STUDY SEES WORK FORCE GAINS, LOSSES FROM NAFTA

STUDY SEES WORK FORCE GAINS, LOSSES FROM NAFTA

A major new study on the economic impact of the proposed North American free- trade agreement contains good news and bad news for U.S. supporters of the talks.

While the study by the Institute for International Economics confirms U.S. claims that U.S. exports will create thousands of American jobs, it also sustains complaints that Mexican imports will displace thousands of U.S. workers.The study estimates that the agreement will boost the U.S. trade surplus with Mexico by about $10 billion by 1995 and create 242,000 jobs, but increased imports from Mexico are expected to dislocate 112,000 workers over 10 years.

While this dislocation will be overwhelmed by hundreds of thousands of new jobs created by exports to Mexico after 1995, the authors say President Bush must commit at least $900 million over the next five years for retraining workers for other professions.

The study calls for future harmonization of environmental standards in North America, but adds that the president should dedicate several billion

dollars to improve water quality and sewage disposal in the border region.

In addition to economic projections, authors Jeffrey Schott and Gary Hufbauer present a comprehensive set of goals for the free-trade talks, which could be completed in the next few months.

These correspond with many known and suspected U.S. goals, but include a number of creative ideas for dealing with some of the most difficult issues in the talks, like auto and energy trade.

The institute is a privately funded non-partisan institution that generally favors free-trade policies.

Like several other studies of the probable effects of a North American agreement, the study concludes the pact will have a relatively small impact on U.S. trade and employment but will be a major boon for Mexico's economy, which is 3.5 percent of the size of the U.S. economy.

It also concludes that the agreement will lead to significant gains in two- way trade and not the wholesale migration of industries to another country.

According to the study, U.S. exports to Mexico will increase $16.7 billion a year from $33.2 billion in 1991, while U.S. imports from Mexico will increase $7.7 billion from $31.1 billion last year.

Along with a $3 billion boost in Mexico's imports from the rest of the world due to trade reform there, Mexico's trade deficit will rise $12 billion, while the U.S. surplus with Mexico will rise $9 billion.

The authors say this Mexican deficit will be well-financed by a surge of capital from foreign investors and Mexicans repatriating their wealth. Growth

from the free-trade agreement and other reforms already under way will generate 600,000 jobs in Mexico and increase wages 8.7 percent. The net gain of 130,000 jobs in the United States will have virtually no effect on U.S. wage rates, the authors conclude.

Author Jeffrey Schott said the study differs from others by considering the free-trade agreement as part of a series of reforms in Mexico that began in the 1980's and has included privatization, and fiscal and monetary restraint. Using this approach, the estimated gain in Mexican exports is about 50 percent larger than other studies and the gain for U.S. exports is twice as large. ''You can't view the (agreement) in isolation," said Mr. Schott. He noted that much of the billions of dollars in new foreign investment that has already gone to Mexico was attracted by the prospect of free trade.

Mr Schott said a key conclusion of the study was that North American free- trade agreement should include an accession clause to ensure that it continues to promote economic integration throughout the Western Hemisphere. Member countries would negotiate the terms of any accession, and Congress and other legislatures would vote on it.

On auto trade, the study proposed maintaining the current 50 percent rule of origin under the U.S.-Canada free-trade agreement but eliminating "roll- up" rules that distort the actual local content of a car. It would phase out Mexican and Canadian local content requirements over ten years and Mexico's ban on used-car imports and its auto export performance rules over five years.

INSTITUTE'S ADVICE ON CRAFTING

SUCCESSFUL FREE-TRADE ACCORD

DOs:

* 10-year phase-in for most products, with a 15-year phase-in for some agricultural goods, like corn and wheat sold to Mexico and fruits and vegetables sold to United States.

* Simple rules of origin, with any special rules subject to renegotiation after two years.

* Immediate elimination of all tariffs on North American auto and auto parts trade, and a common tariff for the entire continent for imports from other countries like Japan.

* Keep auto rule of origin at 50 percent, but eliminate "roll-up" loophole that allows goods with mostly foreign components to be considered North American.

* An accession clause for other countries in the Western Hemisphere, with each country's admission negotiated and subject to a congressional vote.

* United States should spend several billion dollars on environmental cleanup and at least $900 million to assist and retrain dislocated workers.

* Mexico should restructure its state oil monopoly into three holding companies that permit minority ownership through special trust mechanisms.

DON'Ts:

* Erection of new trade barriers to other countries.

* Exclusion of goods from other countries though rules of origin. This is particularly a danger for autos and auto parts, textiles and apparel and electronics.

* Liberalization of import-sensitive products that reduces imports from non-member countries. Textiles and apparel, sugar and dairy products are at risk.

* Use of a two-tier liberalization of auto trade, giving preference to companies already manufacturing in Mexico. This could restrict investment there.