US Should Take Fast Track to Free Trade With Mexico
IN late May the House of Representatives will consider legislation to reject a two-year extension of the "fast track" authority sought by President Bush to negotiate agreements with our trading partners. Under the 1988 trade law, this authority expires May 31, but is automatically extended for two more years unless Congress disapproves. Some members of Congress want to separate any trade talks with Mexico from the fast-track authority granted for all other bilateral and multilateral trade negotiations. This would be a blatant act of discrimination against Mexico.
Leading the effort against the fast-track extension is organized labor, which argues that Mexico's lower wage rates will devastate the United States economy as tens of thousands of jobs are transferred across the border.
Economic data suggest that these concerns are not justified. Wage rates do not measure labor's contribution to production costs. If they did, Mexico would be a corporate paradise. A more useful measurement of the cost of labor is the value of labor's output.
According to the Bureau of Labor Statistics, the average wage rate in Mexico is only 16 percent of the average US wage rate. But the value of Mexico's output is even less. In 1988, the value of output per US workers was $45,927. Mexican output per worker was about $6,472, or 14 percent of US output per worker. In other words, even at their higher wages American workers are a better deal. They are better educated, and our companies invest more in physical capital that enhances productivity.
Nobody denies that some low-skilled, low-wage jobs might move across the border. But the shift likely will be in jobs that would otherwise go to South Korea, Thailand, Singapore, and Taiwan. This has economic advantages for the US. When a firm moves to Asia, it is likely to buy its supplies from Asian countries. A study in Mexico by the US Chamber of Commerce found, however, that 86 percent of direct materiel sourcing for American companies in Mexico comes from the US.
Assume for the moment that additional low-skilled jobs do flee south. Are these the jobs we want to protect? Critics of so-called "Reaganomics" were fond of stating, erroneously, that those policies created an army of "hamburger flippers," a reference to low-paying jobs. Yet now, these are the same jobs that opponents of a US-Mexico free trade agreement want to protect. Worse, they're willing to protect these jobs at the expense of highly skilled, higher-paying jobs that will be created as a result of i n
creased exports of auto parts, mechanical equipment, and high-tech goods.
Opponents also ignore the positive influence on wage rates in the US. Free trade will help create jobs in Mexico, which in turn will help to improve wages for low-skilled labor in the US because there will be fewer immigrants vying for these jobs. In addition, the burden on social services will ease. Los Angeles County alone spends more than $750 million a year on undocumented aliens and their dependents.
Without a free-trade agreement with Mexico, we may never gain control of our southern border. As Mexican President Carlos Salinas de Gortari says, the thousands of migrants will become "millions without the possibility of creating jobs in Mexico." But much more is at stake. Political freedom and economic freedom are interdependent. If fast-track authority is denied, it will jeopardize not only Mexico's economic reforms but the prospect of ending the one-party monopoly on the political system.
The fast-track extension will not exclude Congress from trade negotiations. The process was designed to strengthen Congress's hand by requiring the US Trade Representative to consult adequately with Capitol Hill. In fact, the USTR and President Bush have already met with dozens of lawmakers to discuss concerns about labor discrepancies and the environment.
Disapproval of fast-track authority not only will deny the administration the opportunity to negotiate trade agreements, it will deny our country one of the best vehicles for addressing substantive cross-border disputes. With a properly structured free-trade agreement, everyone will win.