The Case for NAFTA

General Motors, the world's largest automaker, has seen clear benefits from the North American Free Trade Agreement (NAFTA), the trade pact between the United States, Mexico and Canada implemented 14 years ago.

"NAFTA has allowed GM to rationalize its vehicle production in Mexico and in North America to take full advantage of the economies of scale inherent in vehicle production," says Mustafa Mohatarem, GM's chief economist. "Prior to NAFTA, our assembly plants in Mexico assembled small volumes of many products.  That resulted in high costs and somewhat inferior quality. Now our plants in Mexico specialize in few high-volume products, resulting in low cost and high quality."

However, even more important for GM, he says, has been the stability of the Mexican economy following the implementation of NAFTA in 1994.  "The stability has allowed GM to plan for long-term growth in the Mexican auto market, which has roughly doubled in size," he says.  "The stability has also allowed GM to offer vehicle financing to Mexican consumers."

WITHDRAWAL FROM NAFTA?

NAFTA has become a key topic for the U.S. presidential race, as both Democratic candidates Barack Obama and Hillary Clinton threaten to leave the pact unless it is renegotiated. Those statements earned them harsh rebukes from leading NAFTA experts.

"The comments of both senators were distressing," says Robert Pastor, a former Latin American advisor to President Jimmy Carter and co-director of the Center for North American Studies at the American University in Washington, D.C. "Their ultimatum to our neighbors - either renegotiate or we'll repeal - was as arrogant as anything president Bush has done in the region in the past eight years."  

Both seem to be debating issues long since decided and ignoring the real agenda of the next decade, he argues.  "Their remarks do not auger well for North America," says Pastor, who wrote Toward a North American Community, a 2001 book arguing for deeper integration similar to the European Union.  "They appear to lack the vision to make North America more competitive and secure, which after eight years of stagnation is a source of great concern." 

US JOB LOSSES

Jeffrey Schott, a senior fellow at the Peter G. Peterson Institute for International Economics, doesn't believe there will be any actual withdrawal from NAFTA despite the threats. "The Democratic critique of NAFTA will not lead to a U.S. pullout from the pact," says Schott, who has authored several books on NAFTA, including NAFTA Revisited: Achievements and Challenges.  "Withdrawal is not a viable option since it would be highly disruptive to U.S. production and trade, resulting in substantial U.S. job losses."

Frances B. Smith, an adjunct fellow of trade and consumers at the Competitive Enterprise Institute, agrees.  "The presidential aspirants are attempting to win the...