Will Treaty Give US Global Edge?

By , Staff writer of The Christian Science Monitor

PRESIDENT Clinton warns that if the United States rejects the proposed free-trade pact with Mexico, it will open the door for Japanese businesses to capture the Mexican market.

The House will weigh that and other arguments when it votes today on the North American Free Trade Agreement.

Mr. Clinton's remarks set off a debate. NAFTA critics discount his ``Japan threat.'' But proponents suggest that a NAFTA defeat would hand Japan, Germany, and other major exporters a golden opportunity.

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What does the president say will happen if the House rejects NAFTA?

During a broadcast to business groups in 200 cities Nov. 1, Clinton predicted that a US rebuff of NAFTA would set off a frenzy of Japanese activity.

He said if the pact were rejected, and if he were the Japanese prime minister, ``I would jump on this like flies on a June bug. I mean, I would be there on the next day. If Congress votes this down on the 17th of November, I would ... have the finance minister of my country in to see the president of Mexico on the 18th of November.... I'd say, `We've got more money than they [the US] do, anyway. Make the deal with us.' ''

How do NAFTA opponents respond?

Donald Huddle, an economist at Rice University in Houston, says: ``I don't see that happening. The Japanese could have moved into Mexico a long time ago. And they could still do it under NAFTA.''

Larry Birns, director of the Council on Hemispheric Affairs in Washington, says Japan invested $60 million in Mexico last year, about the same amount that it put into Bangladesh. He notes that before NAFTA was negotiated, Mexican officials tried to sell Japan on a similar idea - without success.

So is the risk of losing business to Japan a minor one?

NAFTA gives US business an advantage in selling to Mexico. For example, US- and Japan-made computer parts have about a 20 percent duty tacked on going into Mexico. With NAFTA, the duty on US-built parts eventually drops to zero. But Japan must keep paying.

Then what worries NAFTA foes?

They point out that Japan could use Mexico under NAFTA as an ``export platform'' to sell their products, duty free, into the huge US market. Combining new, highly efficient factories in Mexico with $1-an-hour labor, Japanese firms could push US-built products out of the North American market.

Proponents of NAFTA reject that. They say even though NAFTA was pending, German automakers BMW and Mercedes-Benz decided recently to build assembly plants in South Carolina and Alabama. It takes more than cheap labor to attract capital investment, they say.

William Orme, author of ``Continental Shift: Free Trade and the New North America,'' notes in the latest issue of Foreign Affairs magazine that ``Japanese companies have never been that interested in Mexico.'' Most of their North American investments go into the US.

The bottom line:

Mr. Orme foresees US pressure to keep Japanese investments out of Mexico. But as US-Mexico trade becomes more lucrative, Japan's actions cannot be predicted.

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