'Fortress North America' pact under attack

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THE UNITED STATES, Canada and Mexico took a historic step towards creating the world's largest and richest trading bloc yesterday, concluding negotiations on a treaty that will eliminate all barriers to continental trade and investment over the next 15 years.

But complaints emerged almost immediately that the pact violates international trading rules, creating a 'Fortress North America' that excludes outsiders by imposing stricter rules of origin on imports.

The agreement, which would come into force on 1 January 1994, is also likely to encounter tough ratification battles in the US and Canada, where opponents say opening the border with Mexico will cost jobs and lower environmental standards.

President George Bush and the Canadian Prime Minister, Brian Mulroney, face difficult elections before the implementation date, and votes on the pact in the US Congress and the Canadian parliament are unlikely before the elections.

Opposition politicians in both countries promised yesterday to try to block the draft treaty, although the US Democratic nominee, Bill Clinton, has said he supports the principle of the pact.

The North American Free Trade Agreement supercedes a 1988 treaty between the US and Canada - its largest trading partner - and would create a customs union linking 360 million consumers in a dollars 6,000bn ( pounds 3,200bn) market. The negotiators predicted that the pact would create jobs in all three countries and make North America more competitive globally. 'This is a good day for North America,' President Bush said.

Mexico, a nation of 86 million people emerging from years of protectionism and strict controls on foreign ownership, offers manufacturers from the north cheaper labour costs and a large consumer market. A stronger Mexican economy also promises to stem the flood of illegal immigrants into the US.

Economists expect a migration of manufacturing plants to Mexico under the treaty, a dislocation that Washington and Ottawa say will be offset by growth in demand for higher-quality products and services. Lower costs and economies of scale will allow North American companies to compete more effectively against Japanese and Western European counterparts that benefit from similar savings in South-east Asia and Eastern Europe, officials say.

But critics at home and abroad charge that Nafta will undermine wages and pollution standards in the north without improving incomes or working conditions in Mexico, and some US congressional leaders are threatening new tariffs on continental trade to cover the costs of retraining workers and environmental clean-up along the border.

North America's trading partners in Europe and Asia also expressed reservations over the draft treaty, which would increase 'continental content' requirements for a variety of products. The portion of a car's parts that must be sourced within North America will be raised from 50 per cent to 62.5 per cent under the treaty, prompting Japanese car makers to complain that Nafta 'discriminates against foreign investors and runs the risk of violating the intent and spirit of the General Agreement on Tariffs and Trade'.

The Gatt condones regional trading blocs if they mark progress towards expanding global free trade. But Nafta 'is a giant step in the wrong direction', the Japanese Automobile Manufacturers Association said.

The conclusion of the negotiations - which included an accession clause for other American countries - presents a challenge to participants in the Gatt's Uruguay round, which has collapsed over questions of agricultural subsidies and intellectual property rights. Nafta provides for free trade in food products within 15 years, and Mexico assented to full recognition of US and Canadian copyright and patent laws.