Stand firm on free trade

THE North American Free Trade Agreement (Nafta) is in big political trouble. Once lauded as America's answer to European economic integration, this vast free trade zone with Mexico is now seen as a serious threat to the declining US manufacturing base. The fight against Nafta is being led not by Republicans, who support it, but dissident Democrats who oppose the Clinton administration's plan to pass it largely intact later this year.

Also, there is the Ross Perot factor. The independent candidate, who garnered 20 per cent of the votes at the last election, will again go on national television this evening with one of his 30-minute 'teach-ins' on important economic issues. This time the subject is Nafta. Mr Perot has entitled his address 'Keeping Your Job in the US'. It will be his third paid broadcast since March.

In an earlier 'dress rehearsal' giving testimony before the Senate Banking Committee, Mr Perot condemned Nafta as a job-losing disaster that would further erode US manufacturing, leading in turn to the gradual erosion of the middle class. 'These are the highest-paying working jobs and the core of the tax base. Go across the Texas border and look at all of those low-wage plants in Mexico and you are looking at tomorrow,' he said. His message has struck a chord with the US public: public opinion polls reflect deep uncertainty over Nafta. Most people, however, are unaware of what it is actually meant to do.

Some powerful Democrats, led by Richard Gephardt, the House majority Leader, are also threatening to kill Nafta unless the Clinton administration negotiates tough agreements that would dictate environmental protection standards and workers' rights in all three signatory countries. Both Canada and Mexico are strongly opposed to these added constraints.

The Nafta hand dealt to the Clinton administration is a political mess that may further erode plummeting public support. With congressional Democrats warning about increased pollution which will spill over US borders, and Mr Perot agreeing with them that hundreds of thousands of US manufacturing jobs will be lost, the public is understandably nervous. It is one of the very few economic issues that makes for terrific TV, with images of impoverished workers in Third World plants juxtaposed against laid-off US workers walking picket lines.

However, this political theatre obscures one of the minor economic miracles of the past decade. The catalyst was a speech by the former president George Bush, who outlined his view of a vast free trade zone of the Americas, linking Alaska to Argentina and beginning with the accession of Mexico. When his administration signed the Nafta agreement with Mexico, it was the first time such an accord had beenagreed between a huge industrialised nation and a low-income developing country.

Even more stunning was the reaction it triggered, not only in Latin America but in Asia. From the debtor doldrums of the early 1980s, Latin American countries have turned around smartly, with newly liberalised and privatised economies that are outpacing growth in the industrialised world. Chile and Argentina are good examples, but Mexico is the strongest case of an economy that has undergone textbook reforms with impressive growth results. Once a highly protectionist, state-led economy, Mexico's tariff rates are now nearly flat at 11 per cent, against rates of 30 per cent and 25 per cent in Thailand and Korea. The driving force for many of these privatising Latin economies has been the promise of membership in a vibrant regional partnership with the US. At the start of the 1980s, when mistrust of Uncle Sam was still strong, such links would not have been contemplated.

Asia also reacted to the Bush speech and to subsequent efforts to pass Nafta, but with very different motives. There the driving force was fear. The swiftness of Nafta engendered a big culture shock among Asian countries, which feared the loss of a huge, open US market. Japan, in particular, felt betrayed as a big trading partner that had been left out. The response has been fairly predictable: Asian countries are now seeking ways to bring their widely divergent economies closer together. At the same time, they too are liberalising and searching for closer links to Nafta - either through overall Pacific membership, by negotiating a Pafta, or individual membership with countries such as Korea, which has informally applied.

The result of all these efforts has been overwhelmingly positive. That is why the Clinton administration must redouble its efforts to overcome criticism and take the high ground on Nafta. Highly reputable studies refute arguments of widespread, long-term job losses. One recently cited by the administration argues that as a result of the big anticipatory boom in US-Mexican trade - which has transformed a US deficit into a dollars 7bn (pounds 4.5bn) surplus in recent years - more than 400,000 new jobs have been created in US companies.