Dialogue: Joining Nafta is politically possible and makes sense

BRIAN MULRONEY* says expanding North America's free trade pact across the Pacific would be mutually advantageous to its members - the United States, Canada and Mexico - and to New Zealand.

Some commentators smirked when years ago Ronald Reagan articulated a vision of a free trade zone that would stretch from Anchorage in Alaska to Tierra del Fuego at the southern tip of Latin America.

As a new Prime Minister in 1984, I signalled President Reagan that Canada was interested in negotiating a comprehensive free trade agreement with the United States. In 1987, after more than two years of challenging negotiations, we reached agreement.

President Reagan and I subsequently signed the huge and quite radical agreement, which came into effect on January 1, 1989.

In Canada we had to endure a vicious three-year onslaught and unprecedented vitriolic personal attacks and I had to call and win a brutal general election campaign before we could enact the agreement into law.

According to our opponents, it was going to be an unrelieved disaster and Canada was going to lose its shirt. So what happened?

Well, last year, trade in goods and services between our two countries exploded to $C700 billion ($1129 billion), the largest such trade between any two nations in world history.

The US now takes about 85 per cent of Canada's exports and Canada now buys more American products than the 15 countries in the European Union combined. In fact, the US exports more to the Canadian province of Ontario than it does to Japan and three times as much to Canada as to China, Hong Kong and Taiwan combined.

Most observers now agree that the Canada-US free trade agreement - widely viewed as among the most historic economic and political events of our past 100 years - has modernised our economy, enhanced our prosperity and opened up new horizons of change and opportunity.

Trade creates jobs - good jobs, high-paying jobs, durable jobs. Every $1 billion in trade abroad means between 15,000 and 20,000 new jobs at home. And that's what the North American Free Trade Agreement (Nafta) debate was about - jobs and the future.

A decade ago, the new President of Mexico began articulating his vision for the modernisation of the Mexican economy. The cornerstone of that great initiative was to be a free trade agreement between Mexico, the US and Canada.

In spite of the challenges and political risks, the three leaders envisioned the long-term benefits and Nafta was successfully negotiated and signed in San Antonio in October 1992 by the Presidents of the United States and Mexico and myself.

Based on the Canada-US experience, Nafta has opened up the Mexico market of 100 million people, creating the largest, richest single market in the world - 400 million people accounting for one-third of the world's output, about $US11 trillion a year.

Hence the importance of the Summit of the Americas. Since the Quebec Summit last April and the decision to expand free trade throughout the hemisphere by 2005 - the final act in the trilogy - a $13 trillion to $14 trillion market now awaits North America's entrepreneurs and business community.

Since the anti-globalisation forces had their coming-out party in Seattle 17 months ago, their central message that free trade is a large-scale swindle of the world's poor, masterminded by big corporations, has gained unmerited traction among environmentalists, charities, students and labour unions.

But on the link between trade and wealth, the empirical truth is against the protesters.

A famous paper by two Harvard professors demonstrated 16 years ago that developing countries with closed economies grew at an average annual rate of 0.7 per cent in the 1960s and 80s while those with open economies grew at 4.5 per cent.

This explains why South Korea, which was as poor as Ghana 30 years ago, is now as rich as Portugal.

In sub-Saharan Africa, where many Governments have faithfully pursued the protectionist prescription of the demonstrators, per capita income shrank in the past decade. Mexico, on the other hand, has been so happy with its growth under Nafta that it subsequently signed a trade deal with the EU.

One day, Nafta's successor, the Free Trade Area of the Americas, will include 34 countries and 800 million people and the US and Canada will have defined a powerful role for themselves at the very heart of a new free trade zone, stretching from Pt Barrow to Patagonia, Hawaii to Recife, Easter Island to Nunavut.

New Zealand is an equally important example of a country that has benefited from liberalised trade and seeks even more. It is, therefore, to this remarkable North American market that New Zealand may wish to look.

One possibility that merits serious consideration would be membership in Nafta for New Zealand, perhaps with Australia, perhaps without. There is an accession clause in Nafta requiring the assent of the three founding nations - Canada, the US and Mexico - for new countries to join.

Expanding Nafta across the Pacific to New Zealand would be mutually advantageous for all four countries. Not only does it make a lot of sense, it is politically achievable. A lot of the bridges have been built, through Apec and other multilateral forums and bilateral agreements.

New Zealand's trade and investment relationship with Canada and the US is already important and would be further enhanced by your joining Nafta.

Canada, for example, is New Zealand's 14th-largest trading partner. Canada and New Zealand have long been important investment partners. Canadian investment in New Zealand is well over $1 billion, including CanWest's important investment in broadcasting.

As for the US, it is New Zealand's third-largest trading partner and, after Australia, your country's second-largest source of imports.

On the investment side, the US is the second-largest investor in New Zealand, heavily weighted towards the new economy.

In the past decade alone American companies have invested $7 billion in New Zealand, led by telecommunications firms such as Verizon, BellSouth, MCIWorldcom, as well as EDS in consulting and Cyberstar in cable TV.

The US also accounts for a remarkable 11 per cent of tourist arrivals, second only to Australia.

As for Mexico, the new President, Vicente Fox, is an ardent free trader, and would likely welcome the opportunity to expand Nafta across the Pacific. Here, too, the relationship with New Zealand is well developed, particularly through Apec and other multilateral forums.

Mexico has consistently been one of your top export markets in Latin America, and both countries are benefiting from the 1994 bilateral trade and investment agreement. So the essentials for New Zealand to join Nafta are in place.

The foundation has been completed. It remains only to finish the house on top of it. It would be a daring initiative by New Zealand, but the benefits to your citizens could be no less dramatic.

* Brian Mulroney, who was Prime Minister of Canada from 1984 to 1993, was addressing a business forum in Auckland.

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