How's NAFTA Now?

How's NAFTA Now?

October 31, 1995

It is difficult to avoid the conclusion that NAFTA has been a disappointment for those who hoped the treaty would promote free enterprise and economic liberty. Despite all the promises, the treaty has failed to deliver a freer market, liberalized trade, and reduced government interference in the private economy. Instead, NAFTA’s first two years have been characterized by hallmarks of excessive government: bailout guarantees, foreign aid giveaways, and environmental controls.

To the mercantilists in Washington, D.C., lower tariffs are dangerous unless accompanied by government intervention into private currency markets. A NAFTA side agreement created a $6 billion Federal Reserve bailout fund for the peso. In the world of finance, a bailout guarantee results in “moral hazard,” i.e., it encourages excessive risk-taking. The NAFTA safety net coaxed Americans into buying billions of dollars worth of high-risk Mexican debt, while ensuring that Mexican leaders would not be held accountable if they failed to make payments. Mexico’s spendthrift policies finally caused the peso to crash, and when the dust settled, the bailout had grown to $50 billion. Though NAFTA concealed Mexico’s true financial condition, heightened investment losses, and decimated U.S. exporters, White House flacks remorselessly proclaim NAFTA’s innocence. If you believe them, you probably think Mrs. Clinton just got lucky in the futures market.

CEI’s 1993 monograph, The Free Trade Case Against NAFTA, warned that the trade bloc would create several perverse incentives for governments to devalue their currencies as a way to promote domestic industries. Former CEI policy analyst Matthew Hoffman deserves credit for noting that NAFTA’s Rules of Origin “require invasive enforcement procedures . . . further politicize trade, and destabilize international currency markets.” Over the past year, the peso devaluation has given a boost to Mexican exports and has generated a small trade surplus with the U.S.

NAFTA’s hostility to the free market extends to its environmental provisions, which imply that impoverished Mexico’s lower environmental standards are an unfair trading practice. “Fair” trade can only be guaranteed through raising Mexico’s enforcement of EPA-style regulations and standards. To comply with NAFTA’s upward harmonization provisions, Mexico’s laws are being patterned after U.S. laws in the areas of transportation, forestry, fisheries, soil, and water standards.

The NAFTA environmental commission launched an investigation of a polluted Mexican reservoir, where large numbers of migratory birds died from exposure to raw sewage. Environmentalist demands for increased public works spending to protect the pretty birds are now bolstered by the findings of an international investigation. How quickly we bird-loving suburbanites forget that the Mexican economy is in 1930s-style depression, that unemployment is nearly 40 percent, and that most consumer debt is in default. With Mexico City bankrupt, it is likely that money for big government projects will have to be borrowed from Uncle Sam, perhaps through NAFTA’s North American Development Bank recently funded by Congress.

As the average Mexican peasant witnessed his life’s savings being wiped out in the financial meltdown, NAFTA officials flew to the posh Caribbean resort in Cancun to discuss how to enhance his quality of life. Draft reports of the Land Transportation Standards Subcommittee have been translated from Spanish to English to French and back again. Mexico’s “Emergency Response Guidebook” has been reviewed to ensure that it complies with “U.N. Recommendations on the Transport of Dangerous Goods.” The NAFTA-crats appear to have settled on the all-important official definition of a “NAFTA truck.” A sigh of relief was heard throughout Chiapas.

NAFTA’s commissions are working for peace of mind in this country as well. Through a continental environment workplan, the three governments are developing plans to eradicate lead, cadmium, mercury, PCBs and other organic chemicals and metals from the North American economy. This is the agenda of the U.N. Basel Convention, written into the NAFTA text, which forbids free trade in materials declared “hazardous” by environmental bureaucrats. Basel is the RCRA of international trade. A jumble of NAFTA, Mexican, and American border bureaucrats are preparing a “five-year plan” to address water quality, air quality, and hazardous waste issues. Don’t hold your breath expecting this plan to embody the principles of free market environmentalism.

At an October conference in Oaxaca, Mexico, the NAFTA commission unveiled joint harmonization initiatives on pollution prevention, energy efficiency, climate change, and habitat protection. NAFTA authorities intend to take a complete inventory of all emissions in North America. If you believe the regulators mean no harm to private industry, you probably think Richard Gephardt would make a good U.S. Trade Representative

Sadly, the public victory for the principle of free trade has resulted in greater centralization of government power in North America. Regulation, bureaucracy and government intervention have distinguished the first two years of NAFTA. Free traders should think twice before endorsing another such agreement.