On Jan. 14, my good friend Mack McLarty, former chief of staff to President Clinton, outlined the strong benefits of the North American Free Trade Agreement (NAFTA) for our state of Arkansas. Like Mack, I have past experience with the early formation of NAFTA, having served in 1991 and 1992 as President George H.W. Bush's senior aide for his Economic Policy Council during those final months of the NAFTA negotiations.
Mr. McLarty outlined the benefits to Arkansans in the form of expanded export sales and growth in jobs, particularly in agriculture, where 45 percent of our farm exports are to Canada and Mexico. This column will offer a more detailed look at how President Trump can strengthen NAFTA and add more benefits for American workers and companies.
In 1992, America was a declining energy producer, and Mexico had constitutional protectionist rules blocking foreign investment in its energy sector. Now, America is leading the world in new energy technology both in developing clean energy, like solar and wind, and in producing oil and gas by fracturing shale. Mexico's energy monopoly, PEMEX, is suffering from lack of investment, and the government of Mexico has modified its rules around foreign investment participation. We need to expand the coverage of oil, gas, and electricity within the NAFTA framework. We knew in 1992 that the energy provisions were not ideal in our original agreement. Let's improve it.
One of the most contentious topics for improvement is how the three NAFTA partner countries treat "rules of origin"--particularly in the critical automotive sector. The NAFTA vision was that Mexico, Canada, and the United States would build--together--a North American auto powerhouse to compete with Asian manufacturers, mostly Japanese in 1992; today, our principal competitors include Japanese, Indian, Chinese, and South Korean manufacturers.
Under NAFTA, the North American content requirement is 62.5 percent of the manufactured and assembled car. President Trump wants to find a way to boost the American share of the North American content and has suggested a level of 85 percent--a worthy goal. However, over the past 25 years, America and her partners indeed have built a North American auto powerhouse. Changes to the "rules of origin" must be careful to ensure that a new NAFTA will not result in actually losing jobs to Asia by forcing intermediate suppliers of parts to exit Mexico. Reviewing content definitions and parts tracking will be essential to an acceptable proposal.
Next, a new NAFTA should have up-to-date language governing contemporary policies in regards to Mexico's labor and environmental obligations. In 1992, Mexico's then-President Carlos Salinas made clear that Mexico had no interest in becoming a "pollution haven" for U.S. companies; however, since then, enforcement of the Mexican labor and environmental standards has been less than successful. Enforcement was a concern in 1992, and it remains so in 2018. Improvements in Mexican enforcement should better protect the competitiveness of our American workers on this side of the Rio Grande River.
Finally, in 1992, we had fax machines and WordPerfect as examples of "high-tech," but no e-commerce! A new and improved NAFTA should reflect a digital trade agenda that recognizes the advances in technology, such as electronic signature, rejects data localization mandates whereby countries demand only local data centers, and ensures free movement of data across borders. Also, we continue to advance intellectual property protections, which benefit our software and entertainment industries. In the digital arena, there are many regulatory or stated security policies that are de facto non-tariff barriers to American know-how.
Related to e-commerce, in 2016, the United States raised our de minimis amount from $200 to $800 per person, thus increasing the amount an American can import free from custom duties. Canada's de minimis amount remains at only $20 per person. That means virtually all import purchases by Canadians are subject to duty and taxes. In Mexico, the duty-free import level is $50. Working on sensible, gradual change here would benefit American e-commerce innovators.
In 1992, we told President Bush that the market-opening measures and further tariff reductions would increase exports, lower U.S. consumer prices, increase competition, and lower the cost of production for American companies--in addition to increasing the real wages of U.S. workers. In 1991, we exported $33 billion of goods and services to Mexico. Today, we export over $270 billion to Mexico and over $1.3 trillion to Canada and Mexico combined. Our neighbor to the north has only 36 million people and is a little smaller than California, yet we export more to Canada than to all of the European Union with its population of more than 500 million.
The Trump administration should work to continue NAFTA and improve it to help America keep our eyes on the prize: more open markets for U.S. exports--services, agricultural, manufacturing, and energy. Combined with the realized benefits of an improving U.S. regulatory environment and now our new competitive tax law, an improved NAFTA means faster economic growth and more jobs for Arkansans and all Americans.
French Hill represents the 2nd congress-ional district in Arkansas.
Editorial on 02/02/2018