Open Borders – Why Everybody Wins!

On February 16, 1993, Bill McKnight, Canada’s Federal Minister of Energy, Mines and Resources and his Mexican counterpart Emilio Lozoya Thalmann signed a Memorandum of Understanding that will strengthen ties between the mineral industries of both countries.

“It is expected,” said McKnight, “that the new agreement will lead to a more prosperous relationship between our countries, and contribute to Canada’s economic growth.”

Partnerships such as this are forming with increasing frequency as NAFTA (North American Free Trade Agreement) comes closer to reality.

Mexico is already, of course, a major trading partner for both the U.S. and Canada.  Two-way trade between Canada and Mexico totaled more than $720 million in 1992.

NAFTA, however, has its critics:  some fear lost jobs, or declining wages;  others worry that the benefits of NAFTA will flow one way – South, across the Rio Grande, and question whether there will be a sufficient Mexican consumer class to create much market for U.S. and Canadian goods.

Five years ago, there was reason to agree with the critics.  But in 1988, newly-elected President Carlos Salinas de Gortari began an economic overhaul which promises to make Mexico a modern, developed nation.  He has eliminated tariffs, reduced barriers to foreign investment, cut government subsidies and sold off Crown Corporations.  Agricultural reform has established a foundation for a modern, market-driven system.

The result has been a spectacular revival.  Despite s a worldwide recession, the Mexican economy has grown 3.5% annually in recent years.  Inflation has been slashed from 180% to less than 20%.  Foreign debt has been cut from $101 billion in 1988 to $73.6 billion as of last July.  The deficit, which was 16% of GNP in 1987, is now a surplus.*

For its neighbors to the North, an open and prosperous Mexico increases export opportunities and creates a wealth of new possibilities for service industries.  It also serves to promote the social and political stability that will be crucial if this favorable new business climate is to continue.  Without NAFTA, 90 million Mexicans, many without work, would be condemned to shortages and higher prices for basic necessities, and a return to Third World lifestyles.  Let’s agree with President Salinas of Mexico: it’s better for everyone if Mexicans find work at home.

Regarding the loss of jobs to Mexico, before free trade with the U.S., Canada’s manufacturing sector was protected by high tariffs, restrictive foreign-investment rules, and a range of ill-advised nongrowth economic policies.  The result: inefficient, high-cost, limited-line manufacturing for a national market of about 26 million people.

With free trade, Canada’s manufacturing sector is unprotected, but it can sell its goods in a binational market of 272 million – that is, if Canadian firms improve efficiency, raise productivity , keep costs competitive, spend money on research and development, and invest where the returns are greatest.  That’s what Northern Telecom, MacMillan Bloedel, and our own lifeblood, the car makers, did before and during free trade with the United States.

Canadian jobs were in jeopardy in steel and automobiles – two sectors that have not been robust in the United States because of Third World competition.  So to condemn free trade on the basis of job destruction in Canada is to misunderstand North America’s competitive strengths and weaknesses in the world economy.

Protectionism, beyond the very short term, has little to recommend it.  In fact, the case can be made that NAFTA should be expanded – to include Latin America.  Several countries, among them Chile and Argentina, have already indicated an interest in participating.  Expansion might also include the Caribbean countries.  Following his recent meeting with President Salinas, President Clinton indicated that their talks could “lay the foundation for further trade agreements between the U.S. and other nations in Central and South America.”  Interestingly, the U.S. has a trade surplus with Latin America and the Caribbean, with the region absorbing more than 15% of total U.S. exports.  In 1992, the region purchased $63 billion worth of U.S. goods, compared to $48 billion bought by Japan.

Freer trade benefits all parties, because it not only opens up markets, but helps to create them.  It allows companies to concentrate on one field of expertise, because the market for that specialty becomes larger.  Alternatively, it allows companies to do as we at R.J. Cyr Co. have done:  supply a wide variety of services to companies who want to “outsource” portions of a job, such as field engineering, structural steel fabrication or installation, using “local” talent.

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