North American Free Trade Agreement: Opportunities and Challenges

313 Pages·1993·28.9 MB·English

by  Khosrow Fatemi (eds.)

NORTH AMERICAN FREE TRADE AGREEMENT
Also by Khosrow Fa temi
INTERNATIONAL TRADE: A North American Perspective
INTERNATIONAL TRADE: Existing Problems and Prospective
Solutions
SELECfED READINGS IN INTERNATIONAL TRADE
THE MAQUILADORA INDUSTRY: Economic Solution or
Problem?
U.S.-MEXICAN ECONOMIC RELATIONS: Problems and
Perspectives
North American
Free Trade Agreement
Opportunities and Challenges
Edited by
Khosrow Fatemi
Dean, Graduate School of International Trade
and Business Administration
Laredo State University, Laredo, Texas
!50th YEAR
M
St. Martin's Press
© Khosrow Fatemi 1993
Softcover reprint of the hardcover 1st edition 1993
All rights reserved. No reproduction. copy or transmission of
this publication may be made without written pem1ission.
No paragraph of this publication may be reproduced, copied or
transmitted save with written permission or in accordance with
the provisions of the Copyright, Designs and Patents Act 1988,
or under the terms of any licence permitting limited copying
issued by the Copyright Licensing Agency, 90 Tottenham Court
Road, London WlP 9HE.
Any person who does any unauthorised act in relation to this
publication may be liable to criminal prosecution and civil
claims for damages.
First published in Great Britain 1993 by
THE MACMILLAN PRESS LTD
Houndmills, Basingstoke, Hampshire RG21 2XS
and London
Companies and representatives
throughout the world
A catalogue record for this book is available
from the British Library.
ISBN 978-1-349-22978-9 ISBN 978-1-349-22976-5 (eBook)
DOI 10.1007/978-1-349-22976-5
First published in the United States of America 1993 by
Scholarly and Reference Division,
ST. MARTIN'S PRESS, INC.,
175 Fifth Avenue,
New York, N.Y. 10010
ISBN 978-0-312-09976-3
Library of Congress Cataloging-in-Publication Data
North American Free Trade Agreement : opportunities and challenges I
edited by Khosrow Fatemi.
p. em.
Includes index.
ISBN 978-0-312-09976-3
I. Free trade-North America. 2. North America--Commerce.
3. North America--Commercial policy. 4. Canada. Treaties, etc.
1992 Oct. 7. I. Fatemi, Khosrow.
HF32li.N666 1993
382'.911812-dc20 93-18906
CIP
Contents
Preface ix
Acknowledgements xiv
Notes on the Contributors XV
Part I Overview
1 Introduction 3
Khosrow Fatemi
2 The Coming Debate on NAFTA 18
Sidney Weintraub
Part II Macroeconomic Issues
3 Introduction 41
4 The North American Free Trade Agreement:
Comparisons with Southern EC Enlargement 43
Robert C. Shelburne
5 The Linking Giant: An Analysis and Policy Implications
of the Canada-Mexico-U.S. Free Trade Area 62
M. Reza Vaghefi
6 North American Trade in the Post-Debt-Crisis Era 84
Barry W. Poulson and Mohan Penubarti
Part III National Perspectives and Bilateral Issues
7 Introduction 101
8 Free Trade Restructuring in Canadian Manufacturing:
An Initial Assessment 103
Ricardo Grinspun
9 The North American Free Trade Agreement: A Canadian
Perspective 117
Edward R. Bruning
v
vi Contents
10 Mexico in a North American Free Trade Area 134
Joseph A. McKinney
11 Facing up to Mexico 145
Peter Morici
12 An Empirical Estimation of the Level of Intra-Industry
Trade between Mexico and the United States 161
Jorge G. Gonzalez and Alejandro Velez
13 U.S. and Mexican Foreign Exchange Risk Management
Techniques 173
Kurt R. Jesswein, Stephen B. Salter and L. Murphy Smith
Part IV Cross-Border and Industry-8pecific Issues
14 Introduction 185
15 Maquiladora Employee Turnover and Job Training 188
James M. Lane
16 Analysis of Ayers' Model of Human Capital Investment
with Political Risk and its Application to the U.S.-Mexico
Border Area 196
Jane LeMaster and Bahman Ebrahimi
17 Mexican EPZs as an Indicator of the Future Outlines of
NAFTA: The Case of Sonora 206
Lawrence W. Nowicki
18 Trade Relations between the United States and Mexico 222
Nancy A. Wainwright
19 U.S.-Mexican Trade Opportunities: Toward the
Development of a Globally Competitive North American
Apparel Industry 231
Sandra Forsythe, Mary E. Barry and Carol Warfield
20 The Potential Effects of NAFTA on the Textile and
Apparel Industry in the United States 239
Kathleen Rees, Jan M. Hathcote and CarlL. Dyer
Contents vii
Part V Environmental Issues
21 Introduction 251
22 The 'Greening' of Trade Agreements: Environmental
'Window Dressing' and NAFTA 252
John J. Audley
Part VI Epilogue
23 Epilogue 271
Khosrow Fatemi
Bibliography 274
Index 292
Preface
The global trading system of recent decades has been dominated by
multilateralism and a multilateral approach to international trade and
financial issues. Its many shortcomings notwithstanding, this system
has generally been successful in bringing about a freer international
trading system by reducing tariffs and other trade barriers. The system,
symbolized and operationalized by the General Agreement on Tariffs
and Trade (GATT), is based on a global, rather than regional,
liberalization of trade. For obvious pragmatic reasons, it also includes
many provisions for regional free trade agreements and economic
cooperation in general. It is under the exemption allowed by these
provisions that many regional trading blocs, the latest of which is the
North American Free Trade Agreement (NAFTA), have been negot
iated.
In many ways, multilateralism was a product of post-Second World
War bipolarity and it flourished in the Cold War era. Like other
products of the period, multilateralism has come under intense pressure
and scrutiny in recent years. But unlike other products of the Cold War
era, it seems to have survived, albeit without much of its glory and
eminence. GATT, a rare success story in the international economic
arena for most of its existence, has become paralyzed in its most recent
round of trade negotiations. The Uruguay Round of multilateral trade
negotiations has been stalled for over a year, and as soon as one barrier
is seemingly overcome, a new problem develops. Whether it is
European obstinacy, American stubbornness or Japanese obduracy,
the fact remains that the Uruguay Round, scheduled for completion in
1991, still has a long way to go, and more and more seems unlikely to
ever reach a meaningful conclusion. Despite the potential for mutual
benefits, it seems that progress in regional free trade agreements
(FTA s) is generally at the expense of, and not in conjunction with,
multilateral trade agreements.
Some might argue that, at least in theory, regional free trade
agreements are discriminatory and in the long run counter-produc
tive; and that NAFTA is no exception. Those who subscribe to this
hypothesis argue that regional FTA s discriminate against non-mem-
ix
X Preface
bers and therefore weaken the effects of market forces. Therefore, in
the long run, their impact will be to reduce global productivity. Their
appeal is that this reduction in global productivity generates what
amounts to short-term regional benefits and few countries are willing
to forgo such benefits, and thus the recent surge in such agreements.
Such theoretical arguments notwithstanding, and from the regional
perspective, the implementation of NAFTA will result in the creation
of the world's largest trading bloc. More significantly, because of the
diversity of, and the economic disparity between, its members,
NAFTA's potential for growth is much greater than other similar
attempts, including the European Community. Furthermore, NAFTA
has a much greater potential for future expansion than other regional
FTAs. For example, it could serve as a base for a 'Hemispheric' FTA,
which would increase its potential substantially.
ORGANIZATION OF THE BOOK
This volume consists of five parts and 23 chapters, including an
epilogue. Its organization is designed is to provide a balanced view
of a very broad and somewhat controversial issue. The volume begins
with an introductory chapter by the editor followed by an overview of
the forthcoming debate on NAFTA by Professor Sidney Weintraub of
the LBJ School of Public Affairs at the University of Texas in Austin.
Weintraub provides an in-depth analysis of the agreement itself and
identifies three issues which in his opinion will dominate the debate.
'These are whether the agreement and its parallel negotiations go far
enough in protecting the environment, whether the parallel-track
understandings on workers' rights are adequate, and how best to deal
with worker dislocation resulting from NAFTA even if, on the whole,
the agreement helps to create jobs in the United States.'
In discussing the approach adopted by the negotiators, Professor
Weintraub divides the text of the 2000-page North American Free Trade
Agreement into four parts: (a) the core agreement of provisions
applicable to all three countries; (b) the chapter annexes, which
contain exceptions to the core understandings; (c) transitory reserva
tions; and (d) the tariff-reduction schedules. The latter two are
temporary provisions and after a period of transition only the first
two parts will remain in force. Professor Weintraub, who gives credit
for the initiation ofNAFTA to the Mexican government, concludes by
encouraging its ratification: 'Just as it would have been remarkable had