Free Trade Winners Praise the Pact, But Will Kudos Last?
Middlefield, Conn. — TO the rhythmic ``kerchunk'' of a machine press, Laurie Varrato is paying off a new Mercury Sable.
She whips the face of a shiny meat thermometer into place, stamps the dial, and lays it on a tray to be boxed and shipped to Sam's Club in Mexico. This mother of three isn't sure if the North American Free Trade Agreement (NAFTA) is good or bad for America. But Mrs. Varrato is certain of one thing.
``I couldn't have bought my Sable wagon without this job,'' she says. The Varrato family hadn't bought a new car in a decade. ``It's silver,'' she says, her eyes alight with pride.
NAFTA went into effect New Year's Day a year ago. At the time, Varrato was waving cornflakes past a price scanner for $5 an hour at Stop & Shop. Four months later, thanks to rising sales to Mexico, she was hired by Cooper Instrument Corporation.
NAFTA immediately eliminated duties on half of all US goods shipped to Mexico; other tariffs are being phased out over the next four, nine, or 14 years. For Cooper Instrument, NAFTA got rid of a 20-percent tariff on thermometers. Overnight, its products cost less in Mexico.
``Twenty percent is a major chunk out of the pricing structure,'' says Carol Wallace, the unpretentious CEO of Cooper Instrument. The family-run firm manufactures temperature, time, and humidity instruments. Sales to Mexico in 1994 have more than doubled to about $200,000, Ms. Wallace says, creating at least two new jobs on the assembly line here in the cow-dotted hills of central Connecticut.
For automobiles, computers, telephone equipment, corn, and a vast range of US-made goods, the story is similar: Tariffs are falling, sales are up sharply to Mexico. Overall, United States exports to Mexico - averaging a $1-billion-a-week pace since May - have risen this past year twice as fast as US exports to the rest of the world.
``What sucking sound?'' asks Bob Gardner, referring to Texas billionaire Ross Perot's warning about US jobs being ``sucked'' down to Mexico by NAFTA. The president of Local 15338 of the United Steelworkers of America has nothing but praise for the trade pact. ``NAFTA is keeping us very busy,'' he says.
Members of Mr. Gardner's local are machinists, pipe fitters, and mechanics who make $9 to $14 an hour working at the Baltimore-based Ellicott Machine Corporation, a manufacturer of dredging equipment. At least 10 of the 40 new full-time jobs this year at Ellicott are a direct result of a doubling of sales to Mexico since NAFTA went into effect, says Peter Bowe, CEO at Ellicott.
``Most of our competition there is from Europe. NAFTA's tariff reduction increases our relative cost advantage,'' Mr. Bowe says.
In a statement that doesn't explicitly give credit to NAFTA, US Commerce Department chief economist Lewis Alexander estimates that ``there would have been 130,000 fewer US jobs in the third quarter had we not had the surge in US exports to Mexico this year.'' Through October 1994, US exports to Mexico are up 22.8 percent over the same period in 1993.
But there are two sides to a trade equation. Imports from Mexico and Canada rose slightly faster than US exports in 1994. NAFTA naysayers note that higher imports mean lost American jobs. And the sharp devaluation of the Mexican peso in late December means imports from Mexico will become even less expensive this year.
``The full picture shows that we've lost jobs - not gained jobs - as a result of NAFTA,'' said Sen. Bryon Dorgan (D) of North Dakota last month on releasing a study of NAFTA by the US Congress Joint Economic Committee.
The study concludes that 10,000 more jobs have been lost than created by NAFTA. But economist Gary Hufbauer of the Institute for International Economics in Washington challenges the study methodology. Using the same figures, he comes up with a net gain of 7,000 jobs. The American work force is about 130 million people. ``These are exceedingly small numbers - either way - given the size of the economy,'' Mr. Hufbauer says.
Complicating concensus over NAFTA job gains or losses, economists say, is the difficulty in isolating the trade pact's effects from a host of other economic factors.
In each of the NAFTA countries, companies are downsizing, expanding, and reorganizing because of international and domestic competition - apart from NAFTA neighbors.
Economists agree that it's too soon to judge conclusively if NAFTA is, on balance, beneficial to the US. The peso devalution will bolster the case of NAFTA critics should the trade balance in 1995 tip sharply in Mexico's favor. However, inflation in Mexico is expected to rise to 20 percent or more, prompting labor strikes for higher wages. So US companies and investors may postpone or cancel plans to move production south. Some US firms may also scale down sales expectations to Mexico in 1995. But many US executives still see NAFTA as beneficial now and in the long term.
Last year, Minneapolis-based Honeywell Corporation saw its Mexican sales of US-made computerized process control systems rise 60 percent over 1993. Jaime Conesa, Honeywell's general manager of Latin America, credits NAFTA's lower tariffs, relaxed government procurement rules, and the modernization program stimulated by foreign competition. He says: ``We are prospering from NAFTA.''
James Ostrowski, CEO of Sara Lee Knit Products Latin America Group in Mexico City says NAFTA was a ``major factor'' in the 50 percent jump in 1994 sales of US-made Hanes underwear and socks.
Cooper Instrument's Wallace predicts sales to Mexico will double to $400,000 this year, creating perhaps two new jobs.
Two years ago, Wallace didn't think Mexico held much potential. ``NAFTA focused our attention,'' she says. ``I see Mexico becoming a dominant export market for us. Now that we have the sales literature in Spanish, we'll be expanding into Central and Latin America.''
More sales south of the Rio Grande are likely to mean job security for Laurie Varrato and others at Cooper Instrument. At $6.95 an hour, Varrato's income covers car payments, the odd trip to McDonald's, and will allow her oldest son, Jason, to go skiing more often this winter. ``We could live without it,'' she says, ``but it does fill in the gaps.''
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