|U.S. Foreign Policy
N A F T A
Political Science II
University of Tartu
In 1992, U.S. President George Bush, Canadian Prime Minister Brian Mulroney, and Mexican President Carlos Salinas de Gortari signed The North American Trade Agreement proposed by Mexico. The agreement was designed to eliminate barriers to trade and investment in North America. Congress had given special right to President Bush which enabled him to negotiate with Canada and Mexico and leave Congress voting for or against agreement without amendment. New President – Clinton – also supported NAFTA. Under his guidance three side accords (supplemental agreements) were signed in August 1993. Everything else was up to Congress. Would it vote for or against the agreement? How could domestic policymaking in the area of trade, different interest groups and a concern over reallocation of investments influence decision-making process?
There was much debate over NAFTA in the USA because of the opinion that NAFTA might cause job losses. Losing one’s job was a real concern for everybody. You don’t need to be a graduate of Ivy League to understand economic effect of unemployment to your financial situation. Decrease in wages or increase of taxes is a piece of cake compared to losing your job. And there’s more: would you be in favor of the agreement if it might improve economy in general but apparently the factory you are working for closes down and moves to Mexico? Estonians say “ your own shirt is the closest to you “ meaning in this context that personal sacrifice for abstract NAFTA is out of question. NAFTA was a good story (emotional stuff– many people care) for media. Opponents of NAFTA only exaggerated these worries. The AFL-CIO, consumer activist Ralph Nader and multimillionaire Ross Perot (who wanted to become a President) were the fiercest opponents. They argued that not only would U.S. lose jobs but also tax dollars. In Perot’s immortal sound bite: “The sucking sound you hear is all the jobs heading south of the border.” (Ambrose & Brinkley, p 410) Pretty impressive, isn’t it? And it was for many workers.
Two-level analyses suggests that foreign policy is the result of both national and domestic local politics. Congress not only reacts to the Executive branch, but individual members also react to the politics of their own local constituencies, to the dominant ideological politics to which they subscribe, and to the interest groups with which they normally ally.(McCrea) The Executive branch headed by Clinton enthusiastically endorsed the agreement as mentioned already. Clinton’s concern was national: what is better to the country as a whole. The President can’t think in terms of every single individual or even single region. He is representing everybody of this country. Congressmen, on the contrary, represent their local constituency. They are to protect their interests. If NAFTA has a disastrous impact on local economy (imagine some plants closing down) then congressman has no choice. He or she would certainly oppose NAFTA, as voters have a legitimate right to expect protection of their interests and congressmen are normally interested in becoming re-elected. However, as statesmen, congressmen have to understand and take into account what is in the best interest of country in general as well. In addition they have to consider how the majority inside the party is minded and what the ideological background asks them to do. Republicans are supposed to support interest of business and industry. They are the rich guys. Democrats (the poor guys) should be more careful with endorsing the agreement. There was a dilemma in my opinion as President Clinton was Democrat and for NAFTA. Should Democrats congressmen follow their party leader or ideology? Republicans had to face the fact that Clinton is stealing their weapon, playing almost like their game (low taxes, freedom in economy etc.). How could they win next elections if they have nothing better to offer to business circles than Clinton has? They should oppose some of Clinton policies and show how weak and ugly these are but they can’t as they have told almost the same story for years. They can choose to support their ideology or oppose the President. Actually there are more dilemmas (or better array of pair of options) as deciding for congressmen is really multidimensional. To make it more difficult these options are also related and all have to be regarded. What a mess! Let’s count them in conclusion: president or ideology; national or local level interests; interest groups pro or interest groups against (national interest groups pro vs. national against; national pro vs. local against; national against vs. local pro). Congress as a whole has an institutional interest in appearing to look wise in foreign policy. The public will view Congress either as an effective foreign policy partner or may see it as an illegitimate interferer, determined to hamper the President. Therefore they should vote in accordance to how people think (how media has molded people’s opinion) and what is in the best interest of nation.
Inter-branch politics model focuses on the processes by which the institutions involved interact and relate to each other in the decision-making process. In the U.S. this is executive branch and all its agencies and departments versus the U.S. Congress. Congress can and does overrule a united bureaucracy, because U.S. Congress has autonomous powers of its own in the arena of foreign policy. In many instances, Congress is not unified enough to overrule the Executive. (McCrea). In NAFTA case Congress was not a unified actor. I already explained this when discussing two-level politics. Clinton made concessions to Congress, though Congress itself couldn’t change the agreement. There was an interaction between the Executive and Congress. Clinton included trade adjustment assistance for workers who can show injury caused by NAFTA. This was in the best interests of whole nation: to help everybody who might get into trouble, not to make special concessions and deals with single congressmen. Although such kind of deals were made as well. The President was desperate for support. It seemed that opponents of NAFTA were in majority. My opinion is that it would have never been very close vote. I guess congressmen understood that NAFTA was quite a reasonable thing (I shall discuss it in more detail below where I elucidate NAFTA and arguments of the interest groups), but they were tied. They couldn’t “advertise” publicly that they were going to vote for it because people in many districts were not clearly pro the agreement. People were confused and congressmen wanted to see what was the opinion of majority going to be before the vote and analyze consequences of NAFTA to their district and perhaps try to make a deal with Clinton. For example a congressman, Jim Walsh, had heard speculations that he might obtain special federal assistance for his district if he voted for ratification. The result was that the House approved the trade pact on 234 to 200 vote. A bipartisan coalition of 132 Republicans and 102 Democrats prevailed over the opposition of 156 Democrats, 43 Republicans, and 1 independent. Thus, the Clinton Administration had prevailed with the help of three-fourths of the Republican membership and with less than half of the Democrats. Senate approved the agreement by a vote of 61 to 38. Again Republicans were eagerly for – 34 and 27 Democrats approved as well.
I declared my opinion above that the outcome of the vote was predictable because the overall impression of NAFTA is good. There are too many powerful interest groups (chambers of commerce, trade associations, big corporations) for whom NAFTA is useful. The following will benefit from NAFTA:
Industries already experiencing strong export growth with Mexico.
They were expected to continue to gain under NAFTA. Among these industries were capital and high-technology goods producers, food, processors, and certain agricultural producers –particularly corn growers.
The manufacturers of machinery and electrical machinery
Producers of office equipment and construction machinery, consumer durables, communications equipment, and electronic components etc. were also expected to receive a boost from NAFTA.
3) Manufacturing-related services
They should also expand, implying employment gains in transportation, communications, utilities, and business services.
4) banking, investment service and insurance
The agreement greatly expands the market for U.S. financial service sales to Mexico, including banking and investment service and insurance.
Right now many regions in the USA are fueled by banking and finance, law and accounting, telecommunication, capital equipment, and pharmaceuticals. These business-activities look forward to NAFTA. The crucial provisions strengthen the protection of copyrights and other “ intellectual property “and eliminate some restrictions that Mexico imposes on U.S. ownership of Mexican subsidiaries. Publishers, pharmaceutical companies, and computer makers see in NAFTA relief from piracy of the copyrighted material and technology they export to Mexico. The, banks, insurance companies, and security firms that will benefit from dramatically enhanced access to the Mexican market are expected to buy Mexican businesses or invest in them order to serve their new Mexican customers.
Some smaller enterprises (usually they are against) also expect to benefit from reduced barriers to trade with Mexico. All these firms have calculated that reduction or removal of tariffs and other barriers, including enormous paperwork, should increase their sale in Mexico.
Dairy farmers might benefit if milk prices rise. Such a price could result from the removal of Mexican tariffs on milk because Mexico is a major importer of non-fat dry milk. (generally big companies / farmers are for and little firms / farmers against)
Main concerns of opponents are that U.S. firms will leave the United States for the low wage Mexican economy and the American workers cannot compete against low-cost imports. This means decrease in real wage and unemployment.
Supporters argue that U.S. economy is too big to be seriously influenced by NAFTA. Mexico accounts only for 7 per cent of the U.S. two-way trade in merchandise.
Another point which should make congressmen think was a review of the NAFTA computer models by the Congressional Budget Office that found that most of the models indicate increases in U.S. real wages as a result of NAFTA. Whether positive or negative, almost all of the estimated changes are very small.
There is a legitimate concern over the potential for reallocation of investments from U.S. to Mexico. Firstly, this is happening without NAFTA already. Secondly, profit stays in the USA. Thirdly, investments to Mexico make U.S. competitive. The United States faces tremendous competition in third markets for import-sensitive products from other countries (the Far East). Thus, NAFTA is one way to stay in competition. Fourthly, it is also undisputed that NAFTA will create jobs in export industries, and export oriented jobs pay higher wages on average than do jobs in the import-competing sector. Fifthly, investments to Mexico might also increase employment in the USA.
Some large employers expect NAFTA to raise, rather than lower, local employment. One of them points to the experiences. After opening factory in Mexico employment at the original plant was much higher.
American labor is far more productive than Mexican labor. For most U.S. manufacturers the cost of labor is less important than the skills of the work force, the quality of transportation, and access to technology. Thus, U.S. worker has little to fear from low Mexican wages.
In addition Clinton’s Administration offers assistance for those who lose as the “winners” can afford to compensate the “losers”. Firms are moving their factories to Mexico even without NAFTA. The studies consistently find that it costs far more to protect a job than the total earnings of the worker whose job is protected.
This is how the President can think (national level) and how big corporations like to view things.
I have emphasized that congressmen are in different situation. If their district loses jobs because of NAFTA they might try to explain their against vote by using words of NAFTA opponents on national level. It would be too low-brow to admit: “ although the agreement is good to the country, I will vote against it, because it hurts my district and I want to be re-elected ”. I think it is wise for these congressmen to point out firstly that “NAFTA is bad to our country“ and secondly that “and NAFTA is bad to my people in my district“. Opponents of NAFTA (AFL-CIO, Greenpeace, Consumer Federation of America etc.) argue that only big corporations win from NAFTA. Firms will leave U.S. and benefits of NAFTA will go to those who are highly skilled. Less-skilled workers are hurt and the real income of the majority of people will decrease in the long run. They point out that proponents’ stories about productivity and skillfulness of American labor compared to Mexican labor are not true. Productivity of Mexican factories is increasing all the time, since the plants and technology used is newer and what is more important: wages don’t increase necessarily when productivity does. So American worker should be worried anyway. Greenpeace is worried about lower environment standards in Mexico.
My opinion is that opponents and proponents of the agreement could dispute eternally and almost equally but there are at least two points on the President’s side which are indisputable. Firstly, no one can object that Mexican economy is just too little to influence (badly), secondly government will provide assistance for those who are hurt by NAFTA.
Congress voted for NAFTA. Congressmen were encouraged to vote for the agreement by the Executive branch and by various interest groups including big corporations. Still there were many opponents like trade unions (AFL-CIO) and consumer federations who were afraid that many people would lose their jobs and the real income of less-skilled workers would decrease. Ross Perot’s words were frightening: “The sucking sound you hear is all the jobs heading south of the border.” Possibility of losing job aroused interest in everybody and NAFTA issue became very hot. Negative effects were exaggerated in my opinion. Concern over reallocation of investments is real but it has more positive effects than negative. Congressmen had to make a choice between national and local interests. In my opinion the agreement was good for the country as a whole and perhaps not so good for some regions. Clinton offered assistance for workers who could show injury caused by NAFTA. Congress chose national interests and I guess they were right.
case study materials: case 160:
Mary E. Lovely, “Thinking locally, acting globally:
congressman Jim Walsh and the NAFTA vote “
D. Brinkley, “Rise to Globalism“
3. Barbara McCrea’s materials; notes of the lecture