Hello, welcome to visit Shanghai Forum
Good morning ladies and gentleman, it isindeed my great honor to address such an amazing group of young people and joinsuch a distinguished group of remarkable and outstanding world leaders.
I am indebted to my good friend CharlieZhang for asking me to participate in the Shanghai Forum. He is very fond ofFudan University and I am truly grateful for the opportunity to share a fewwords with you.
We have heard other speakers sharing theirthoughts about "Building Community of Common Destiny in Asia". Wehave heard different perspectives and how other regions in the world havesuccessfully found common ground.
I would like to talk about NAFTA – and thelessons we have learned from the North American Free Trade Agreement.
This treaty was made between the UnitedStates, Canada and Mexico. It went into effect on January 1, 1994. Althoughfree trade existed between the US and Canada since 1989, this new treatybroadened the arrangement; making the three countries the largest free marketon the planet.
NAFTA created the world’s largest freetrade area of 450 million people. It is an economic powerhouse of more than $20trillion, as measured by the Gross Domestic Product. That trade area is greaterthan the economic output of the 28 countries in the entire European Union.NAFTA was implemented under President Bill Clinton’s term although it wasPresident George H. W. Bush who signed it together with Mexican PresidentSalinas and Canadian Prime Minister Mulroney back in 1992.
At that time, President Bush wanted to useeconomic reform as a vehicle for peaceful resolution of the conflicts inCentral America. But just as important, he wanted to achieve progress on LatinAmerican development issues while solidifying closer ties with our neighborsCanada and Mexico.
Fourteen years after it was made into alaw, on January 1, 2008, its full provisions as well as the elimination of alltariffs were implemented; including opening borders. It abolished licensingrequirements and streamlined border processing.
Before NAFTA, some tariffs would be atminimum 30 percent on export goods to Mexico. And for Mexican products exportedto the US, companies had to pay an average of 250 percent.
NAFTA addressed the imbalance in tariffs bycompletely phasing it out. In fact, 50 percent of the tariffs were immediatelyabolished as soon as the agreement was signed. The areas that NAFTAspecifically focused on included accounting, construction, advertising,consulting, architecture, management, healthcare, tourism, engineering andeducation.
NAFTA stemmed from a vision to make NorthAmerica more competitive in the global market and to reduce trading costs andstrengthen business investment. It was also implemented for several purposesincluding: to protect intellectual property rights, to facilitate cross bordermovement of goods and services, to build a framework to encourage cooperationamong the three nations and to expand trade agreement benefits.
On the 10th Anniversary of the signing ofNAFTA, President Bush remarked that, “I was a firm believer that trade andinvestment was the only way to improve the collective economic prospects of thehemisphere. In short, it was the better road—the proven road—to the future weall wanted to see realized.
We believed that economic reform wouldcontribute to increased political stability and democracy in the WesternHemisphere. We believed that not only would trade benefit our neighbors, itwould open new markets—new opportunities—for tens of millions of businesses andinvestors. Perhaps that is why signing the NAFTA agreement was one of myproudest moments as president of the United States. I viewed the agreement as apalpable step forward to greater prosperity and stability across the region.”
So let me share with you some well-knownadvantages of NAFTA
1. It Quadrupled Trade between the US,Mexico and
Canada.
Between 1993 and 2015, trade between thethree countries quadrupled, from $297 billion to $1.14 trillion. That boostedeconomic growth; by as much as 0.5% a year, increased profits, and created jobsfor all three countries. The sectors that benefited the most were agriculture,automobiles, and services.
During that time, the United Statesincreased its exports of goods from $142 billion to $517 billion.
One of the provisions in the treaty calledfor all products imported from the United States, Mexico and Canada to have“national goods” status, eliminating duties on those goods.
It also created agreements on internationalrights for business investors. This reduced the cost of trade, spurredinvestment and growth, especially for small business. Canada and Mexico werethe top export markets of the United States in 2014, with $312 billion and $240billion, respectively.
U.S. farm exports to Canada and Mexico grew156%. That's compared to a 65% increase to the rest of the world. To put thisinto perspective, farm exports to Canada and Mexico alone were greater thanexports to the next six largest markets combined. Total farm exports were $39.4billion in 2015.
In addition, NAFTA increased foreign directinvestment. Since NAFTA was enacted, U.S. foreign direct investment (FDI) inCanada and Mexico more than tripled to $452 billion in 2012. This helped boostprofits of U.S. businesses by giving them more opportunities to develop, andmarkets to explore.
Canadian and Mexican FDI in the UnitedStates grew to $240 billion, up from $219 billion in 2007.
2. Lowered Prices
Lower tariffs also reduced import prices.That also lessened the risk of inflation and allowed the Fed to keep interestrates low.
That's especially important for oil prices,since America's largest import is oil. The U.S. imported $144 billion in oilfrom Mexico and Canada. Thanks to greater U.S. shale oil production, thisfigure was down from $158billion in 2007. NAFTA reduced U.S. reliance on oilimports from the Middle East and Venezuela. With lower oil importation costsand America’s own reserves, oil can be sold in the U.S. market at reducedprices.
NAFTA lowered food prices in much the sameway. Food imports totaled $39 billion in 2013, up from $29 billion in 2009. Itlowered the prices of fresh vegetables, chocolate, fresh fruit and beef themost.
3. It created Jobs. It had a positiveeffect on labor and wages.
According to the US Chamber of Commerce,the increased trade brought about by the agreement has created 5 million jobsin America alone.
Most of those jobs went to 17 states, butall states saw some increases.
Even imports from NAFTA partners createdjobs. That's because nearly 40% of U.S. imports from Mexico originated withAmerican companies. They designed the products domestically then outsourcedsome portion of the process in Mexico. Without NAFTA, they would have gonesomewhere else or they may not have been created at all.
NAFTA created a parallel agreement on laborcooperation which is known as the North American Agreement on Labor Cooperation(NAALC). It was responsible for the improvement of working conditions as wellas living standards in the three regions. It ensured that workers’ rights werenot violated and also helped address certain labor issues such as discrimination,secret balloting and protection of migrant workers.
4. It allowed for the establishment oftrade standards. The three countries agreed to improve the health, safety andindustrial standards to the highest existing standard. National standards nolonger applied as a barrier to free trade. Additionally, agreements were madeto ensure that industrialization would not increase pollution, and includedprovisions to manage labor and environmental issues.
5. It ensured protection of intellectualproperty rights. Mexico needed to provide a very high level of protection fortheir people’s intellectual property rights. This was especially helpful infields like chemical production and computer software.
Protecting these property rights increasedprofits for innovative businesses by discouraging pirating. It also promotedforeign direct investment, because companies know that their rights will beprotected by international law. NAFTA reduced investors' risk by guaranteeingthey would have the same legal rights as local investors. Through NAFTA,investors can make legal claims against the government if it nationalizes theirindustry or takes their property by eminent domain.
6. It opened up new opportunities.
Especially for small-mid-size businesses toestablish a name for themselves, whether in the US or in Mexico. Smaller firmscould finally build and maintain offices in Mexico. And with the abolishment oftariffs, it became less expensive for smaller entities to do business there.
So with open-market trading, companies fromthese three countries within its borders were given a fair chance to bid ingovernment projects.
So, there were more bidders with lower bidsand more choices for the government. As a result, governments were able toaddress some budget deficits.
But not everything was perfect. There is someagreement that NAFTA also brought some disadvantages.
1. It affected workers and their jobs.
Due to cheaper labor costs in Mexico, anumber of manufacturing companies moved a large part of their production fromthe US. As a result, they were able to lower their costs and prices.
Those who were left though, had to reducetheir prices as well to be competitive. This left them no choice but to cut thewages of workers who were forced to remain in the factories with lower pay andthey gave those who organized unions a choice between joining such organizeddrives or lose their jobs. Of course workers, who had nowhere else to go, chosetheir jobs. But without union support they had little to no bargaining powerwhen it came to wage increases.
2. It pushed some farmers to go out ofbusiness in Mexico. Another setback of NAFTA is the effect of exporting U.S.crops and beef to Mexico. With the influx of corns and grains that wereexported to Mexico, the farmers were not able to compete with the low prices whichled to the decline in sales of domestically grown crops and products. Also,this prompted the Mexican government to reduce its subsidy to farmers from 33percent in 1990 to 13 percent in 2001. NAFTA pushed some Mexican farmers tolose their source of income.
3. It exploited maquiladora workers. NAFTA,also expanded the maquiladora program, which permits U.S. based manufacturingcompanies to hire Mexicans near its borders as workers in their assembly plantsand factories usually at minimal wage.
However, these workers were not given laborrights or health benefits. On top of that, they were made to work for more than12 hours a day. Critics say that most of these workers were not aware of laborunions, thus, they were not protected. Groups who are not happy with NAFTA talkabout the poor working conditions and labor practices that have not beenaddressed by the agreement despite its promises. These include garment andautomotive industries.
Opponents maintain that although jobs weregenerated for Mexicans, some American lost their jobs.
4. It has a negative impact on theenvironment.
Critics suggest that NAFTA is partlyresponsible for the deterioration of the environment, particularly in Mexico.They are concerned of the pressure NAFTA has given the Mexican farmers who hadto make drastic measures to compete with American producers. They are usingmore chemicals and fertilizers to increase production. In effect, thesechemicals pollute the environment.
And in the case of expanding agriculturallands, more forests are burned or destroyed so rural farmers can have enoughspace to grow their crops. The estimated deforestation is around 630,000hectares per year. Continuous deforestation activities can have a long-termimpact on the environment.
President 41 talked about how when he reada report that, in 1997, the United States lost some 385,000 manufacturing jobs;but at the same time, the US added more than three million jobs in advancedsectors such as computer programming and management consulting. There was atrade-off in some ways—a painful trade-off for many, but one he believed the UShad to endure if we wanted America to compete for and win new business in thisincreasingly interconnected and competitive global economy.
So, in conclusion.
Although the North American Free TradeAgreement has immensely improved economies for the countries involved, it hascaused other pressing problems, like environmental and employment issues. Thekey here is to balance out everything to minimize or eliminate any negativeeffects.
Despite the benefits NAFTA has to offer, itstill earned criticism from different sides, some of which were and continue tobe included during presidential campaigns.
When it comes to environmental issues,American labor, industries losses and the maquiladora program, the setbacks arethere. However, this open-market agreement also made the U.S. a strongercompetitor in the global market. It also reduced government deficits. So Ibelieve that perhaps, with stricter implementation of the regulations and theimprovement of its framework on protection, NAFTA’s pros will continue tooutweigh its cons.
Clearly there are no easy solutions to thevast challenges countries and regions experience but as we have seen workingtogether countries can develop a good framework to increase their globalmarket. Should this region choose to expand its reach, they can take some ofthe lessons NAFTA has taught us to improve the economic prosperity of theregion.
On another note, and to conclude mypresentation I would like to address the students and share with them a bit ofmy background.
I want you all to know that as you prepareto fulfill your mission in life you will experience trials and tribulations;you will face failures but you will recover. Sometimes there will be fear butmore often than not, you will experience courage and determination.
I say all of this as an immigrant whocouldn’t speak English when she arrived at the United States of America. Iwould have never envisioned that one day I would be signing every dollar bill.Yes, I faced many challenges but they turned out to be incredibleopportunities. I started working for a bank as assistant to the receptionistand just 6 years later I was going to be named Assistant Vice President for thebank. I had to give up my career because my first son Eric was born with DownSyndrome. He faced death 6 times in his first five years of life. A few monthsafter Eric was born, I lost another pregnancy and soon after that I had to giveup my MBA, had to give up my career to care for my son and had to sell our homesince we couldn’t afford our house payment with just one salary.
There were many, many long dark nights, andyet, if someone would have told me that I would work for a governor to changethe laws for people with disabilities, get elected and reelected to a citycouncil and become the mayor of my city, be appointed by the President as theTreasurer of the United States and work for Governor Schwarzenegger in hiscabinet as Secretary of the State and Consumer Agency and oversee 17,000people-- I would have never believed it, but that has been my life.
I continue to believe in good government;our cities, our nations and the world need good people to protect us, guide usand make us grow and develop.
Right now, I am concerned by the rhetoricof some in my political party. I am concerned that appeals are made to ourfears, angers and resentments, not to our hopes, our dreams or our aspirations.We need leaders that bring us together not pit us against one another.
So I will share one phrase from OliverWendell Holmes who was one of the Supreme Court Justices of the United States.He said “What lies behind us and what lies ahead of us is small in comparisonwith what lies within us.” I have made that phrase my own. It speaks to me likeno other phrase. If you look around and throughout history, individually andcollectively, we have faced incredible challenges but here we are. We arebigger than all of those challenges. We can only look back and see all that wehave overcome. And so it gives me great confidence in knowing that no matterwhat lies ahead, we have everything within us to meet those challenges head on.Whether we are in the United States, or China, or Mexico, whether it is trade,health, education, security or any other issue, I am absolutely convinced thatwe will overcome those challenges. I am comforted in knowing that all of youwill be prepared to meet your individual challenges and collectively we willsucceed in making this a better world.
Thank you so very much!
(This article is edited based on the recording and has not been reviewed by the speaker.)
