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Businessweek Archives

Congress Should O.K. The Free Trade Pact


Editorials

CONGRESS SHOULD O.K. THE FREE-TRADE PACT

The U.S., Canada, and Mexico have hammered out a historic North American Free Trade Agreement that would produce a $6 trillion market, if approved by the legislatures of the three nations (page 30). For the U.S., the agreement would gradually eliminate trade barriers with our third-largest and fastest-growing trading partner, increasing trade and creating hundreds of thousands of new jobs in the export sector. And those new jobs are the reason why the U.S. Congress should approve the pact.

Advocates of the plan envisage such a boom in U.S. exports both because Mexico would grow faster and because there is a tariff gap between the two countries. Mexican taxes on imports from the U.S. average 10%, while U.S. tariffs on Mexican goods average just under 4%. All these tariffs would be eliminated over 15 years.

Still, the plan has a downside. Mexico has a per capita income of only $2,300--vs. $23,000 in the U.S.--so some relatively low-wage, low-skill jobs are sure to move there. But those jobs figure to be lost anyway--if not to Mexico, to Southeast Asia. Seen that way, the U.S. benefits more if the jobs head south, because 60% of Mexican export earnings are spent on U.S. goods--far higher than other nations.

Of course, that means nothing to the Americans losing jobs, and some retraining must be provided for them. Similarly, both nations must commit to strict environmental rules on both sides of the border. The Bush Administration insists it has both these problems licked. If so, the North American Free Trade Agreement can boost the economies of all three nations.


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