[Public Papers of the Presidents of the United States: George H. W. Bush (1992-1993, Book II)]
[August 12, 1992]
[Pages 1342-1345]
[From the U.S. Government Publishing Office www.gpo.gov]



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White House Fact Sheet: The North American Free Trade Agreement
August 12, 1992

    The President today announced that the United States, Mexico, and 
Canada have completed negotiation of a North American free trade 
agreement (NAFTA). The NAFTA will phase out barriers to trade in goods 
and services in North America, eliminate barriers to investment, and 
strengthen the protection of intellectual property rights. As tariffs 
and other trade barriers are eliminated, the NAFTA will create a massive 
open market, over 360 million people and over $6 trillion in annual 
output.

Background

    With sharp increases in global trade and investment flows, U.S. 
economic growth and job creation have become closely tied to our ability 
to compete internationally. Since 1986, U.S. exports have increased by 
almost 90 percent, reflecting our success in opening foreign markets and 
the competitiveness of American industry. In 1991, the U.S. exported 
over $422 billion of industrial and agricultural products and over $164 
billion in services, making the United States the world's largest 
exporter, ahead of Germany and Japan. More than 7.5 million U.S. jobs 
are tied to merchandise exports, up from 5 million in 1986. Of these 
jobs, 2.1 million are supported by exports to Canada and Mexico.
    For many years, Mexico used high tariffs and licensing restrictions 
in an effort to encourage industrial development and import 
substitution. Under President Salinas and his predecessor, President de 
la Madrid, the Mexican Government has opened its market and implemented 
sweeping economic reforms. In 1986, Mexico joined the General Agreement 
on Tariffs and Trade (GATT) and began reducing its tariffs and trade 
barriers.
    As a result, bilateral trade has increased dramatically. From 1986 
to 1991, U.S. exports to Mexico increased from $12.4 billion to $33.3 
billion, twice as fast as U.S. exports to the rest of the world. U.S. 
agricultural exports rose 173 percent to $3 billion, consumer goods 
tripled to $3.4 billion, and exports of capital goods surged to $11.3 
billion from $5 billion. U.S. exports to Mexico now support 
approximately 600,000 American jobs, while exports to Canada support 1.5 
million.
    Economic reforms have also been good for Mexico. Its inflation rate 
has dropped from over 100 percent in 1986 to under 20 percent in 1991, 
and its economy has grown at an average annual rate of 3.1 percent over 
the last 4 years, after stagnating during the 1980's.
    In June 1990, Presidents Bush and Salinas endorsed the idea of a 
comprehensive U.S.-Mexico free trade agreement and directed their trade 
ministers to begin preparatory work. Canada joined the talks in February 
1991, leading to the three-way negotiation known as NAFTA. Formal 
negotiations began in June 1991 after Congress extended through May 1993 
the Fast Track procedures originally enacted in the Trade Act of 1974, 
authorizing the administration to submit the agreement with implementing 
legislation for an up-or-down vote.
    The President's trade strategy, which is a key part of his overall 
economic growth plan, is designed to create new markets for American 
products and provide new opportunities for American companies and 
workers.

The NAFTA Agreement

    The NAFTA will create a free trade
area (FTA) comprising the U.S., Canada,
and Mexico. Consistent with GATT
rules, all tariffs will be eliminated within
the FTA over a transition period. The
NAFTA involves an ambitious effort
to eliminate barriers to agricultural,
manufacturing, and services trade, to
remove investment restrictions, and to
protect effectively intellectual property
rights. In addition, the NAFTA marks the first time in the history of 
U.S. trade policy that environmental concerns have been directly 
addressed in a comprehensive trade agreement. Highlights of the NAFTA

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include:
    Tariff Elimination. Approximately 65 percent of U.S. industrial and 
agricultural exports to Mexico will be eligible for duty-free treatment 
either immediately or within 5 years. Mexico's tariffs currently average 
10 percent, which is 2\1/2\ times the average U.S. tariff.
    Reduction of Motor Vehicle and Parts Tariffs. U.S. autos and light 
trucks will enjoy greater access to Mexico, which has the fastest 
growing major auto market in the world. With NAFTA, Mexican tariffs on 
vehicles and light trucks will immediately be cut in half. Within 5 
years, duties on three-quarters of U.S. parts exports to Mexico will be 
eliminated, and Mexican ``trade balancing'' and ``local content 
requirements'' will be phased out over 10 years.
    Auto Rule of Origin. Only vehicles with substantial North American 
parts and labor content will benefit from tariff cuts under NAFTA's 
strict rule of origin. NAFTA will require that autos contain 62.5 
percent North American content, considerably more than the 50 percent 
required by the U.S.-Canada Free Trade Agreement. NAFTA contains tracing 
requirements so that individual parts can be identified to determine the 
North American content of major components and sub-assemblies, e.g. 
engines. This strict rule of origin is important in ensuring that the 
benefits of the NAFTA flow to firms that produce in North America.
    Expanded Telecommunications Trade. NAFTA opens Mexico's $6 billion 
market for telecommunications equipment and services. It gives U.S. 
providers of voice mail or packet-switched services nondiscriminatory 
access to the Mexican public telephone network and eliminates all 
investment restrictions by July 1995.
    Reduced Textiles and Apparel Barriers. Barriers to trade on $250 
million (over 20 percent) of U.S. exports of textiles and apparel to 
Mexico will be eliminated immediately, with another $700 million freed 
from restrictions within 6 years. All North American trade restrictions 
will be eliminated within 10 years and tough rules of origin will ensure 
that benefits of trade liberalization accrue to North American 
producers.
    Increased Trade in Agriculture. Mexico imported $3 billion worth of 
U.S. agricultural goods last year, making it our third-largest market. 
NAFTA will immediately eliminate Mexican import licenses, which covered 
25 percent of U.S. agricultural exports last year, and will phase out 
remaining Mexican tariffs within 10 to 15 years.
    Expanded Trade in Financial Services. Mexico's closed financial 
services markets will be opened, and U.S. banks and securities firms 
will be allowed to establish wholly owned subsidiaries. Transitional 
restrictions will be phased out by January 1, 2000.
    New Opportunities in Insurance. U.S. firms will gain major new 
opportunities in the Mexican market. Firms with existing joint ventures 
will be permitted to obtain 100 percent ownership by 1996, and new 
entrants to the market can obtain a majority stake in Mexican firms by 
1998. By the year 2000, all equity and market share restrictions will be 
eliminated, opening up completely what is now a $3.5 billion market.
    Increased Investment. Mexican ``domestic content'' rules will be 
eliminated, permitting additional sourcing of U.S. inputs. And for the 
first time, U.S. firms operating in Mexico will receive the same 
treatment as Mexican-owned firms. Mexico has agreed to drop export 
performance requirements, which presently force companies to export as a 
condition of being allowed to invest.
    Land Transportation. More than 90 percent of U.S. trade with Mexico 
is shipped by land, but U.S. truckers currently are denied the right to 
carry cargo or set up subsidiaries in Mexico, forcing them to ``hand 
off'' trailers to Mexican drivers and return home empty. NAFTA will 
permit U.S. trucking companies to carry international cargo to the 
Mexican States contiguous to the U.S. by 1995 and gives them cross-
border access to all of Mexico by the end of 1999. U.S. railroads will 
be able to provide their services in Mexico, and U.S. companies can 
invest in and operate land-side port services. The combination of truck, 
rail, and port breakthroughs will help create an efficient intermodal 
North American transport system.
    Protection of Intellectual Property Rights. NAFTA will provide a 
higher level of pro-

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tection for intellectual property rights than any other bilateral or 
multilateral agreement. U.S. high technology, entertainment, and 
consumer goods producers that rely heavily on protection for their 
patents, copyrights, and trademarks will realize substantial gains under 
NAFTA. The agreement will also limit compulsory licensing, resolving an 
important concern with Canada.
    The objective of NAFTA is to open markets. It is not designed to 
create a closed regional trading bloc and does not erect new barriers to 
non-participants. The NAFTA is fully consistent with GATT criteria for 
free trade agreements and with U.S. support for strengthening the 
multilateral trading system in the Uruguay round.

Economic Studies

    At the request of the Office of the U.S. Trade Representative, the 
U.S. International Trade Commission surveyed and evaluated the various 
economic analyses of NAFTA. In May of this year, the USITC reported 
that:

      [T]here is a surprising degree of unanimity in the results 
        regarding the aggregate effects of NAFTA. All three countries 
        are expected to gain from a NAFTA.

    These independent studies found that NAFTA would increase U.S. 
growth, jobs, and wages. They found that NAFTA would increase U.S. real 
GDP by up to 0.5 percent per year once it is fully implemented. They 
projected aggregate U.S. employment increases ranging from under 0.1 
percent to 2.5 percent. The studies further project aggregate increases 
in U.S. real wages of between 0.1 percent to 0.3 percent.
    U.S. exports to Mexico currently support over 600,000 American jobs. 
The Institute for International Economics recently estimated this figure 
will rise to over 1 million U.S. jobs by 1995 under NAFTA.

Environment, Labor, and Adjustment Issues

    In a May 1, 1991, letter to the Congress, the President described 
actions that the administration would implement to address concerns 
regarding the impact of free trade on the environment, labor rights, and 
worker adjustment programs.
    Environment. The administration has moved forward with a 
comprehensive bilateral environmental agenda to allay concerns that free 
trade could undermine U.S. environmental and food safety regulations or 
lead to environmental degradation on the U.S.-Mexico border. During the 
last year, substantial progress has been made. Highlights include the 
following:
    --Standards. The NAFTA allows the U.S. to maintain its stringent 
        environmental, health, and safety standards. It allows States 
        and localities to enact tougher standards based on sound 
        science. It encourages ``upward harmonization'' of national 
        standards and regulations, and prohibits the lowering of 
        standards to attract investment.
    --Integrated Border Plan. In February 1992, EPA and its Mexican 
        counterpart (SEDUSOL) completed a comprehensive plan for 
        addressing air, soil, water, and hazardous waste problems in the 
        border area. Agreement has been reached on measures to implement 
        the first stage of the plan covering the period 1992 to 1994.
    --Border Infrastructure. The President has proposed a 70-percent 
        increase in the budget for border environmental projects to $241 
        million for FY 1993, including $75 million for the ``colonias'' 
        (unincorporated communities on the U.S. side of the border that 
        often lack effective sanitation services and running water) and 
        over $120 million for border wastewater treatment plants.
    --Border Plan/FY 1993 Appropriations. To date, in the FY 1993 
        appropriations process, the House of Representatives has refused 
        to fund the $50 million EPA request for the colonias and cut the 
        administration's $65 million request for a Tijuana-San Diego 
        sewage treatment plant to $32 million. For its part, the Senate 
        failed to fund $120 million of the requested funds for border 
        wastewater treatment. The President has called upon Congress to 
        reverse these cuts.
    --Environmental Conference. On September 17, 1992, EPA Administrator

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        Reilly will host a trilateral meeting with the Canadian and 
        Mexican environmental ministers in Washington, DC, to discuss 
        environmental aspects of NAFTA.
    Worker Rights. Mexico has a comprehensive labor law that provides 
workers with extensive legal rights. The economic benefits of the NAFTA 
will provide Mexico with resources to move forward with vigorous 
enforcement initiatives launched by the Salinas administration.
    --Labor Cooperation. The U.S. Department of Labor has negotiated a 
        5-year Memorandum of Understanding (MOU) to strengthen bilateral 
        cooperation with respect to occupational health and safety 
        standards, child labor, labor statistics, worker rights, labor-
        management relations, and workplace training. Several joint MOU 
        initiatives are now underway.
    Safeguards. President Bush committed that NAFTA would contain 
measures to ease the transition for import-sensitive U.S. industries. 
For our sensitive sectors, tariffs will be phased out in 10 years, with 
particularly sensitive sectors having a transition of up to 15 years. In 
addition, NAFTA contains ``safeguard'' procedures that will allow the 
U.S. to reimpose tariffs in the event of injurious import surges.
    Worker Adjustment. Dislocations in the U.S. are likely to be 
minimal, since U.S. trade barriers are already quite low. Nonetheless, 
during the Fast Track debate, the President promised that dislocated 
U.S. workers will receive timely, comprehensive, and effective services 
and retraining, whether through improvement or expansion of an existing 
program or creation of a new program. The administration has already 
begun consulting with the relevant congressional committees regarding 
adjustment services for displaced workers.

Next Steps

    The timing of congressional consideration is governed by the Fast 
Track procedures, which require the President to notify the Congress of 
his intent to enter into the agreement at least 90 days before it is 
signed. Although today's announcement reflects the completion of 
negotiations, the draft text probably will not be finished until 
September, since further legal drafting and review are required to 
implement the understandings reached by the negotiators.
    After the agreement is signed, legislation must be prepared to 
implement it, including any necessary changes to U.S. law. Under the 
Fast Track, the NAFTA will not go into effect until the Congress has 
approved the implementing legislation on an up-or-down vote. The 
approval process must occur within a specified time: 90 ``session'' days 
of Congress.