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ON THE RECORD

North American Free Trade Agreement: Impact on Asian Exports

by Shah AMS Kibria
FOLLOWING his victory In the Ouli war Pre Bldent Hush claimed that the New World Order had already emerged. Unlortun ately, thia warn to have been premature Subsequent events. In Europe and elsewhere, do not term to support this view Given the current uncertainties In the political arena, one would be Justified In thinking that the po»t cold war global political order Is yet to tab a clear shape However, the global economic order it certainly taking shape rather quickly. On August 12 an announcement wax made by three countries — the Untied Slates, Canada and Mexico — about the creation of a free-trade sone. The North American Free Trade Agreement creates an tainlng 300 million people In terms of land area, natural resources and industrial and technological strength. NAFTA can easily rival the EEC and Japan. Indeed that seems to be a major goal of the initiative As a result of the agreement, the three partners feel that they can collectively face the rest of the world with vastly Increased strength. NAFTA will, of course, fall far short of the integration achieved by the EEC It is neither a customs union with a common external tariff nor do the participating countries cede sovereignty to a central authority. However, the agreement does emphasize the worldwide trend to form regional trading blocs.
The hard part of ratification of the agreement will- begin now. It will not be an easy process. The United States, in particular, will have to go through a complicated procedure Involving the Congress.
The uncertainties In an election year are obvious. How ever, the leadership of the Democratic party Including Governor Clinton have given qualified support. Americans seem to believe that the free trade area will, Inter alia, stop the massive tide of Mexican Immigrants. The prospects are therefore good that the agreement will be approved though the process may be long and tortuous. Canada may also have tough domestic op-
position though no one doubts that the eventual outcome would be positive. Mexico should have no dtlTiculty tn ratifying the agreement because it will stand to gain most In terms of higher levels of Investment. employment, tourism and transfer of tech nology President Carlos Sall nas de Gortarl of Mexico be lleves that the free-trade zone will facilitate his market orl ented reforms.
The United States and Canada have economies which are at the same stage of devel opment. The difference mainly lies In the scale of operation. It would therefore be relatively easy for the two economics to accept the changes which will come with the Introduction of the free-trade zone The Canadians have reportedly driven a hard bargain to safeguard their industries and existing exports. The change for Mexico will, however, be almost revolutionary It is ex pected that American Indus tries will move south to avail of the cheap labour thereby changing the entire structure of the Mexican economy. Benefits to Mexico from the free flow of capital and technology and increased tourism will outweigh the negative consequences. On balance, however, all three countries expect to benefit from the creation of the free-trade area While Canada is the No 1 trading partner of the United States. Mexico has recently become the third The volume of trade within the bloc Is likely to Increase further after the agreement comes Into force
It 1s too early to predict with any precision the Impact of the agreement on world trade. The Japanese are concerned because their exports will be affected adversely but they have already started preparations to make the necessary adjustments The EEC countries have npt yet expressed any particular anxiety about the likely consequences but much will depend on how their own Integration plane succeed. However, the Impact on the Aslan economies including that of Bangladesh is going to be quite serious. The reason is Mexico s low wage economy. Currently the US is one of the biggest export markets for the Asian countries. For Bangladesh, the fledgling garment Industry depends, to a great extent, on the American market. As a result of the agreement, the Americans will find it both
cheap and convenient to buy the wearing apparels and other simple manufactured products from Mexico. There Is therefore a distinct possibility that there will be a major shift In the pattern of US Imports Of course. under the agreement, existing tariffs on Mexican goods are set to wither over the next 15 years, spreading out the effect on other countries, Mr Alexander Yeats, the World Bank's international trade analyst, ad muted that It was Impossible at this time to calculate just how big these potential costs to the Aslan countries are likely to be. According to him. with exports from South and South East Asia valued al about $346 billion a year, the Imme dlatc exist to the region will be minor though the long term effect will be dramatic and stg nlflcantly larger. Many developed countries Including Japan (and perhaps also Korea and Taiwan) may shift their production facilities to Mexico in order to take advantage of duty free entry into American and Canadian markets. It is most likely therefore that there will be a shift 1n the flow of investment away from the developing countries of Asia
Thus the implications of NAFTA for Bangladesh is going to be quite serious. The most promising Industry in the country will face an uncertain future unless we are able to negotiate safeguard provisions in good time to prevent disruption of our garments ex ports. The Mexican challenge will become more and more serious with every passing
year I believe Bangladesh and other countries of the region should enter Into discussion with the United States and Canada to negotiate necessary safeguards In the trade arrangements with them. A passive policy of drift may be dangerous for our export Industries. Our long term Interest lies In establishing stable trade relation with North America and other export markets. It Is therefore essential to study the implications of NAFTA as well as the Integration process of the EEC countries so as not to be caught unawares. One would like to know if the government of Bangladesh has undertaken any In-depth study In order to formulate appropriate policy response to deal with these emerging situations Our op tk>n» are few We can take It up with the US and Canada on our own or we can explore the prospects of Joint action with In a world rapidly getting divided into trade blocs, it would be difficult to protect our Interests unless we also Join hands with other countries facing similar problems. At the initiative of Australia a new regional body called Asia-Pacific Cooperation Council (APECC) was recently established. The group has already held several minister-level meetings to draw up a programme of collective action. While the United States and Canada have joined this group as Pacific rim countries. South Asian countries have been excluded from It. Australia, Japan. South Korea and the ASEAN countries constitute the core of the group though recently China has been to-lowed to Join as a member. One can sec the beginning of a process tn which the major trading nations of the world are getting organized Into three blocs : EEC, NAFTA and APECC The ASEAN countries — Malaysia tn particular — are somewhat uneasy about the presence of the United States In the Asia-Pacific group but they had to yield under American pressure. Malaysia made an attempt to create an East and South East Aslan trade bloc with Japan as the leader but strong opposition from the United States doomed the tnl-tliittve Even Japan was reluctant Io support the Malaysian move for fear of offending the United States which is their most Important trading part ner Unfortunately the South Aslans do not figure In any of these groups. Our relatively minor role In world trade Is probably the main reason for this exclusion but the squabbling among the countries in the sub-continent might be another reason. No one wants
to get caught in the perennial quarrels among these coun
All the South Asian countries are dependant, perhaps in varying degrees, on the North American market NAFTA will make It Increas In^y difficult for them to gain access to this market Since group action is likely to be more effective than Isolated efforts of a particular country, it ■ would be advisable for SAARC to initiate negotiations with the United States and Canada (and perhaps also Mexico) to work out an effective safeguard arrangement to protect our exports to these countries. It Is not going to be easy but unless we begin the process now we will be left out completely. Of course, we could hope to negotiate separately but given our small volume of trade, the chances of getting anywhere are slim. The ASEAN countries have a system of a structured dialogue with their trading partners Including the United States and Canada. The APECC forum will also give them an opportunity to press for protecting their Interests. Although SAARC has until now a poor record In dealing with problems of this nature, ft may be an excellent Issue for this body to begin Its International role If we do our home work properly and prepare our case with care, our North American trading partners may find It difficult to Ignore our collective approach. Experience of recent years show that countries which are far-sighted enough to take the signals from abroad In good time and seriously, are better able to cope with external challenges. They are also better able to take advantage of the externa] opportunities. A poor country like Bangladesh cannot depend on luck and chance in developing tts export industries on the basts of markets which might be lost 1n a few years' time The loss of the indigo market tn the 19th century and the diminishing jute market currently should be good warnings for us. We must make every effort to ensure that our growth process Is not rudely interrupted by external developments about which we were warned but chose to pay no attention.