Nafta: The Pollution Issue Is Just A SmokescreenGary S. Becker
Opponents of the North American Free Trade Agreement (NAFTA) in the U.S. claim that weaker environmental and labor market regulations in Mexico give an unfair advantage to producers there. Although calls for a level playing field between developed and developing nations are politically seductive, weaker regulations in the latter do not justify trade restrictions.
Consumers in all countries gain from free trade. Those in developing economies benefit when they get easier access to the high-quality goods that rich countries produce. As long as the goods are safe, consumers in developed nations generally don't care if goods imported from poorer countries are cheaper because they have fewer labor-market and environmental regulations.
Some people argue that free trade produces an "artificial" division of labor among countries because it encourages exports based on weaker environmental and other regulations. But it is as natural for poorer nations to spend less than richer ones on clean air, minimum-wage laws, and other regulations as it is for them to spend less on education and training. No one complains, though, that world specialization is greatly influenced by differences in investments in human capital.
GREEN INK. Studies have shown a strong positive relation between a country's per capita income and its spending on preserving the environment. Such expenditures have already grown sharply in Mexico under the government of President Carlos Salinas de Gortari to more than 1% of its gross national product. Since NAFTA will benefit Mexico, it will increase that country's efforts to protect the environment.
The U.S. has a legitimate concern about Mexican pollution that spills over the border. This is one reason why NAFTA contains so many environmental provisions that it may be the greenest treaty ever negotiated. A glaring example of transnational effects is the extensive pollution from the maquiladora program established in the 1980s that permits factories on the Mexican side of the border to export freely to the U.S. One advantage of NAFTA is that it will lessen border pollution because some maquiladora plants will move to the interior, since they will no longer have to be along the border to get access to the U.S. market.
The White House and many members of Congress want to have a NAFTA commission that will investigate whether certain imports from Mexico result from weaker environmental and labor regulations there. But the political process cannot determine objectively which goods have succeeded in penetrating into a market because environmental and other regulations are less extensive in exporting nations. The investigations into dumping of goods by foreign producers in the U.S. and Europe is not reassuring, for these have been dominated by political considerations, not by careful analysis of the evidence.
In considering NAFTA and other trade agreements, it is important to recognize that labor-market, and even some environmental, regulations have become excessive in most developed countries. Free trade curtails some of the excesses because developed countries then have to compete harder against imports from developing nations. Unions and several powerful lobbying groups in the U.S. oppose NAFTA partly because it will cut back their influence over policy.
Regulations desired by most citizens do not get enacted in developing nations controlled by dictators or cliques. It may be sound policy to curtail trade with these countries, just as many nations refused to trade with apartheid South Africa. But political democracy prevails now in Mexico, Chile, Argentina, much of eastern Europe, and many other parts of the developing world looking for access to better markets, so popularly demanded regulations will tend to get enacted there.
Workers and consumers in democratic nations should be free to make their own judgments about the quantity and kinds of regulations that are required without undue pressure from economically powerful nations. This is an especially sensitive issue in negotiations between the U.S. and Latin American countries because in the past the U.S. has sometimes dictated their domestic policies.
MUCH ADO. Undoubtedly, NAFTA will harm certain sectors of the U.S. economy, for some plants will be moved south after Mexico receives greater access to the U.S. market. The perennial complaint of business and unions about unfair competition is politically more potent when imports come from economies with less onerous regulations.
However, the Office of the U.S. Trade Representative found only 11 U.S. industries out of more than 400 examined that would be vulnerable under NAFTA to differences in environmental rules, lower tariffs, and other regulations. Although one can quarrel a bit with their conclusions, it is clear from this and other studies that the treaty will have a small although overall positive impact on the U.S. economy. NAFTA will help the U.S. and will not encourage unfair competition from Mexico. The U.S. should sign the treaty quickly and without further modification.