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IT AIN'T NECESSARILY SO
Pop videos, violent crime, law suits and junk food: much of what we import from across the Atlantic is of questionable value. But occasionally the New World invents something which the Old would do well to imitate. The North American Free Trade Agreement is one such useful invention. If, as expected, it is signed by America, Cana- da and Mexico this autumn, Nafta will cre- ate the world's largest single market: 370 million people producing $6.5 trillion worth of goods. It will also make the elaborate institutions deemed necessary to run the European single market look clumsy and outdated.
The North American single market would resemble the European single mar- ket in that it will eliminate trade barriers between countries with very different economies. Here, however, the resem- blance ends. While the founders of the EEC, and the signatories of the Maastricht Treaty, believe that monetary union is the sine qua none of a properly functioning market. But, as North Americans would say, it ain't necessarily so: Canada and America have been happily conducting enormous volumes of tariff-free trade for most of the past decade without a common currency or anything resembling it. In the Nafta agreement, there are no ERMs and no ecus, hard or soft; the American Federal Reserve will not support the Mexican peso if it collapses. Canadian or Californian businessmen doing deals across the Mexi- can border must simply accept fluctuating exchange rates as one of the many risks of doing business there.
Developments in North America might also prove that a free trade area need not be accompanied by new political institu- tions. America's trade disputes with Cana- da have, until now, been resolved by five- man panels. Other than two small commis- sions, meant to deal with violations of the minimal environmental and labour regula- tions, Nafta will not require new institu- tions or volumes of new regulations. Accu- sations of unfair competition will be resolved using the existing laws, and the existing court systems, of each country. This IS very different from the European single market, whose regulation seems to require thousands of bureaucrats, as well as special institutions like the European Court and the European Commission.
There are other differences too. If the European Community were in charge of administering free trade in North America, the result is only too easy to imagine: regu- lations covering the size and shape of Mexi- can tequila bottles, the consistency of Canadian maple syrup, the length and width of American blue jeans. Nafta, how- ever, will not require products to meet much higher standards; somehow, free trade is going to be conducted without the North American equivalent of Eurosausages, Eurocrisps, and apples which must attain a certain shade of red before they can be sold over the border. The point of Nafta is to reduce bureaucrat- ic impediments to trade; often, it seems as if the point of the EEC is to create them.
However similar their stated goals, Nafta, in practice, will operate on precisely the opposite principles as the EEC. Perhaps it is therefore unsurprising that the oppo- nents of Nafta sound quite a lot like the proponents of tighter European union. Many American Democratic Congressmen, particularly from places like Detroit, oppose Nafta on the grounds that low-wage jobs will move to Mexico; in the same spirit, many northern European politicians, par- ticularly those with steel and textile workers in their constituencies, support the Maas- tricht Treaty because its social chapter will equalise wages all over western Europe, thereby preventing Spanish or Greek work- ers from undercutting their highly paid German counterparts. Most West Euro- pean governments also oppose the exten- sion of their single market to eastern Europe, because enlargement will bring in even more low-wage workers.
But both Nafta's opponents and the sup- porters of a highly regulated EEC are wrong. Free trade is not a zero-sum game, whereby one state loses jobs and another state gains them. While it is true that, after Nafta is signed, some low-wage jobs will move from America to Mexico, it is equally true that America will gain more high-wage jobs, as richer Mexicans are able to pur- chase more American products. Exactly the same principles hold true in Europe. All Germans would be better off if their fre- quently striking steel-workers were made redundant, and their factories moved to Greece or Hungary where the same prod- ucts could be made for less money. Steel would be cheaper; consumers would have more money to spend elsewhere; ultimate- ly, more jobs would be created.
However appealing in the short term, subsidies or tariffs which distort markets for the benefit of one constituency are always paid by someone else later on — and the same is true of unnecessary institu- tions. The free trade agreement between America and Canada already proves that monetary and political union is not a requirement of economic integration, and Nafta should remind Europeans of that simple truth.
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