, overall,
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Kevin C. Kennedy
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according to most sources, removal of tariffs and restrictions has been good for each of the three countries participating in NAFTA. In fact, Mexico has replaced Japan as the United States’s second-largest overall trading partner; Canada is first.
”It is not an unmitigated proposition, however,” says Professor Kevin Kennedy. “Someone’s going to lose a job, but many more will gain one so, in the aggregate, the world is economically better off.”
“Where there is discrete pain,” Kennedy suggests, “governments have an obligation to step in to help dislocated workers by offering additional unemployment insurance and by retraining to achieve re-employment.”
Opinions differ on NAFTA success
The Bush Administration considers NAFTA a success that has tallied net job gains for U.S. labor. However, Public Citizen, an anti-free-trade, anti-globalization watchdog group, claims that U.S. workers have seen 1.7 million manufacturing jobs go elsewhere since its adoption. That figure fails to acknowledge, however, the large number of new jobs created in other U.S. industries by the sizeable net increase in trade between Canada, Mexico and the United States.
Public Citizen points to a free trade problem that promises to be in the news after the first of the year. Lori Wallach, director of Public Citizen’s Global Trade Watch, warns, “More than three million Mexicans who rely on farm income are aware of NAFTA’s next stage, which will come on January 1—the elimination of agriculture tariffs that threaten to wipe out the livelihood of millions of Mexican farmers.” U.S. farmers grow and market their wares with high efficiency. Agriculture has been the most closely protected area of commerce in most countries, perhaps because of its close relationship with domestic politics. The dropping of agricultural barriers in Canada and Mexico threatens significantly to favor U.S. farmers to the painful detriment of small farmers in other countries.
Overall, the record is good. U.S. Trade Representative Robert B. Zoellick, responsible for all international trade matters on behalf of the United States, praises the growth of trade under NAFTA (NAFTA at Eight, A Foundation for Economic Growth, Office of the U.S. Trade Representative):
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“NAFTA’s record is clear: From 1993...to 2001, trade among NAFTA nations climbed 109 percent, from US$297 billion to US$622 billion.”
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“From 1993 to 2001, Canada’s merchandise exports to its NAFTA partners climbed 95 percent, from US$117 billion to US$229 billion. By contrast, such exports to the rest of the world in the period increased only five percent.”
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“Mexico exported US$139 billion to its NAFTA partners in 2001, an increase of 225 percent from 1993. By comparison, exports to the rest of the world increased 93 percent over the same period. Growth in Mexican exports accounted for more than half of the increase in Mexico’s real gross domestic product during the period.”
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“U.S. merchandise exports to NAFTA partners nearly doubled between 1993 and 2001, from US$142 billion to US$265 billion. This was significantly higher than the 44 percent growth in exports to the rest of the world.”
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“NAFTA’s record is clear: From 1993...to 2001, trade among NAFTA nations climbed 109 percent, from US$297 billion to US$622 billion.”
— Robert B. Zoellick
NAFTA may be only the beginning
However, free trade is not simply a trilateral concern, and it is not limited to North America. Central and South American states, aware of the successes of NAFTA, are looking to its experience for leadership. Carlos Menem, former President of Argentina, observed, “[E]fforts to integrate Argentina into the changing global economy are accompanied by a firm determination to integrate the Argentine economy with those of its neighboring countries, especially Brazil and Chile through Mercosur. From here on, the course is set toward integration with the United States and the North American Free Trade Agreement (NAFTA), both of which are engines of growth and investment.”
FAST FACTS ABOUT NAFTA AND CHAPTER 11
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NAFTA governs trade between the U.S., Canada and Mexico. Chapter 11 allows private companies to sue federal governments over laws and policies that “expropriate” their profits.
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The “investor-state” provisions of Chapter 11 are the strongest rights and remedies ever granted to foreign investors in an international agreement. U.S. companies long have felt Mexico imposed unfavorable constraints on foreign investment.
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But Mexico needs investment. About 40 percent of capital investment in developing countries comes from foreign sources. The defined obligations and remedies of Chapter 11 offer Mexico a basis to entice foreign (largely U.S.) capital.
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Investor-state provisions allow foreign investors to bypass a country’s domestic court system in favor of independent arbitrators. This gives foreign investors remedies unavailable to domestic ones, but eliminates the opportunity for appeals.
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Twelve lawsuits are known to have been filed by companies under Chapter 11 provisions. Sevenarose because of environmental laws.
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From Environmental Media Services, www.ems.org |
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On October 16-17, MSU-DCL will host a two-day conference marking the NAFTA anniversary (see announcement). Such a gathering represents a contribution to the international legal and business community in that thoughtful discourse and evaluation can go a long way toward making transitions less painful. Although it will take years to complete the move from old-style, government-supported-and-controlled trade to the unfettered market economy envisioned by supporters of free trade, North America is already well on the way.
Other opportunities in international law and trade at MSU-DCL
MSU-DCL offers law students a rich mixture of courses in international law and trade. Studies offered abroad this year include four summer courses in Guadalajara, Mexico—taught by Professor Kennedy and colleagues from Mexico and MSU-DCL—focusing on NAFTA and international trade law. Six-week Canadian summer externships are available through MSU-DCL in cooperation with the University of Ottawa and the Canadian government, and a new joint JD-LLB program will give MSU-DCL and Ottawa graduates an education and background in U.S.-Canadian transactions (see related story).
Global Trade Watch begs to differ
“...Three million eliminated jobs (which include 1.7 million U.S. manufacturing jobs) and the surging $450 billion U.S. trade deficit make you wonder what outcomes would be necessary for NAFTA proponents to stop misrepresenting the mess that has been spawned by this agreement.
“...More than three million Mexicans who rely on farm income are aware of NAFTA’s next stage, which will come on Jan. 1: the elimination of agriculture tariffs that threaten to wipe out the livelihood of millions of Mexican farmers.
“...Half of Mexico’s population lives on $5 a day 10 years after the signing of NAFTA...During the eight years NAFTA has been in effect, the gulf between Mexico’s rich and poor has grown...
“In Brazil, 10 million people voted against...Free Trade Area of the Americas (FTAA), a 31-nation NAFTA expansion...Opposition to the NAFTA model is spreading throughout the hemisphere.”
– Lori Wallach, Director of Public Citizen’s Global Trade Watch (GTW), a division of Public Citizen, founded in 1972 by Ralph Nader, (www.citizen.org)
With 250,000 dues-paying members, mainly in the U.S., GTW promotes government and corporate accountability in the areas of globalization and trade. It claims credit for the 1999 trade protests in Seattle. |
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INTERNATIONAL TRADE IS ALSO A SECURITY ISSUE
“…at this point in time, when the U.S. is attempting to forge a global coalition to defend civilization, there must be an economic component where we coordinate economically, as well as on the security front. Other nations depend critically on trade and will simply go their own way without us if we are not able to participate and hopefully lead in that exercise...
“...trade is certainly an economic issue...
but trade is also quintessentially a foreign policy and national security issue. And quite literally, if you look at every major U.S. economic initiative in the world, in the post-war period—the Marshall Plan, the creation of the IMF and the GATT, President Kennedy’s Trade Expansion Act and the Kennedy Round of the 1960’s, right up through NAFTA—they were all motivated in very large
part by foreign policy and national security considerations.
“The United States is trying to forge an effective international coalition to deal with the terrorist threat. That obviously has a military and a security dimension. It also must have an economic dimension. And what is more sensible and appropriate than for the world’s countries...to try to improve that component of their relationship as a part of this overall initiative? Indeed, it would be folly not to do so.”
– C. Fred Bergsten, Director of the Institute for International Economics (September 2001 press conference)
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Canadians are happy with NAFTA
“In January 1994, Canada, the United States and Mexico launched the North American Free Trade Agreement (NAFTA) and formed the world’s largest free trade area...NAFTA contains an ambitious schedule for tariff elimination and reduction of non-tariff barriers, as well as comprehensive provisions on the conduct of business in the free trade area...As of January 1, 1998, virtually all Canada-U.S. trade is tariff free...
“Since the NAFTA entered into force, the Canadian economy has grown by an annual average of 3.8 percent, keeping Canada in the lead among the G-7 countries. This healthy growth has translated into the creation of close to 2.1 million jobs, representing an increase of 16% over pre-NAFTA employment levels. Since the establishment of the NAFTA on January 1, 1994, total trade and investment between Canada, Mexico and the United States have steadily increased each year. Canada’s merchandise trade with the United States reached $588.7 billion in 2000. Two-way merchandise trade between Canada and Mexico has doubled since 1994 and reached $14.1 billion in 2000. In terms of Canada’s total merchandise exports, 86.6 percent go to our NAFTA partners...
“Under the NAFTA, Canadian producers are better able to realize their full potential by operating in a larger, more integrated and efficient North American economy. Canadian manufacturers are able to access tariff free, highest-quality intermediate goods from across North America in the production of final goods for export. Consumers benefit from this heightened competition and integrated marketplace with better prices, greater choice of products and higher-quality goods and services.”
From “Canada and the North American Free Trade Agreement,” Canada Department of Foreign Affairs and International Trade
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October 16-17, 2003
Michigan State University-DCL College of Law
East Lansing, Michigan
www.law.msu.edu/nafta
Michigan State University-DCL College of Law will host a two-day conference to explore the history of free trade in North America and to anticipate NAFTA’s future in the U.S. and elsewhere.
Most commentators anticipate that a legal structure governing trade, similar to NAFTA, soon will be adopted by Central and South American countries in the form of Free Trade Areas of the Americas (FTAA).
The conference, organized by MSU-DCL Professor Kevin C. Kennedy, is presented in cooperation with the University of Ottawa Faculty of Law and Universidad Panamericana School of Law in Guadalajara, Mexico. Speakers from all three countries will debate successes and failures of NAFTA during its first decade, as well as its future direction. Core issues are trade in goods and services, investment, and settlements of disputes among governments, between governments and private parties, and between parties.
Speakers at The First Decade of NAFTA conference:
Coordinator Peter Allgeier, Deputy U.S. Trade Representative, Keynote Speaker
Geronimo Gutierrez, Undersecretary of Foreign Relations for North America, Mexico Secretariat of the Economy, Special Luncheon Speaker
Alan S. Alexandroff, University of Toronto
Monica Araya, Yale Law School
Raj Bhala, George Washington University Law School
Chi Carmody, University of Western Ontario Faculty of Law
Catherine Curtiss, Hughes, Hubbard & Reed, Washington, D.C.
Craig Forcese, University of Ottawa Faculty of Law
David Gantz, University of Arizona School of Law
Alejandro Gomez, AD/CDV Investigations, Mexican Secretariat of the Economy
Maureen Irish, University of Windsor Faculty of Law
Celine Levesque, University of Ottawa Faculty of Law
Santiago Gonzalez Luna, Universidad Panamericana School of Law
Patrick Macrory, Director of Legal Studies, International Law Institute, Washington D.C.
Michael Malloy, McGeorge Law School, University of the Pacific
Hector Marquez, NAFTA Office of the United Mexican States, Washington, D.C.
Peter McPherson, President, Michigan State University
Eduardo Núñez, Zenteno y Rocati Abogados, Mexico City
Alberto Szekely, National University of Mexico
J. Anthony VanDuzer, University of Ottawa
Gustavo Vego, El Colegio de Mexico
Todd Weiler, University of Michigan Law School and NAFTAlaw.org
Antonio Yúnez-Naude, El Colegio de Mexico
Peter Zubrin, Senior Counsel, General Motors
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