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Interpreting NAFTA : The Science and Art of Political Analysis, by Frederick W. Mayer
NAFTA had survived its first political challenge in the U.S. domestic arena; now the international negotiations could begin. The charge was ambitious: eliminate barriers to trade for all goods and services; eliminate barriers to investment and provide greater security for investors; and establish new rules for government procurement, intellectual property, and dispute settlement.
It would not be easy to reach these goals. No trade agreement so sweeping had ever been negotiated among countries at such different levels of economic development. Moreover, the negotiations would engage three different political systems, three different societies, and indeed, three different cultures. The process of establishing negotiating positions, of compromising from them, and ultimately of finding acceptable agreements would reflect not just the complexity of the issues on the international bargaining table, but also the necessity of simultaneously conducting internal negotiations in the domestic arenas of all three countries. In each country, negotiators had to consult with interagency committees, legislators, and a host of advisory committees from the private sector. The internal process was particularly intense in the United States, where the negotiations would be conducted in an atmosphere of much greater public scrutiny than any previous trade negotiation. Although the temperature would drop a bit from the heat of the fast track fight, reminders of the passions it stirred would follow the negotiations and serve as a forewarning that when the negotiators completed their job, the agreement would still have to go before Congress for its approval.
President Salinas, President Bush, and Prime Minister Mulroney urged their negotiators to move quickly in the hope that the negotiations would conclude by the end of 1991 or early 1992 at the latest, before the U.S. presidential campaign heated up. But this timetable would be completely unattainable. Before any real negotiating could take place, first the three countries had to agree on what issues to talk about and to decide on what positions to take. This process of defining the negotiation took the rest of 1991. Not until early 1992 were issues and positions sufficiently clarified that the negotiators could begin to negotiate the differences. Hopes remained high that the talks could be completed that spring, but the talks dragged on through the summer. Not until August 12, 1992, less than three months before the U.S. presidential election, did the negotiators finally reach agreement. By then it was too late for the U.S. Congress to consider the agreement in 1992. That would have to wait until after the election, when a new Congress and possibly a new president would decide what to do with it.
From the perspective of the national negotiators, NAFTA was a great success. The agreement did much of what the negotiators set out to accomplish and more than they expected. Its several thousand pages committed all three countries to eliminate, over time, most barriers to trade in goods and services; to open investment in most sectors of the economy, and to adhere to new rules for intellectual property, government procurement, and dispute settlement. Mexico, in particular, had agreed to a level of change that few would have predicted before the talks began.
Still, for all the movement toward some free trade ideal, perhaps equally interesting about the NAFTA are the deviations from it. If the agreement had been simply to free all trade and investment immediately, the text could have been a fraction of its actual length. What required the thousands of pages, and the bulk of the negotiating, were such matters as how slowly each country would move toward free trade for each product, how far and how fast each country would move to free investment, what “rules of origin” would determine how much of a product had to be made in North America to qualify for free trade, how conflicts between environmental and trade objectives would be handled, and what procedures would be used to settle disputes. The agreement is also interesting for what it did not include. A few politically privileged industries in all three countries were largely exempted: for example, Mexican oil, Canadian cultural industries, and U.S. shipping. Only narrow classes of professionals and business persons were free to work across national borders. Few of the issues raised by U.S. environmental, labor, and other activist groups in the fast track debate showed up in the text. For all of these reasons, it is not just the fact of agreement but also the form of agreement that is of interest.
Why this NAFTA? Why its long phaseouts of protection for some products and immediate eliminations for others, its exemptions, its rules of origin, and its language balancing trade against environmental objectives? Why did the talks take so much longer than the politicians intended and conclude at almost precisely the moment they sought to avoid, in the heat of a U.S. presidential election?
Creating a Negotiation
Before parties to a negotiation can engage in the kind of give and take, offer and counteroffer that we think of as the stuff of negotiations, they must first decide what to negotiate. At the same time, as negotiators together define the issues, they each separately determine their objectives and their strategy. In simple bargains, such as buying a used car, the process of creating the negotiation can be as straightforward as making an offer. In the case of complex bargains like NAFTA, however, negotiations crystallize over time out of intricate interactions.
On June 12, 1992, the three trade ministers—Carla Hills for the United States, Jaime Serra Puche for Mexico, and Michael Wilson for Canada—met in Toronto to launch the negotiations. Each minister arrived with broad objectives, a general strategy, and an opening position.
For Carla Hills, the goal was to reach as broad an agreement as possible. The strategy was to use the existing Canada-U.S. Free Trade Agreement (CUFTA) as a starting point, and, if possible, to broaden it slightly to include agriculture. To her counterparts, Hills made it clear that the United States would insist on full market opening in goods, services, and investment. She intimated, however, that balanced against these liberalizing objectives, the United States would need a slow dismantling of trade protection for a few sensitive industries. Of course, she noted, U.S. immigration policy would not be on the table.
For Jaime Serra, the objective, too, was a broad agreement. As a Ph.D. in economics, he privately believed that market opening was good for Mexico and that it made little sense to open piecemeal. “You can't open cookies if you don't have competitive wheat,” he explained later. But he was cognizant that Mexican political realities limited how far and how fast he could move. Moreover, strategy dictated that he not appear too eager to open in those areas of greatest interest to the United States and Canada if he wanted to maintain leverage in the negotiation. To his counterparts in Toronto, Serra endorsed the idea of a broad agreement but hedged on whether it would be possible to open Mexican financial services. Of course, he said, Mexican oil was off limits. A prohibition against foreign involvement in the energy sector was written into the Mexican Constitution, and the subject was much too politically charged to be included in a negotiation.
For Michael Wilson, the overriding goal was to avoid reopening its existing agreement with the United States, particularly the dispute-resolution mechanisms and the politically important exemptions for Canadian cultural industries and agriculture that had been so hard to win. Canada would seek some improvements, particularly on the confusing rules of origin that had recently been the subject of a significant dispute with the United States but would insist that CUFTA be the core of NAFTA. Wilson reassured his negotiating partners that Canada intended to play a constructive role in the talks and that it welcomed the opportunity to gain open access to the Mexican market.
The three trade ministers established some ground rules for the negotiations. The most important was that there would be no backsliding from the CUFTA in any area of the agreement. NAFTA was to represent a step forward on all fronts. The ministers also agreed on how to organize the negotiations. A negotiation this complex has to be broken into parts so that teams of negotiators can work on the details. The standard procedure in trade negotiations is to establish working groups for each major issue. The ministers agreed to create 19 working groups; among the more significant were financial services, agriculture, market access, automobiles, intellectual property, services, and investment. These groups would report to chief negotiators for each country—Jules Katz for the United States, Herminio Blanco for Mexico, and John Weekes for Canada, who in turn would report to the trade ministers.
The organization of the negotiations closely resembled the earlier structure of the CUFTA negotiations. Chip Roh, Assistant U.S. Trade Representative (USTR) for North American Affairs and Katz's deputy, wrote a memo laying out a proposed list of working groups, taking the groups straight from the CUFTA. “It was hugely important that we had done the CUFTA,” Roh later recalled. “We had a negotiating text. We knew how to organize it.”
The trade ministers also discussed timing. Jaime Serra was eager to move quickly. His biggest concern was that the financial markets might lose confidence in the Mexican economy if the talks dragged on too long. “I didn't want this thing to hang on the tree forever,” he recalled. “If it does, it goes rotten.” On the other hand, he could not appear too eager if he wanted to retain bargaining leverage. He urged his counterparts to get it done fast. Carla Hills was in less of a hurry. The United States was hoping to wrap up the General Agreement on Tariffs and Trade (GATT) negotiations first. Still, she had an incentive to conclude the negotiations early enough that Congress could vote on an agreement before the 1992 elections, preferably well before them. Michael Wilson had less reason to hurry but did not want to appear obstructionist. The ministers agreed, therefore, on a breakneck schedule aimed at completing talks in 1991. They announced no deadline, however. In private and in public, the common line would be: “timing is dictated by substance.”
The negotiating groups began work the week of June 17, 1991, and the chief negotiators met July 9 and again on August 6. Every week, the trade ministers talked in a lengthy conference call. On August 18, the ministers met for a second time face to face in Seattle. The chief negotiators met again on October 9, and the trade ministers met for a third time October 15 in Zacatecas, Mexico. Between international meetings, negotiators would consult with their private advisory groups and, especially in the United States, with interested legislators. For the negotiators the pace was absolutely frantic, so filled with meeting and briefing that there was no real time to negotiate. They felt torn by the contradictory admonitions from higher up to move fast, but don't compromise. By October it was apparent there would be no agreement in 1991.
Domestic Consultation
Left to themselves, the professional trade negotiators might well have reached agreement quickly. All sides, after all, agreed on the basic goal of free trade. But the negotiators were not negotiating for themselves, they were rather representing governments and, to a great extent, private interests in their societies. No international negotiation, no matter how secret, takes place in a political vacuum. Before they could negotiate internationally, therefore, negotiators had to consult domestically.
As in any trade negotiation, a domestic consensus about how to proceed formed on few issues. In the United States, for example, sugar producers wanted to maintain protection; sugar consumers wanted to reduce it. In Mexico, banks wanted to keep out U.S. and Canadian competitors, while capital-starved Mexican industry wanted more open banking competition to lower interest rates. In Canada, North American automakers wanted relatively high rules of origin to limit foreign competition (although General Motors [GM], Ford, and Chrysler did not agree on how high, as we shall see in later discussion); Japanese and European “transplants” wanted lower rules of origin. The negotiating teams of all three countries had to tread care
All three countries used formal consultative processes to facilitate communication between negotiators and the private sector. In the United States, an Advisory Committee on Trade Policy and Negotiations (ACTPN), established by the Trade Act of 1974, coordinated more than 30 advisory committees on such broad topics as investment, intellectual property, agriculture, and labor as well as more narrowly focused topics such as chemicals, paper products, textiles, and dairy and livestock products. These groups met regularly with U.S. negotiators responsible for their areas. ACTPN members, appointed by the government, were almost all business representatives, although there were two labor union representatives and, as one of the Bush concessions to obtain fast track, an environmental representative. In 1991, the cochairs of the ACTPN were Jim Robinson of American Express and Kay Whitmore of Kodak, who were also cochairs of the Business Roundtable's trade task force. This consultative process was considerably more closed than the open politics of the fast track extension. Trade negotiations are conducted in secret, so only those with security clearances know the details of what transpires in the talks. Advisory committee members not only had privileged access, they could not transmit what they knew to others outside the process or to the media. Interest groups left outside were not happy.
Like the United States, Canada had an existing consultative structure, although as a parliamentary system in which the ruling party could be certain of legislative approval of whatever it negotiated, consultation was a less crucial function in Canada than in the United States. In the Canadian structure, created in 1986 for the Canada-U.S. negotiations, an International Trade Advisory Committee (ITAC) coordinated the efforts of 15 Sectoral Advisory Groups on International Trade (SAGITs), each with a more narrow purview. Canadian negotiators would meet regularly with these groups throughout the negotiation. 1 As in the United States, these advisors were appointed by the government and sworn to secrecy.
Mexico did not begin the NAFTA with a similar consultative structure in place. At the urging of Jaime Serra, the business community set out to create one. Rather than a government appointed committee, however, the Mexicans created a self-appointed private sector committee, Coordinadora de Organismos Empresariales de Comercio Exterior (COECE), which, as its name implies, coordinated communication between existing interest groups and the Mexican negotiators. Juan Gallardo, the head of a large soft-drink bottling company, became president of COECE. Although technically independent, the ties between COECE and Mexico's negotiators were probably closer than those between the private sector and national negotiators in the United States. Indeed, Gallardo and his group's members would travel with the negotiators to international sessions. “We'd meet with the USTR, and when we got back to our offices the business people were there. They were everywhere we went. We use to call them ‘el cuarto de al lado,’ the room next door,” recalled a senior Mexican trade official. Because labor support was more important politically to the Partido Revolucionario Institucional (PRI; the ruling party) in Mexico than to the Republicans in the United States or the Conservatives in Canada, Mexican negotiators consulted more closely with labor than did their counterparts.
In addition to the private sector consultative mechanisms, all three countries had more informal processes to link negotiators with the wider political environment. In the United States, the fast track process required consultation only with the House Ways and Means Committee and the Senate Finance Committee. But because they knew that in the end Congress as a whole would decide whether to accept the negotiated agreement, Carla Hills, Jules Katz, Chip Roh, and others at the USTR made themselves available to all members of Congress, by Jules Katz's count holding more than 400 meetings with members.
This effort did not satisfy everyone. Because many Hill staffers did not have the requisite security clearance, they could not attend closed briefings or read confidential negotiating documents for their members. Moreover, interest groups not represented on the trade advisory committees could not be briefed on the ongoing negotiations. The purpose of secrecy was to ensure that negotiations be conducted over the negotiating table and not in public. To those excluded, however, secrecy looked like a way to limit their influence, particularly since commercial interests had access they lacked. In response, the USTR held a series of public meetings throughout the fall, at which representatives of virtually the entire spectrum of interests could express their views, but this process was merely second best in the eyes of many NAFTA critics. Indeed, some groups protested that they were excluded from these meetings as well.
The Canadian negotiators had less need to consult so closely with their legislature, in that the Conservative majority in Parliament would almost certainly approve whatever the Conservative government negotiated. Nevertheless, how NAFTA was viewed by the wider population was a concern because the government knew that at some point in 1993 it would be forced to call a national election. Canada's negotiators consulted regularly with labor and environmental groups to try to defuse their concerns.
In Mexico, too, the issue was not so much whether NAFTA would pass the legislature—the PRI had an overwhelming majority in the Mexican Senate—but how NAFTA would be seen in the larger political environment. “There was a concern about a nationalist backlash,” recalled an official in the Mexican Embassy. “This was always on our minds. That we would be charged with giving up the country. That's why we had to do it with support of the business community. It was essential to build political support to defuse fears that we were giving up too much.”
Defining the Issues
Through the summer and fall of 1991, through iterations of domestic consultation and international discussion, the issues came into focus and the range of possibilities began to narrow sufficiently for the negotiators to establish negotiating positions. The process had taken longer than the trade ministers had initially envisioned, and from the outside it looked as if little had been accomplished, but by mid-fall, the negotiators could at least agree on what they were negotiating in the major areas: market access, energy, autos, agriculture, services and investment, and financial services. Market Access
In some ways the heart of the negotiations was the traditional territory of negotiating away tariff and nontariff barriers to the free movement of North American goods. At the very start, the parties agreed to two essential points that greatly simplified their task. First, there would be no exception from eventual elimination of quotas and tariffs. Second, tariff negotiations would start from “applied” (actual) rather than “bound” (maximum allowable) rates, which meant that the negotiations would proceed from much lower rates. That issue settled, the negotiators faced essentially two categories of problems: How fast should the tariffs come down? and What counted as a “North American” good?
The market access working group handled these questions for all but a few larger (and more problematic) sectors, such as autos, textiles, and agriculture, that had their own negotiating groups. Very early in the negotiations the parties agreed to put goods into four categories (A, B, C, and C+) depending on their “sensitivity” to increased imports, reflecting both how great an impact liberalization would have and how politically powerful its producers were. The more sensitive the good, the longer was the transition. For A goods, tariffs would be eliminated immediately; for B goods, in five years; for C goods, 10 years; and for C+ goods, the most import sensitive group, 15 years. It was the United States that insisted on the C+ category. This embarrassed Jules Katz, the veteran U.S. trade negotiator. “It was as if we were the developing country,” he said later.
In September 1991, the parties exchanged initial positions, identifying the products they wanted to put in each category. Mexico, because it had higher tariffs across the board, had the longest list of sensitive industries, but all three countries listed numerous goods for which they requested lengthy phaseouts. The U.S. list included footwear and garments, glassware, brooms, and several other currently protected labor-intensive products.
With the lists on the table, the essence of the negotiating task was clear: trade “concessions” to shorten the transitions.
Energy
For many in the United States, one of the initial appeals of NAFTA was the prospect of better access to Mexican oil. Partly this was a matter of business opportunity for American oil companies and their suppliers, but also a more secure supply of Mexican oil might mean less reliance on insecure Middle Eastern supplies. Both dimensions weighed on the influential Texans with an interest in the talks: President Bush, Secretary of State James Baker, Secretary of Commerce Robert Mosbacher, and Finance Committee Chairman Lloyd Bentsen.
For the Mexicans, however, oil was a highly sensitive issue, a matter of national sovereignty. Mexico had nationalized its oil industry in 1938, after U.S. and British oil companies refused to abide by a Mexican Supreme Court decision in a labor dispute. An amendment to the Mexican Constitution prohibited foreign ownership of Mexican oil. So popular was this move against the foreign companies, one reporter wrote, that to raise money to indemnify the international oil companies, the government collected coins from school children and jewelry from matrons in an outpouring of national pride. People tell their grandchildren stories of lining up in front of the Palace of Fine Arts to drop their centavos into the collection box for the oil nationalization. And for schoolchildren whose grandparents forget, textbooks provide illustrated accounts. 2
In addition to the historic sensitivity of the issue, there was also a contemporary powerful interest in maintaining the status quo. The nationalization had created Petroles Mexicanos (Pemex), an enormous state enterprise employing hundreds of thousands of Mexican workers.
On the other hand, Pemex was extraordinarily inefficient, in need of foreign capital. Although the Mexican Constitution prohibited foreign ownership of Mexican reserves and foreign exploration, drilling, and refining of “basic petrochemicals,” it did leave open the possibility of foreign involvement in some service contracts and “secondary petrochemicals,” i.e., products created from oil. The question was where to draw the line between basic and secondary petrochemicals.
From an economic efficiency standpoint, the more of the sector that was open, the better it would be. For these reasons, the Mexican government had already redefined some operations as secondary. Jaime Serra had to tread carefully, however, if he wanted to further loosen restrictions on these activities as part of the NAFTA negotiations. In July, when reports surfaced in the U.S. trade press that negotiators were discussing energy, an irritated Jaime Serra called Jules Katz at home and said “We are not discussing energy!” At the August meeting in Seattle, the Mexicans publicly announced “Five Noes:” no reduction of control over ownership, exploration or development of petroleum, including basic petrochemicals; no loss of control over storage and distribution; no foreign ownership of gas stations; no guarantees of supply to foreign countries; and no equity contracts for exploration.
The tough stand by the Mexicans may have reflected advice they were getting from the Canadians about how to deal with the Americans. “The Canadians may have told the Mexicans they had better figure out where the lines are at the beginning of the negotiation, because the U.S. is going to beat you and beat you again,” recalled Chip Roh. “You need to know where your sacred territory is at the beginning.” Roh also thought that the Mexican stand on oil was in part a strategy for making the issue a lightening rod for any popular dissatisfaction with the negotiations. “This was an incredibly clever ploy by Salinas and Serra,” he said. “They let energy be the lightening rod for opposition. And, in a sense, we played our part. We would say truly that they are being tough on oil.” Mexican strategists later confirmed their strategic use of the oil issue. “For the critics of NAFTA, oil was a signal of whether Mexico was going to give in or not,” said one Mexican official later. “This was the issue the public cared most about.”
U.S. negotiators recognized the difficulty of the Mexican position. “My own political calculation was that we would come up short on energy and be disappointed, but that was OK as long as there weren't too many areas like it,” said Chip Roh. Fortunately, after a period of initial optimism, the oil industry accepted the limits of what was possible and backed off on their pressure. “They never choked us,” recalled Roh. “Some of the independent oil companies were unhappy, but the big oil companies had a correct conception that the Mexicans were not going to budge.” Still, the U.S. negotiators continued to push for openings in petrochemicals and energy service contracts and for assurances that Mexico would continue to supply oil to the United States in the event of shortfalls.
Automotive Products
The stakes were high for the working group on automotive products. Trade in automobiles and autoparts constituted by far the largest volume of goods traded among the countries of North America: 14 percent of U.S. exports to Mexico, 30 percent of Mexican exports to the United States, and 6 percent of U.S.-Canadian trade. 3 The United States and Canada had traded autos and autoparts virtually freely since 1965, and both countries imposed relatively low tariffs on imports from third countries. Mexico, on the other hand, was almost completely closed to the import of automobiles. Mexican auto policies, first put in place in the early 1960s as part of the general import substitution strategy and most recently modified by the Auto Decree of 1989, were designed to force automakers to locate production in Mexico if they wished to sell there, and they worked. Of the nearly 500,000 cars sold in Mexico in 1992, just over 5000 were imported. Most of the trade between the United States and Mexico, therefore, involved the export of parts from the United States to assembly operations in Mexico, from which finished vehicles would be shipped back to the United States. The first question for the negotiators to settle was how far and how fast the Mexicans would dismantle their highly protectionist policies.
This matter proved difficult to resolve. The Mexican negotiators recognized that much of their auto industry would fare badly in open competition with the Americans and sought to stretch out the transition to free trade as long as possible. U.S. and Canadian negotiators pushed for faster opening but in the end accepted the longest possible phaseout. Their willingness to compromise reflected their close consultations with the “Big Three” automakers—General Motors, Ford, and Chrysler—and with major autoparts manufacturers whose production processes were adapted to the status quo and who, while eager to obtain better access to the Mexican market, worried that eliminating the restrictions quickly might make it too easy for European and Japanese competitors.
The other difficult issue concerned the auto rule of origin. Any regional free trade agreement discriminates against goods produced outside of the region in favor of those produced within it. This requires a rule that determines what is a regional good and what isn't. For a complex manufactured product such as a car, which can be assembled in one place from parts made anywhere in the world, this may not be a simple determination.
Establishing national positions on the rule of origin was complicated by differences of interest in the private sector. The U.S. automakers wanted the rule to preclude the possibility that Mexico would be used as an “export platform” for their international rivals, but not one that prevented them from using imported components. All three made careful calculations about the effects of various rules on their competitive position. GM, primarily because of a joint venture with Izuzu in Canada, needed to keep the percentage low enough for those cars to qualify for North American treatment and therefore pushed for 60 percent. Ford and Chrysler preferred a rule requiring 70 percent North American content. Parts makers in all three countries pushed for the highest possible content requirements.
U.S. negotiators consulted closely with the Big Three and the autoparts makers. “We needed a deal that was good for U.S. manufacturers and autoparts makers,” recalled Chip Roh. “We needed their support.” U.S. negotiators also talked with the United Auto Workers (UAW) union, which was demanding a rule of 80 percent, but the union position carried little weight given the UAW's almost certain opposition to the ultimate agreement. There was little discussion with Japanese or European subsidiaries in the United States. Because of the internal disagreement, U.S. negotiators did not establish a specific negotiating position on the rule of origin in 1991, merely arguing that it would need to be higher than the 50 percent rule used in the CUFTA.
The Canadians also were prepared to go higher than 50 percent, but intimated that they wanted a lower percentage than the United States. Like their U.S. counterparts, the Canadians consulted closely with their private sector. They faced many of the same pressures. The Big Three were also the biggest manufacturers in Canada. Canadian autoparts makers wanted high percentage content rules. Canadian negotiators, however, did not need to be quite as responsive to these pressures, and unlike the United States, Canada had a countervailing interest in a less restrictive rule. Japanese and European transplants had established assembly operations in Canada to build cars for both the Canadian and the U.S. market. If the rule of origin went much higher than 50 percent, they might not be able to continue to sell duty-free into the United States, thus negating the economic rationale for locating in Canada. 4 Canadian negotiators worried about this possibility and consulted closely with the transplants.
Mexico, too, had conflicting internal interests. Mexican autoparts suppliers wanted rules as high as possible. The Big Three also had operations in Mexico as did American parts suppliers, all of whom to varying degrees pushed for high rules of origin. But Mexico, like Canada, had European and Japanese transplant operations and hoped to attract more, which created incentives for relatively lower rules.
With all three countries hesitant to commit to firm negotiating positions, the auto working group made little progress on the rule of origin in 1991.
Agriculture
Historically, no sector has proven more resistant to trade liberalization than agriculture. Around the globe, governments protect and subsidize agricultural production, a reflection of a privileged political position that makes negotiating away these trade barriers extremely difficult. The situation was no different in North America. Canada, Mexico, and the United States all protected certain agricultural products; all three subsidized domestic production. Eliminating these policies had proven too difficult for the United States and Canada in the CUFTA. Now the question was whether the three countries could manage their domestic politics well enough to do more in the NAFTA.
For Canada, the answer was “no.” The major problem was Canada's supply management programs for dairy and poultry farming, which were simply too entrenched to negotiate away. “We had absolutely no flexibility on that at all,” recalled chief negotiator John Weekes. Moreover, Canada preferred that any concessions on agriculture be made in the context of the multilateral GATT talks, determining that it was better to be seen responding to pressures from Geneva than those from Washington. After months of discussion, the United States and Mexico finally agreed not to push Canada further and instead focused on negotiating a bilateral agreement, which was hard enough.
Truly free trade in agriculture between the United States and Mexico would alter the pattern of production in North America. The United States enjoyed a comparative advantage in grains, Mexico in such warm weather crops as fruits, vegetables, and possibly, sugar cane. Yet Mexico protected its grain producers, the United States its fruit, vegetable, and sugar producers. In principle, both countries would be better off if they utilized their comparative advantages, but in the fall of 1991, it looked doubtful that the negotiators could do very much to change the status quo.
For Mexico, the stakes were extremely high. Mexican agriculture was highly protected and subsidized, as well as highly inefficient. Fully 30 percent of the Mexican population was engaged in agricultural production, a percentage not seen in the United States since the nineteenth century. Most of the effort went to produce corn on collective farms called ejidos, which had been created by the land reforms that followed the Mexican Revolution. Ejido farmers worked small plots of land using primitive technology. Only an extensive system of price supports coupled with quotas on inputs allowed them to survive. Subjecting them to competition from the American cornbelt would be a dramatic step.
Few observers predicted this would happen. Yet, in the eyes of President Salinas and his advisors, the cost of inefficiency was too great a burden for Mexico. They envisioned sweeping reform, including assigning individual property rights to farmers, which would allow land consolidation into larger, more efficient farms, and moving from a scheme of distorting price supports to direct support for farmers. For the Mexican economic strategists, NAFTA fit nicely with this long-term strategy to transform Mexican agriculture. “If we don't take advantage of this opportunity now, we'll never do it,” thought Jaime Serra. Serra was also prepared to negotiate a gradual phaseout of protection for corn, provided that in exchange the United States opened its markets for products that Mexico could produce more efficiently. But he was determined to extract a high price for any concessions he made on corn.
For the United States, the possibility of 90 million Mexican consumers for its more efficient corn producers was a great attraction. U.S. negotiators pushed for elimination of Mexican protection as quickly as possible. At the same time, however, they were under great political pressure not to trade away protection for the warm weather products Mexico hoped to export, among them citrus fruits, tomatoes, and sugar. The USTR heard an earful from threatened southern agricultural interests. The powerful Florida Agriculture Commissioner, Bob Crawford, told the USTR in August that unless protection was maintained, “Florida growers would be faced with an insurmountable economic threat, a threat that we believe will put many Florida growers out of business.” 5 In response, U.S. negotiators sought long transition periods and provisions that would allow temporary reimposition of tariffs in the event of import surges that threatened American producers.
The politics of sugar were particularly intense. In a free market, Mexican sugar growers would be very competitive with American producers. Yet, because U.S. sugar producers enjoyed an extraordinary package of strict import quotas and price supports, very little Mexican sugar was imported into the United States. Economists love to hate the U.S. sugar program, which keeps the U.S. price of sugar well above free market levels, by some accounts costing the American economy more than $2 billion a year. 6 Privately, U.S. negotiators felt much the same way, but they knew that with economic stakes this high, the same powerful sugar lobby that put the program in place would be watching them closely.
Financial Services
Because of high stakes and political sensitivity, financial services—banking, insurance, credit, and securities—were handled separately from other services. Regulations in all three countries made it difficult for foreign firms to provide these services, but by far the biggest gap between the status quo and a free market was in Mexico, where the government tightly restricted market access. No foreign banks or insurance companies could provide services in Mexico, and foreign holdings in Mexican banks were limited to 30 percent and in Mexican insurance companies to 49 percent. The central issue was how far Mexico would be willing to open its markets.
Mexico's stance in these negotiations reflected a battle between its financial service providers, whose interest was in maintaining protection, and other industrial concerns, whose interest was in opening up competition. For Jaime Serra, maintaining protection for Mexican banks while opening up in other areas was the equivalent of an autogoal in soccer (literally “own goal,” as when a defender accidentally scores for the other team); it was self-destructive. Mexican financial services, particularly its banks, were highly inefficient, making the cost of capital in Mexico much higher than it otherwise would be. Serra recalled thinking, “If I tell a desk producer, ‘You are going to be open to American competition in five years,’ he'll say, ‘They are going to kill me. They have better interest rates, better services, better wood.’ That guy is right.” In Serra's view, opening, while painful for Mexican financial institutions, was necessary for the rest of the Mexican economy.
But the Mexican financial service community was well connected to political power and obviously had a stake in maintaining its protected status. Moreover, opening was complicated by the fact that Mexico was in the midst of privatizing its banks, nationalized in 1982 by López Portillo as one of his last acts in office. Finance Minister Pedro Aspe, who was handling the bank sales, knew that if Mexico subjected its inefficient banks to American competition, the banks' values would drop precipitously. Powerful people were paying a lot for the banks, so Aspe and the banks resisted market opening.
Behind the scenes, both cases were presented to Salinas. The more protectionist view won the first round, and Mexico's negotiators went to the negotiating table with instructions to concede only a tiny fraction of market share. Their opening position envisioned a very gradual opening with a cap on aggregate foreign participation in the Mexican banking market at 5 percent. 7
For the United States, opening Mexican financial markets was a high priority. Financial services companies played a central role in the business effort to support NAFTA, which made them influential in the business community. “In terms of resources of time and money we put more into it than any other sector,” recalled an official of the Business Roundtable. “We viewed this as a test case of what could happen in the negotiation.” For U.S. business, the Mexican position was completely unacceptable. The confrontation between the strong U.S. domestic interests pushing for market opening and the strong Mexican domestic interests in maintaining protection would make for a very difficult negotiation.
Other Services and Investment
Although formally handled by two separate working groups as the result of a ministerial decision early in the negotiations, at the staff level services and investment were effectively combined. The two issues tend to go hand-in-hand because the most common barriers to service provision are prohibitions against foreign ownership. Mexico's transportation, telecommunications, construction, and most other service industries were almost completely closed. Because American and Canadian services were generally more efficient than their Mexican counterparts, the Mexican market represented a tremendous business opportunity to these concerns. They pressed their negotiators to push Mexico to open up. The issue was how far Mexico would be willing to go.
As with financial services, the Mexican position in these talks was complicated by internal divisions. On the one hand, Mexican service providers were fearful of competition and pushed hard to maintain protection for as long as they could. The Mexican negotiators had to be sensitive to their concerns. On the other hand, the negotiators recognized that inefficient services in critical infrastructure sectors such as transportation and telecommunications constituted a drag on the rest of the Mexican economy. Business consumers of those services had an interest in greater access to cheaper, more reliable U.S. and Canadian providers. Mexico, therefore, tended to be more receptive than might have been expected to the aggressive U.S. and Canadian demands.
Early in the talks, the U.S. side insisted upon an important principle for the conduct of these negotiations. Rather than negotiating each liberalization from the status quo (as was being attempted in the Uruguay Round of the GATT), the negotiators would negotiate exceptions from openness. The approach adopted in NAFTA effectively reversed the burden of proof and gave considerable impetus toward market opening. The United States could consistently argue from principles of free trade and force the Mexicans to justify deviations from it. The Mexican negotiators, however, may not have found this situation undesirable. Outside pressure from the United States helped them in their internal negotiations with service providers and allowed them to push through reforms that they otherwise would have had difficulty obtaining.
Of course, each side did insist on some exemptions. All three exempted basic telecommunications. The United States insisted on excluding its politically powerful shipping industry, as it had always done in trade negotiations. Mexico insisted on excluding its railroads, which had been nationalized during the Mexican Revolution. Canada insisted on retaining exemptions it had obtained for its cultural industries in the CUFTA.
The Outside Political Environment
Through the summer and fall of 1991, the inside processes of international meetings at the levels of ministers, chief negotiators, and working groups, and of domestic consultations with advisory committees in all three countries, gradually gave form to the negotiation. Beyond this relatively closed circle, however, larger political forces were also at work.
In the United States, particularly, outside voices continued to criticize what was happening in the negotiations. The coalition of labor, environmental, and other citizen groups that had opposed fast track began shadowing the negotiators wherever they went. When the trade ministers met in Seattle in late August, the national Mobilization on Development, Trade, Labor, and the Environment (MODTLE) held a press conference nearby to protest its exclusion from the talks and to draw attention to its concerns. MODTLE rented a huge weather balloon, attached an anti-NAFTA sign to it, and floated it up to the forty-fourth floor where the negotiators could see it. (They later claimed not to have noticed.) At the Zacatecas meeting in October, NAFTA's critics held a three-day, trinational “parallel” forum on labor, environmental, and human rights issues. The press, shut out of the negotiations themselves, found that the opposition was the only story in town. As MODTLE organizer Pharis Harvey recalled, “the press was hungry. We got press coverage we couldn't get in between.”
Because of the extraordinary level of interest in NAFTA, in August and September the USTR held public hearings to allow more general public input into the negotiating process. In San Diego, Houston, Atlanta, Washington, and Cleveland, the administration heard from witnesses representing business, labor, environment, and citizens' groups. Many of the witnesses—citrus growers, sugar beet growers, liquor distillers, shoemakers, a garment maker, a glass manufacturer (Anchor Hocking)—argued that the special circumstances of their industry required special treatment, often exemption, from free trade with Mexico. Other witnesses, however—the retailers' trade association, a Mexico-based autoparts maker, another glass manufacturer (Corning)—testified in favor of free trade. Union leaders warned that NAFTA could cause job losses and allow continued unfair trade practices in Mexico. 8 Other witnesses addressed environmental, health and safety concerns; child labor laws in Mexico; and the broad agenda of issues that had been raised in the fast track debate.
Most of the rising public interest in NAFTA was just background noise for the negotiators, but environmental opposition was not something they could safely ignore. The environmental community, including those groups that had endorsed fast track, was becoming increasingly unhappy with the direction the negotiations seemed to be taking and with the lack of progress on the parallel track promised by the Action Plan.
On August 1, 1991, the administration released a draft Integrated Border Environmental Plan, something that it had promised in May. The plan was panned throughout the environmental community. The plan, said Justin Ward of the National Resources Defense Council (NRDC) at the time, “is a big disappointment all around.” 9 On the same day, Friends of the Earth, the Sierra Club, and Public Citizen filed suit against the USTR, alleging that NAFTA and the Uruguay Round of the GATT were major actions that required environmental impact assessments under the National Environmental Policy Act (NEPA). Public Citizen president Joan Claybrook said an assessment was necessary because “the United States negotiators are so closely intertwined with the needs and wishes of big business.” 10
Shortly afterward came the biggest bombshell: A GATT panel ruled that using the U.S. Marine Mammal Protection Act to prohibit imports of Mexican tuna was a violation of GATT obligations. The environmental community was outraged. “This case is the smoking gun,” said Public Citizen's Lori Wallach. “We have seen GATT actually declaring that a U.S. environmental law must go.” 11 Environment's allies on the Hill echoed the sentiment. Representative Barbara Boxer (Democrat, Calif.) and sixty-two other members of the House “strongly protested” the ruling. 12 Henry Waxman (Democrat, Calif.), chair of the House Environment Committee intoned, “This is a worst-case scenario come true—repeal of a vital environmental law because of conflict with a trade agreement.” 13 Garry Studds (Democrat, Mass.), chair of the House Merchant Marine and Fisheries Committee, said, “the implications of the decision for a wide array of U.S. laws and programs are truly frightening.” 14
The connection to NAFTA was easily made. For environmentalists, here was as clear a case as one could want of the danger that free trade would undermine environmental laws, a case involving the very country the United States was negotiating with. Said Representative Boxer, “Mexico's challenge of U.S. environmental law that protects dolphins doesn't speak well for its claim to be a full partner in the protection of the environment under the U.S.-Mexico trade agreement.” 15 The Mexican government scrambled to repair the political damage. President Salinas announced that Mexico would ignore the GATT ruling and that a new Mexican law would prevent killing of dolphins. Most environmentalists were not impressed, however. “We see these steps as cosmetic, a face-saving measure,” a spokesperson for the Earth Island Institute's Save the Dolphins Project said. 16 For the rest of the NAFTA campaign, the image of a dolphin would appear on anti-NAFTA environmental literature.
Displeasure on the Hill with the course of the NAFTA negotiation was not confined to environmental issues. In June 1991, Marcy Kaptur (Democrat, Ill.) had founded a “Fair Trade Caucus” to serve as a “watchdog” group and to work with the Fair Trade Watch activists off the Hill. The Fair Trade Caucus regularly distributed information and analyses critical of NAFTA to other members of Congress. Just before the Zacatecas meetings in October, Majority Leader Richard Gephardt and four other Democratic Representatives active on trade issues—Sander Levin, Don Pease, Jim Moody, and Ron Wyden—sent a lengthy letter to Carla Hills warning the negotiators to pay close attention to their concerns and to keep to the commitments made in May. “We will hold the president to the commitments he has given to Congress and the American people—both substantively and in spirit,” the letter said. “If he keeps his commitments, Congress will do so as well.” 17
On the labor front, Senators William Roth (Republican, Del.) and Daniel Patrick Moynihan (Democrat, N.Y.), both members of the Senate Finance Committee, introduced a bill to ensure that current Trade Adjustment Assistance programs would cover workers adversely affected by any free trade agreement with Mexico. Moynihan took the opportunity to warn that his support for a worker adjustment bill to accompany NAFTA in no way indicated that he would eventually support the agreement. “I continue to have the strongest reservations about the free trade agreement with Mexico—the first free trade agreement we are being asked to consider with a country that isn't free,” he said. “But, if such an agreement is negotiated and is passed by Congress, it ought only happen if the administration shows a new approach to the elemental issue of worker adjustment. Our bill will begin the debate on how this will be achieved.” 18
Year's End: Taking Stock
When the negotiations began in June, optimists hoped to reach agreement before the end of the year so that the U.S. Congress could vote on it early in 1992, before the presidential campaign heated up. The process had moved slowly, however. As Jules Katz recalled, “I wanted to write a text early and then negotiate from the text, but that didn't work out. The sheer mechanics of it were too complex. It took time to get people geared up.” The first few months of more general discussions were necessary to exchange information, to feel each other out, and to begin to understand what might be possible in the negotiations.
Before the Zacatecas meeting in October, chief Mexican negotiator Herminio Blanco gave his assessment of the state of progress in the talks. “I would say we have finished the first stage, a very important stage of the negotiations, that is the interchange of information. We are entering the stage in which we must find among the three countries the formulas that will accommodate the interests of each.” 19 In Zacatecas, the three parties agreed that it was time to put negotiating positions on paper. “You can spend years negotiating concepts, as we did in the Uruguay Round,” said Jules Katz later. “Only once drafting starts do you really get down to negotiation.” In all three countries teams of drafters set to work trying to craft language that reflected national bargaining positions.
The U.S. side moved slowly, however, in part because of a crisis in the GATT negotiations. Just when they were needed to draft NAFTA text, Jules Katz and others of the very small staff at the USTR were drawn away to Brussels. But the United States was slow for other reasons as well. “Carla had a concern that we proceed with ‘deliberate speed’ so as not to appear to be pushing this too fast,” said Jules Katz.
The slow pace made the Mexicans extremely anxious about NAFTA's prospects in the United States. Negotiations were now threatening to carry on well into 1992. On the Hill, Democrats were warning that the agreement couldn't pass Congress if it came there during the election campaign. The press speculated that Bush would have to wait until after the election, particularly after Democrat Harris Wofford won an upset victory, partly on the strength of his opposition to NAFTA, in a special Senate election in Pennsylvania.
Behind the scenes, NAFTA's advocates worked together to accelerate the talks. As Bob Zoellick recalled, “You have to be careful, you can't substitute your judgment for theirs. But I worked with [Secretary of State James] Baker to try to move the process more quickly.” Zoellick and Baker urged President Bush to invite Salinas to Camp David. A Salinas visit would create an opportunity to push the U.S. negotiators to move more quickly. “George Bush was dead fast committed,” recalled Nick Calio. “He believed it was good policy and good politics. Anytime there was any discussion about holding back he just blew it away.” The Mexicans liked the idea, too. “We thought that if Bush says, ‘OK guys get going,’ then Carla would take NAFTA more seriously and put more resources into the negotiation,” recalled Jaime Serra. The U.S. negotiators meanwhile thought that the Mexicans were stretched too thin and were underestimating the difficulty of the remaining task. Just before the Camp David meeting, the negotiators finally exchanged draft proposed texts.
At their meeting at Camp David in mid December, the two presidents agreed to move as quickly as possible. The question, however, was how fast was possible. From the standpoint of the negotiators in the trenches, top officials did not have a clear understanding of how far apart the negotiating parties really were. In preparation for the Camp David meetings, National Security Council officials asked “What are the three or four key issues?” There were hundreds, recalled a senior trade official. “We thought, OK, they don't see it. Let's do a composite text [a document that would combine the three negotiators' negotiating positions into one draft text].”
In early January 1992, negotiating group leaders and their lawyers put together the first composite text. Wherever there were disagreements, the text showed the three countries' respective positions in brackets. There were “thousands of brackets,” recalled Chip Roh. In some chapters, there was so little agreement that virtually the whole text was bracketed. Some of the most contentious areas (agriculture, textiles, energy, automobiles, and dispute settlement) were left out entirely. Still, the text served two purposes: It demonstrated conclusively that agreement was not imminent and it clarified the task remaining.
Negotiating
With a single negotiating text in hand, the task of reducing the number of brackets began in earnest in February 1992. Early that month, the chief negotiators met twice, on February 4 in Ottawa and on February 9-10 in Chantilly, Va., to assess where things stood and to plan for an upcoming plenary session in Dallas. Carla Hills flew to Mexico to confer with Jaime Serra. Out of those meetings came a better understanding of what needed to happen.
In Dallas, February 17-20, all the working groups and the chief negotiators assembled in one place for the first time for a “jamboree” negotiating session. Together the three delegations numbered 400. The negotiators set up shop on the partitioned floor of a huge open design center. Jules Katz recalls the week as “very productive.” “It was a process of beginning to hone issues, of finding out where the stumbling blocks were,” Katz said. For the first time, countries began to move off their opening positions on a range of issues. One clear breakthrough came in agriculture. For the first time, the Mexicans agreed in principle to convert their corn quotas to tariffs and to discuss phasing them out.
Plenty of obstacles still remained. The essential problem was that in issue after issue, because Mexico was the most closed and highly regulated economy of the three, the Mexicans had to make the lion's share of the concessions. This reality had been acknowledged at the level of the chief negotiators and above, but the acknowledgment did not always translate into flexibility on the part of the Mexican negotiators. A senior U.S. trade official complained that the understanding between Bush and Salinas about a broad pact “somehow hasn't gotten across to the individual Mexican negotiators.” 20
After Dallas, the negotiators met more regularly. Katz recalls a “jagged curve of progress. A good meeting followed a bad meeting.” Still, over the next two months enough progress was made that “by April we could see the deal,” recalled Chip Roh. Mexico had moved a long way on investment and services, and the negotiators were confident of an agreement. On financial services, Mexico had not come quite so far, but the U.S. team thought they might have reached the limit of what was possible. The negotiators were quite pleased with how much they had been able to accomplish in agriculture. Finally, Mexico was prepared to phase out its restrictions on auto imports.
There were more than a few loose ends, of course. Energy talks remained unfinished, but in the minds of the negotiators that was just a question of acknowledging tough political realities. The auto rule of origin remained up in the air. The Canadians were unhappy about certain features of the dispute settlement procedures and about the continuing challenges to their exemptions for cultural industries. Still, the basic form of the agreement looked clear to the negotiators. “But we couldn't close it,” recalled Roh. “We were a month away for months.” And while the deal remained undone, parts of it started to unravel.
First, a tidal wave of U.S. environmental opposition rose up and threatened to swamp the whole process unless changes were made. Then the financial community decided that it did not like the trajectory of the talks and threatened to withhold its support if Mexico did not make further concessions.
Domestic Pressures on the International Negotiation: Greening the Text
During the winter the environmental community had become increasingly unhappy. The tuna-dolphin case had sparked a firestorm. The draft border plan and draft environmental review had been widely panned. Now, in late February, the USTR released its final Environmental Review and the Environmental Protection Agency (EPA) produced its final Integrated Environmental Border Plan. Environmental critics could see no improvements from the fall drafts. The plan committed the United States to spend only $379 million on border cleanup; Mexico promised $460 million. These commitments fell far short of the billions of dollars environmentalists believed were needed.
The NRDC's Justin Ward was not impressed. “They've produced a plan to plan,” he said, and complained that the blueprint was “just a small laundry list of public works projects” long overdue. 21 Mary Ellen Kelly, an activist in the Border environmental coalition, said that the plan was a “risky strategy” for the Bush administration. “They are gambling that they can turn the environmental issues into a high-profile side show and that nobody's really going to look at the content of this plan and whether the money's really there. I just think the Congress is smarter than that on this one.” 22
Then, in March, the Washington journal Inside US Trade published a leaked copy of the NAFTA negotiating text from the Dallas meetings. Public Citizen's Lori Wallach recalled that “the NAFTA text showed up like a little lost baby on the doorsteps of citizen activists of all three countries, with little tags that said ‘liberate me.’” 23 For the first time, the environmental community that had been outside of the negotiations could see what was going on inside. They did not like what they saw. The Sierra Club's John Audley stated the view of many in the community. “It's pure and simple, the document does not pay any attention to anything but expanding trade. The best you get is meaningless language or no mention of the environment. Yet when you get to the sections about environment and health, such as food standards, you get language to protect economic activity from environmental standards.” 24
The key issue had to do with balancing trade and environmental objectives. Regulatory standards—for example, a limit on pesticide residues on food—can have trade consequences—for instance, if imports exceed residue standards. The Mexicans were concerned that the United States used regulatory standards for protectionist reasons and wanted language in NAFTA that would require they be the “least trade restrictive” available, the principle that was operating in the GATT. The U.S. negotiators tended to the see the issue in much the same light and worried less about undermining environmental standards than about erecting barriers to free trade. Their perspective was shared by the U.S. business community, with whom they were in close consultation. The convergence of these interests resulted in language in the draft agreement stating that “sanitary and phytosanitary measures shall not be applied in a manner which would constitute a disguised restriction on international trade.” 25
The leaked text became a lightening rod. Environmentalists reunited across the spectrum to demand changes in the text. In May, an environmental coalition including not only the Sierra Club and Friends of the Earth—NAFTA opponents—but also the Natural Resources Defense Council and the National Audubon Society—fast track supporters—presented the USTR with a list of demands. The groups urged that NAFTA require that environmental standards be maintained or raised, that there be greater public participation in the administrative process, that there be a commission to monitor the environmental impacts of trade and to ensure compliance with environmental regulations, and that there be greater funding to protect the environment, paid for by industry.
The environmental groups enlisted the support of Max Baucus, chair of the International Trade Subcommittee of the Senate Finance Committee. To reporters he complained that when he pressed Carla Hills on environmental concerns and worker displacement “I get glazed eyes and a blank look. I just don't get the sense that they are addressing the major concerns that a lot of us have.” 26 In letters to Carla Hills and EPA Administrator William Reilly on June 3, he pressed the environmental groups' agenda and made clear his determination that they be addressed. In the House, Bill Richardson (Democrat, N.Mex.), one of the leaders of the effort to pass fast track, warned that the agreement would “go down the tubes” unless Congressional environmental concerns were met:
What will decide the fate of the free trade agreement in the Congress of the United States will not be the commercial trade side, will not be intellectual property rights, or banking or many of the other bilateral issues that have been negotiated extensively over the past two or three years. What will decide the passage of the free trade agreement in the Congress probably next year will be the issue of the environment. 27
The messages from the Hill got the administration's attention. Negotiators received a charge to “green the text.”
Over the next two months, U.S. negotiators would insist on reopening portions of the text to address some of the environmentalists' concerns. The Canadians, who had originally pushed for “greener” language, were not unhappy with the American change of heart, but the Mexicans were not pleased. Only when persuaded that some concessions were politically necessary did they agree to reopen discussions.
In the end, the negotiators modified NAFTA's language to shift the burden of proof from demonstrating that a regulation was least trade restrictive to demonstrating that there was some legitimate environmental reason for the standard. The final text would read, “Each party may adopt, maintain or apply any sanitary or phytosanitary measure necessary for the protection of human, animal or plant life or health in its territory, including a measure more stringent than an international standard, guideline or recommendation.” 28 The negotiators also added language in the investment chapter stating that no country may lower its environmental, health, and safety standards to attract investment. But they stopped short of providing any mechanisms to enforce the provision.
International Pressure on Domestic Interests: Opening Mexican Financial Services
From the outset, the financial services negotiations had been among the most difficult. The United States and Canada had been pushing Mexico hard to open its markets, but domestic interests in Mexico had succeeded in severely constraining the flexibility of Mexico's negotiators. Mexico's initial offer of a long transition to a 5 percent permanent ceiling on total foreign investment in financial services met with sharp public criticism in January 1992 when United States and Canadian business communities learned of it. Privately, these well-connected interests pressed for much greater opening of Mexican financial services.
At the Dallas meeting in February, Mexico made a significant concession, offering to accelerate market opening and to raise the ultimate foreign investment ceiling to 12 percent. The Mexican financial services community fiercely resisted any more concessions. With many investors having paid high prices for banks on the promise of continued protection, and with a number of banks still for sale, the Mexican financial services community and the government had a joint interest in holding the line on further opening. U.S. and Canadian negotiators, while still hoping for more, recognized the difficulties faced by their Mexican counterparts. The new Mexican proposal became the basis for negotiation, and through the spring, the financial services negotiation gradually moved toward an accommodation, one that would only very partially open the Mexican market.
In early May, representatives of the U.S. and Canadian financial services communities were briefed on the process of the negotiations. They were furious. In the words on one U.S. business advisor close to the negotiations, “market access was bad; national treatment was bad; there were too many reservations.” In his view, the U.S. negotiators had not been driving a hard enough bargain. He suspected that they had gotten caught up in the push to finish the negotiations before the Democratic National Convention and were therefore too eager to make a deal. This proposition was strongly disputed by negotiators at the USTR, who viewed the problem more as a consequence of the Treasury Department's insistence on conducting the financial services talks separately, which meant they had little leverage in the negotiation because they had nothing to give the Mexicans in exchange for financial market opening.
The USTR and the Treasury Department got hit with a lobbying barrage. Top priority was eliminating the permanent ceilings on investment. The U.S. Coalition of Service Industries, a group dominated by financial service interests, publicly described these ceilings as “totally unacceptable.” Privately, Carla Hills and Treasury Secretary Nick Brady agreed to meet with a group of CEOs from the nation's biggest financial organizations. The business delegation issued a clear ultimatum: They would not bankroll the pro-NAFTA lobby unless the agreement was improved for them. “There was a lot of gnashing of teeth,” recalled one participant. But Hills and Brady agreed to go back to the Mexicans for more.
Now the Mexican negotiators who had resisted further opening were faced with a credible threat from key players in the United States, in particular from the financial firms the Mexicans had counted on as allies in the push for NAFTA. The U.S. finance community communicated its position to the Mexicans directly, so there would be no misunderstanding. “The Mexicans knew that this was going to be a fight,” recalled an advisor to the business community, “and they couldn't win if the five largest banks in the country were against it.” The question for them was how far they needed to bend. Mexico's Finance Minister, Pedro Aspe, talked with top American officials. The Treasury negotiators were making many new demands, he complained. “Aspe said, ‘You tell me what is important,’” recalled Bob Zoellick. Zoellick conveyed his sense that the U.S. financial services community was dead set against the ceilings.
In mid May, Mexico abandoned its demand for permanent ceilings, asking instead for a lengthy transition and for safeguards to prevent rapid increases in foreign holdings. This proposal became the basis for the ultimate agreement. U.S. and Canadian firms objected to the length of the transition, insurance firms being the most adamant about the matter. Eventually, the U.S. and Canadian firms accepted the safeguard proposal in exchange for more rapid opening in insurance and securities. In the end, we got “a pretty good agreement,” conceded a senior advisor to the business community, but it had not been easy. “Financial services was the hardest for the Mexicans. It required the biggest club to get it,” said an official at the Business Roundtable.
Negotiating in Two Directions: Tradeoffs in Agriculture
In the agricultural negotiations, the obvious tradeoff was Mexico opening its grain markets and the United States opening its warm fruit and vegetable markets. Although this made sense in terms of economic efficiency, both countries had significant domestic obstacles to making this exchange. For all of 1991, the talks remained largely stalled. The big breakthrough had come in Dallas in February, when Mexico surprised many observers by agreeing to discuss converting its corn quotas to tariffs and then gradually eliminating them. In exchange, the United States agreed to discuss opening its market for fruits and vegetables.
U.S. negotiators understood that there would be winners and losers, although they believed that the exchange was good for the United States. In the words of a United States Department of Agriculture (USDA) official involved in the talks, the U.S. negotiators expected “a differing impact across the country, certainly in the southern-tier states, those that border Mexico, particularly, and Florida, which competes directly.” 29 The idea of trading off their interests did not sit well with fruit, vegetable, and sugar growers. They rallied to pressure for additional “safeguards.”
The sugar issue was particularly contentious. The Mexican negotiators had initially asked for an enormous increase in the United States's quota for Mexican sugar, from 7200 tons a year to 1.5 million tons a year. They felt that they were making major changes in their agricultural system and the United States should too. Some in the Bush administration were sympathetic to the Mexican position, but U.S. sugar interests mobilized to fight it. Luther Markwart, executive vice president of the American Sugar Beet Growers Association called the Mexican request “outrageous, unconscionable, and greedy.” The request “doesn't even justify the dignity of a response by our negotiators,” he huffed. 30 The sugar lobby worked the corridors of the Capitol, and the administration heard an earful from the Hill.
The USTR and the Agriculture Department argued, however, that Mexico was not now a net exporter of sugar, and that it was highly unlikely to pose a threat to U.S. producers in the immediate future. Sugar growers saw other threats, however. If Mexico began using corn sweeteners in place of sugar—as a way of dealing with its surplus corn growing capacity or because it was importing cheap U.S. corn sweeteners—Mexico might become a sugar exporter in short order. Alternatively, Mexico might import sugar from other countries such as Cuba and export its own product.
In the end, the negotiators struck a complicated compromise deal, one that kept the Mexican sugar quota at the low level of 25,000 metric tons for six years but partly opened the door thereafter. If Mexico were a net exporter of sugar in the first six years, the quota would go to 150,000 tons thereafter. The net exporter provision was intended to take care of the possibility of Cuban transshipment or displacement, since imports from Cuba would count against Mexico in calculating its trade position in sugar. But there was no provision in the agreement to preclude the possibility of substituting corn syrup for sugar. Later, some in the United States would claim this was an oversight. Jaime Serra disputes this contention. “Of course we thought about fructose,” he said. As a senior advisor to the Mexican government put it, “Each side was using the other for doing what it should be doing anyway. It was not a mistake that corn sweeteners were not included.” U.S. sugar producers were furious.
For growers of warm weather fruits and vegetables, Mexico posed a direct threat. Florida and California agricultural interests pressed their case hard, in public forums, in private meetings, and especially though their representatives in Congress. The Florida Agriculture Commissioner called for exempting winter produce from NAFTA altogether. “Mexican growers enjoy economic advantages: free or subsidized land, child labor, no minimum wage laws, no worker compensation and occupational safety laws, no stringent environmental and food safety controls,” he charged. “Mexico can compete on an uneven field with unfair leverage to win.” 31 In the end, these products were not altogether exempted, but the political pressure forced the U.S. negotiators to insist on the longest 15-year phaseouts for protection on citrus fruits, tomatoes, onions, eggplants, chili peppers, squash, watermelons, and other products and on protection from import surges during the transition period. Like the sugar provisions, these phaseouts did not satisfy the special interests.
Endgame
President Bush had hoped that the NAFTA negotiations would be completed before the Democratic National Convention in mid July, but there were too many issues remaining in autos, agriculture, environment, energy, financial services, and elsewhere. The pressure was now on to finish by the time of the Republican National Convention in mid August. Carla Hills was on the schedule to deliver a keynote address; she would need an agreement in hand.
Inside the Bush campaign, NAFTA was seen as a good issue for the president. If made him look presidential and it put Clinton on the defensive. Bob Zoellick, now in the inner circle of the Bush campaign, recalled that “we wanted NAFTA to be a Bush accomplishment, a defining issue. We wanted to make it hard for Clinton to walk away. This was also one issue where the press took Bush's side.” NAFTA presented Clinton with a tough choice. It would be painful for him to support NAFTA, given the staunch opposition of labor and other traditionally Democratic groups. On the other hand, Candidate Clinton was vulnerable to the charge of “waffling”—he was on record in support of NAFTA, and if he now opposed the agreement, he could be accused of pandering to special interests.
Zoellick and other NAFTA supporters in the Bush camp also had another reason to push the negotiations to a conclusion: They wanted NAFTA. “I didn't want to lose NAFTA,” he recalled. “I thought that the best way to get it though was to use the issue politically. I wanted to force Clinton to be ultimately positive. I didn't think he could walk away.” As Bush's numbers continued to drop in the polls, the stakes grew at the USTR as well. “At the end it was obvious that the administration was in bad shape,” a USTR official recalled. “We felt, dammit we're going to get NAFTA finished at all cost. Bush is going to sign it.”
On July 29 the negotiating teams took over three floors at the Watergate Hotel in Washington. They planned to stay until they finished. For eleven straight days negotiations were almost constantly in session. The ministers met; the chief negotiators met; the working groups met. In the U.S. delegation, Katz and Hills carpooled in every morning to go over what needed to be done that day. They would then meet with the staff, approximately ninety people, in the delegation office to issue instructions for the day. The Mexican and Canadian teams did the same.
Many issues remained unsettled; some of the toughest were about Mexican energy, Canadian culture, and the auto rule of origin.
Pressing the Limits: Mexican Oil
From the outset of the negotiations, energy had been a most difficult issue. Aside from an early decision by Mexico to allow opening in some petrochemicals, the energy talks had made little progress. Yet top U.S. officials remained unconvinced that the Mexicans wouldn't move. The United States now pressed for a “proportional sharing” provision that would prevent Mexico from cutting off oil supplies in the event of a shortfall. The Mexicans reacted angrily to the U.S. demand. This was a matter of national sovereignty, they argued. Jaime Serra threatened to walk away from the talks. With time running out, someone would have to blink. “What was required was a realization on our part that the Mexicans couldn't move,” recalled Jules Katz. Bob Zoellick talked with Salinas's chief of staff, Jose “Pepe” Cordoba. “Cordoba said that the political impediment is real. His people weren't just negotiating. ‘We are changing the ejido system and church and state relations, we can't also do energy,’” Zoellick recalled.
The message finally sank in. So U.S. negotiators shifted focus to contracting in the government procurement chapter. “After we realized we weren't going to get much on energy, then we wanted Pemex procurement,” recalled Chip Roh. “The energy equipment people needed access to Pemex contracts. Otherwise they wouldn't get anything.” In the end, Mexico refused to budge on proportional sharing, but it conceded ground on procurement, allowing foreign firms to bid on Pemex service contracts for the first time.
Finessing National Sensitivities: Canadian Cultural Industries
For Canadians, perhaps the most sensitive issue in the negotiations concerned the perceived threat to Canadian culture. Without limits on U.S.-produced television programming and magazines and without subsidies to Canadian artists, many (English-speaking) Canadians feared that Canadian culture would be completely overrun by U.S. culture, and much that was distinctively Canadian would be lost. Of course, stakeholders in these industries—magazine publishers, television producers, and the like—had considerable economic interest in maintaining protection as well. “It was a very emotional issue,” recalled Canadian negotiator Weekes.
In the U.S.-Canada free trade negotiations, the Canadians had fought for and won a partial exemption. At the outset of the NAFTA talks, Canada's negotiators made clear that they intended to retain it. This position did not sit well with the U.S. entertainment industry, however, which not only wanted to sell more in Canada but also feared that allowing Canada this protection would set a poor precedent for the Uruguay Round of the GATT, where the Europeans were arguing for similar cultural exclusions. The entertainment lobby, through its allies in the administration and on the Hill, urged U.S. negotiators to push the Canadians.
Negotiators struggled to produce language that would be acceptable to both sides. (Mexico tended to side with the United States because it viewed the U.S. Spanish-speaking population as a potentially lucrative market.) The Canadians were willing to make some concessions at the margins, but U.S. negotiators, reflecting the views of the entertainment lobby, decided to cease negotiating, reasoning that no agreement created less of a negative precedent for the GATT than an unsatisfactory compromise in NAFTA. Both sides claimed victory. Canada's negotiators maintained that cultural industries were exempt. The U.S. negotiators argued that the United States retained the right to retaliate if Canada actually blocked U.S. products. The U.S. negotiators, with the Motion Picture Association of America and other interested parties watching closely, also made sure that Canada's partial exemption did not extend to Mexico.
Domestic Interests in the Driver's Seat: The Auto Rule of Origin
Numerous issues remained in the auto negotiations, including the final timetable for phasing out the Mexican Auto Decree, but perhaps the most contentious remaining issue was the rule of origin. Because stakes were so high and there were such strong differences within each domestic arena, negotiators had resisted putting positions on paper. At the Watergate, the parties finally staked out positions, something the U.S. negotiators had found extremely difficult to do. The auto industry was split on the rule issue: Ford and Chrysler backed 70 percent, whereas GM pushed for 60 percent. The politically powerful autoparts makers wanted a percentage closer to 70 than to 60. The UAW pushed for 80 percent, which was out of the question, but U.S. negotiators felt some pressure to obtain a high enough percentage that they could say to the UAW that they would be better off with NAFTA than without it.
Forced to take a position, the USTR split the difference between the automakers and opted for 65 percent. Mexico and Canada had always wanted a lower rule than the United States, to make it easier for foreign operations to set up shop there. The Canadians, who would have been happiest with the 50 percent rule from the CUFTA, grudgingly inched up to 60 percent, but they were unwilling to go higher. The Mexicans joined the Canadians in committing to 60 percent.
Now that proposals were on the table, compromise was very difficult. For the United States, recalled Chip Roh, “getting over 60 percent on the rule of origin became a symbolic issue.” For the Mexicans and the Canadians, going over 60 percent was equally difficult. The parties were at an impasse. No one wanted to make a move.
Bryan Samuel, Chip Roh's deputy recently brought over from the State Department, took the lead in trying to broker a compromise. Quietly, the Mexicans let Samuel know that they could live with 65 percent, but Canada still held firm, unwilling to jeopardize the status of their transplant auto makers. Said Canadian negotiator Weekes, “We didn't want to create a situation in which Japanese vehicles being manufactured in Canada wouldn't be open to free trade treatment. We were working very closely with the Japanese transplants.”
With almost everything else settled, enormous pressure came to bear on these negotiations. The negotiators became testy. “Things were said that let it be known that there were tolerances that were not infinite,” recalled Canada's Weekes. Finally, with time running down, the parties did what parties so often do: They split the difference at 62.5 percent. When informed of the U.S. concession, Ford CEO Harold “Red” Poling was furious. He called Jules Katz in a rage. Poling thought they had agreed on 65 percent. Trying to calm him down, Katz reminded him, “We're talking about a 2.5 percent difference on a 2.5 percent tariff.”
Closing the Deal
On August 11, 1992, the end was in sight. The last tough issues were near resolution. The trade ministers and the chief negotiators met to review the day's progress and to iron out a few last details. The delegations, aware that the end was near, waited outside in the corridor. Finally, at 12:40 in the morning of August 12, the negotiators shook hands on a deal. Fourteen months to the day after they began, Carla Hills for the United States, Jaime Serra for Mexico, and Michael Wilson for Canada had reached a North American Free Trade Agreement.
As the negotiators walked out of the room and into the corridor, the delegations lining the corridor applauded. For the negotiators, it was a moment of euphoria. “The process,” recalled Katz, “was all consuming.” Now it was over, or so it seemed.
Reactions
President Bush's announcement in the White House Rose Garden reflected his personal feeling of accomplishment. “This historic trade agreement will create jobs and generate economic growth in all three countries,” he said. “[It] will level the North American playing field, allowing American companies to increase sales from Alaska to the Yucatan. NAFTA will make our companies more competitive everywhere in the world.” In Mexico, President Salinas was equally proud as he addressed his nation in a nationally televised speech that morning. The pact, he said, “will allow us to grow faster, create more and better-paid jobs.” His negotiators had managed to spare Mexico's less competitive sectors from immediate competition, he argued. “Seventy percent of our exports will be freed immediately to enter their market, while we will free only around 40 percent of the products that they send us,” he said. In Canada, Prime Minister Mulroney greeted the agreement with less fanfare. There was no formal announcement. Mulroney told reporters that the agreement was an “important step” toward a NAFTA.
Mulroney's approach may have reflected the unpopularity of NAFTA in Canada. Although business groups were predictably enthusiastic, unionists, environmentalists, Canadian nationalists, and a majority of the general public seemed solidly opposed. Bob White, president of the powerful Canadian Labour Congress, said that the government had shown “nothing but contempt” for Canadians by pursuing NAFTA. 32 White was joined in opposition by Action Canada, the coalition of 40 environmental, labor, and human rights groups, and by the Council of Canadians, whose president Maude Barlow wrote that it was fitting that the final “high-security talks were held at the infamous Watergate Hotel in Washington, which has come to symbolize political intrigue and dishonesty.” 33 The opposition Liberal Party, now well ahead of the Conservatives in the polls, condemned the agreement and Mulroney's promises about its affects. “They are the same gang that botched up the [CU]FTA deal four years ago,” a Liberal Party spokesperson said. 34 The Liberals warned that they intended to make NAFTA an issue in the next election. Liberal leader Jean Chretien asserted that he would renegotiate it if he became Prime Minister. Still, given the strong majority enjoyed by the Conservatives in Parliament, there was little question that Canada would ratify NAFTA.
Reactions to NAFTA in Mexico were generally more positive, with strong business and labor support and with much less visible and more fragmented opposition. Most Mexicans appeared proud to have been included as an equal partner with the United States. Unlike Prime Minister Mulroney, President Salinas continued to enjoy the confidence of a majority of Mexicans. Like Mulroney, Salinas also had a dominant majority in his legislature. No one predicted that he would encounter any significant problem in winning Senate ratification.
In the United States, however, the announcement immediately demonstrated the deep divisions that cleaved the polity. Business groups reacted positively. William Workman, head of the U.S. Chamber of Commerce, declared the agreement “clearly positive.” 35 But opposition to NAFTA had not dissipated in the months since the fast track fight.
Labor unions blasted the agreement. The Tom Donahue of the AFL-CIO (American Federation of Labor and Congress of Industrial Organizations) declared that NAFTA is bad public policy.Like trickle-down economics, our jobs will now trickle down to Mexico. This agreement is not about free trade, nor is it about development in Mexico. It is about guaranteeing the ability of U.S. investors to move plants to Mexico to take advantage of cheap wages and poor working conditions in producing goods for export to the U.S. market. 36
Environmental reaction ranged from tepid to heated opposition. Moderate groups were not yet prepared to endorse the agreement, despite the changes that had been made at their request. “We must do more to link environmental protection with the economic integration of North America,” said John Adams, president of the NRDC. More extreme groups blasted the accord. A Greenpeace spokesperson said that the agreement was “long on appearances to business interests whilst trying to ‘greenwash’ the rest of us,” and a Sierra Club spokesperson said that the agreement was no more than saying “trust me and the polluters to clean up the environment.” 37
The Bush administration began considering more seriously the problem of winning support for NAFTA. For the rest of August and much of September, it attempted to wrap up the parallel track negotiations with Mexico on labor and environment and make good on the other promises of the Action Plan. It concluded a short agreement on labor, calling for periodic consultations, and nearly finished a similar deal on the environment. Carla Hills attempted to win support from the moderate environmental groups by responding to their request to create a North American Commission on the Environment. The World Wildlife Fund did endorse NAFTA, but the other groups held back, including the National Wildlife Federation, whose president, Jay Hair, had been working closely with Hills. Labor Secretary Lynn Martin announced the Bush administration's intention to expand labor adjustment assistance considerably as part of the NAFTA package, although the proposal was short on details and silent on how to pay for it.
By September, however, Bush's power was waning. He was running well behind Governor Clinton in the polls with time running out. Few were willing to cut deals with a president who might be a lame duck. Most obviously, the environmentalists recognized that they might be able to get an even more favorable deal with a President Clinton. Bill Clinton had been silent on NAFTA after its completion, saying only that he would wait until he saw the text to take a stand. There were no lack of opinions about what he should do, and Clinton was lobbied intensively by labor, by environmentalists, and by business. Now the real game shifted from national capitals to Little Rock, Arkansas, where the likely next president of the United States was deciding whether and on what terms he would ask Congress to implement the terms of NAFTA.
Interpreting International Negotiations: Domestic Politics and International Bargaining
In this chapter we asked, Why this NAFTA? The question is interesting because there are many forms the agreement could have taken. The negotiation did not just involve whether or not the three countries would agree to free trade. Once they agreed to negotiate, it was likely they would reach agreement to liberalize trade. The issue was how far and how fast they would go and what new rules they would establish to govern commerce in the region. In the end, the most interesting features of the agreement have to do with deviations from free trade: some sectors exempted, long phase-outs of protection in others, high rules of origin, and a host of other carefully tailored provisions that make up the bulk of the several-thousand-page agreement. Also curious are the new rules to govern investment, intellectual property, government procurement, dispute settlement, and the relationship between trade and environment—all areas in which the decision to cooperate did little to dictate the form of cooperation.
Through what lens should we view the NAFTA negotiation? One possibility is to treat it as a purely international bargaining process among self-interested, strategic national players, essentially a realist approach. Such an analysis would specify the interests of each nation, consider the alternatives to agreement, identify the set of possible agreements, and trace the tactics employed by those parties to explain which of the possibilities was agreed to. This commentary will argue that such an approach can explain much given certain national preferences, but it cannot adequately explain those preferences and therefore is insufficient as a guide for predicting or for informing strategy. For these purposes, viewing NAFTA through the optic of two-level games, as described in chapter 2, brings the process into much sharper focus.
In trade negotiations, nations may be procedurally rational, but they often appear substantively irrational. If nations were unitary rational actors, then we would expect them to act in ways that are consistent with maximizing national welfare. Yet states consistently violate this tenet when they erect inefficient trade barriers and when they formulate objectives for trade negotiations. In trade negotiations, nations seek to maintain as many of their own barriers as possible and only agree to reduce them as a “concession” in exchange for similar “concessions” by other nations. From a welfare economics perspective, these objectives make little sense.
Much of what appears “irrational” at the international level can be explained by considering the way in which apparent national preferences reflect a contest of interests at the domestic level. We can better understand national bargaining behavior by recognizing that national negotiator preferences derive partly from a calculus of national (primarily economic) costs and benefits and partly from a calculus of political costs and benefits imposed in domestic bargaining. 38 The approach treats national negotiators as domestic politicians who not only consider what is good policy but also what is good politics. In the calculation of political consequences, negotiators are sensitive to the interests of powerful domestic factions, particularly concentrated producer interests.
The commentary here initially pays less attention to institutions or symbols. Although the NAFTA negotiations were partly structured by the pattern of the previously negotiated CUFTA, and the domestic bargaining within each country was affected by the nature of domestic political processes, negotiations are largely ad hoc institutions, whose structure is itself negotiated. Although symbolic politics mattered greatly at other points in the history of NAFTA, in the commercial negotiations, interests dominated, as we would expect. That said, however, an analysis based purely on interests, even for commercial negotiations, has its limitations. The end of the commentary will allude to these shortcomings.
A focus on domestic interests helps explain many of the peculiarities in national stance and international outcome we observe in NAFTA. Mexico fought to retain protection for oil not because oil was in Mexico's “national interest” but because Mexico's negotiators recognized that the political price they would pay for “giving it away” was too high. National stances in the talks on the auto rule of origin were not so much expressions of national interests but of politically powerful private interests. Mexican resistance to, and U.S. and Canadian insistence on, opening of the Mexican financial services market reflected not so much the policy preferences of three countries as much as the politically privileged role of financial service industries in all three countries. The perspective also solves the puzzle of why market opening requires a comprehensive free trade negotiation. For example, Mexico should unilaterally open its corn market and the United States should open its fruit and vegetable market if all that mattered were economic efficiency, but the political costs of such moves would be too high. By linking these issues in a free trade negotiation, the benefits of obtaining a concession on one issue can offset the political costs of giving in on the other.
The “Logic” of International Trade Negotiation: Tradeoffs in Agriculture
In NAFTA, as in other comprehensive trade negotiations, the core of the negotiation involved exchanging concessions on tariff and quota protection. As noted earlier, this phenomenon presents a puzzle: Why should nations need to negotiate to do what they “should” do anyway? Nowhere is this dynamic more puzzling from an economic efficiency perspective than in agriculture. Although there are credible arguments for protection under some circumstances—notably when a country enjoys considerable market power or when rapid technological change creates advantages for being first into a market—these conditions do not apply to agriculture. Agricultural protection is economically inefficient. Yet in Canada, Mexico, and the United States, agriculture remained one of the more protected sectors of the economy. Canada's extensive supply management programs for wheat and dairy products, Mexico's quotas on corn and other imports, and U.S. protection in several forms for sugar, fruit, and vegetables all raised prices for consumers, taxes for taxpayers, or both.
If the international negotiators' only goal was to maximize economic efficiency, there would not be much to negotiate in agriculture. The negotiators should fall all over each other in a race to give away protection as fast as possible. Yet this was not what happened in NAFTA. Canada found it so difficult to negotiate away its agricultural policies that it opted out of the deal altogether, whereas the United States and Mexico engaged in difficult and intense talks in which both sides drove hard bargains for each move toward market opening.
This behavior cannot be explained without reference to domestic politics. Market opening, no matter how “efficient” in aggregate, creates losers as well as winners within nations. In political competition, the losers—producers now subject to international competition—have the advantage of being a more cohesive group than the winners—consumers—who are much more diffuse. In all three countries of North America, as elsewhere around the world, concentrated agricultural interests are quite powerful in the domestic political arena. (Of course, not all agricultural interests were protectionist. U.S. grain companies, for example, saw in NAFTA an opportunity to increase their exports.)
The question then is how conflicting domestic interests translate into national behavior in international negotiations. One way to make the connection is to assume that national negotiators are simultaneously interested in (their conception of) good policy and good politics, that is, they are partly policy analysts and partly politicians. As politicians, they seek to maximize political support for the agreements they negotiate and must therefore respond to political forces operating in the domestic environment. This model of the international negotiator is consistent with the language negotiators use to describe what they do, the way in which they evaluate how well they are doing in terms of both policy and politics, and the often-expressed tension they feel between their policy beliefs and the political pressures they face. The model also provides a basis for explaining what it is that trade negotiators do when they negotiate.
The agricultural talks demonstrate the value of this approach. The essence of the bargaining problem was to trade Mexican “concessions” on corn for U.S. “concessions” on fruits and vegetables. (Recall that the agricultural negotiations were bilateral.) If both parties were only interested in economic efficiency, this would be an extremely simple problem, one that would not really require negotiation. Both countries would abandon protection unilaterally. But if we consider the political as well as the economic interests of the negotiators, the problem looks very different.
Consider the position of the U.S. negotiator. With respect to the level of fruit and vegetable protection, the U.S. negotiator's political and economic interests work against each other. Opening the market makes sense economically and conforms with negotiators' policy inclinations but is politically costly. Strong, focused grower interests in Florida, California, and Texas are politically much more potent that the diffuse consumer interest in cheaper produce. Offering unilateral opening is out of the question, because the political costs outweigh the economic benefits. Of course, the U.S. negotiator would receive both economic benefits and political benefits from a lowering of Mexican corn protection—the political benefits coming in the form of support from U.S. export interests, grain farmers and most notably the large grain companies such as Archer Daniels Midland.
The position of the Mexican negotiator is symmetric to that of the U.S. negotiator. For the Mexicans, opening corn involves economic benefits but greater political costs. Corn production engages an extraordinary fraction of the Mexican population. Opening the corn market, therefore, carries considerable political risk. Thus the Mexican negotiator will not offer to open Mexico's corn market unilaterally. Of course, U.S. opening of fruit and vegetables would provide both economic and political benefits to the Mexican negotiator.
This analysis is presented graphically in figure 5.1, which shows two “logics” of international trade negotiation: one in which nations pursue only their economic interests, the other in which national preferences reflect both international economic and domestic political considerations. The illustration is a highly stylized depiction of one piece of the U.S.-Mexican agricultural negotiation, the trade of reduced Mexican corn protection for reduced U.S. protection of warm weather fruit and vegetables.If the issues are considered separately, the political costs of opening will outweigh the economic benefits for both parties, and there is no possibility for agreement. If the issues are linked, however, making it possible for both countries to open simultaneously, national negotiators can gain sufficient political and economic benefits to offset the political costs by trading opening in fruit and vegetables for opening in corn. In the United States, southern fruit and vegetable growers will still impose political costs on the negotiator, but those costs will be outweighed by political support from midwestern grain producers and by the additional economic benefits of a more open Mexican corn market.
This depiction of a small subset of the NAFTA negotiations suggests a more general reinterpretation of the dynamics at work in international trade. The reason we observe inefficient levels of protection ultimately has less to do with international dynamics than with the disproportionate power of concentrated interests in domestic politics. To the extent that there are collective action problems in coordinating national trade policies at the international level, those problems arise from collective action failures in domestic political arenas.
Moreover, to the extent that international negotiations solve the problem, they do so by helping to solve the domestic problem. From the perspective of a national policy maker who wishes to make more rational national economic policy, a international free trade agreement is an opportunity to overcome domestic obstacles. The Salinas government believed that rationalization of Mexican agriculture was good economic policy regardless of what the United States did, but NAFTA helped make such rationalization politically feasible in Mexico.
Thinking in these terms also provides an insight into the importance of issue linkage in international bargains. Of course, linkage is important in realizing joint gains in international bargaining, as it is in any multi-issue bargain. But issue linkage is crucial for managing the domestic politics of trade policy making. Without such linkage, protectionist factions will tend to prevail. This is also why the fast track process in the United States was so important for ultimate ratification. Without fast track, Congress could delink issues, and the package of tradeoffs assembled during negotiation would unravel as concentrated interests mobilized to oppose the market-opening obligations undertaken by the United States in the international agreement.
Domestic Constraints on International Agreements: Mexican Oil
Although NAFTA eventually liberalizes trade and investment in most sectors of the economy, some notable exceptions include Mexican oil, Canadian agriculture, and U.S. shipping. Why were these areas exempted from a comprehensive free trade agreement?
One possibility is that the exemptions reflected strong national interests in maintaining protection, so strong that nations were unwilling to negotiate them away, even in exchange for other concessions. In this interpretation, Mexico had such a strong interest in maintaining oil protection, Canada such a strong interest in maintaining agricultural protection, and the United States such a strong interest in maintaining shipping protection, that they were unwilling to trade them for other concessions. Certainly the outcomes can be squared with this description, but this interpretation is ultimately unsatisfactory. First, it does not explain and could not predict the form of these apparent national preferences. For all of these areas, protection was highly inefficient, imposing costs on the rest of the economy far in excess of any benefits. Second, it does not square with how the negotiators understood their problem. National negotiators did not believe that protection in these areas was in national interests; they simply felt too constrained to move away from protection.
Once again, what is unclear when viewed solely though an international-level lens comes into better focus if also examined through a domestic-level lens. As discussed in the context of the agricultural negotiations, powerful domestic interests in maintaining protection can impose political costs on national negotiators. In the case of agriculture, as with most other sectors of the economy, issue linkage in the context of a comprehensive trade negotiation enabled the negotiators to overcome the constraints imposed by domestic interests. For some issues, however, domestic politics impose such high costs that even creative linkage cannot solve the problem. In these circumstances, the interests of powerful factions place sharp constraints on national negotiators and bound the domain of what is possible in the international negotiation.
Mexican oil serves as an example. From the outset, the Mexican negotiators made clear the very tight constraints on what they could negotiate. One could argue that Mexican national interest demanded that its oil sector remain closed to international investment and competition. But this interpretation will not hold up long. Mexico's oil industry was hugely inefficient, which raised the cost of energy for the rest of the Mexican economy. Furthermore, Mexico's negotiators understood this reality and believed that the sector should be opened as far as possible, given constraints imposed by the Mexican political context.
This negotiation is better modeled, therefore, as a bargain in which the international negotiation was constrained by the power of domestic interests to block otherwise desirable outcomes. This analysis is illustrated in figure 5.2, which depicts the range of possible agreement with and without the Mexican domestic political constraint. Consider the bargain between Mexico and the United States. If all that mattered was national interest (or more specifically the negotiators' conceptions of those interests), the expected outcome of the bargain would be close to complete opening of the Mexican market. The United States would prefer maximum openness. Mexico would prefer considerable openness, although perhaps not complete openness for reasons of national security. Given these preferences, agreement would be possible anywhere between the status quo and virtually complete openness, with agreement most likely somewhere close to complete openness.
However, given the power of Mexican oil interests in the domestic political arena, the Mexican negotiator's preference is better described as a small measure of market opening beyond which the political costs are prohibitive. U.S. interests remain in maximum openness. In this case, agreement would be possible only in the range between the status quo and the limit imposed by the domestic interest, with agreement most likely somewhere close to that limit.
This model corresponds quite well to the actual oil negotiations, where the essential bargaining dynamic was of the U.S. and Mexican negotiators exploring the limits beyond which the Mexican domestic politics would not allow the negotiations to go. Similar analyses could be conducted for other sectors in which the negotiations fell short of free trade. In Canadian agriculture, as well as in U.S. shipping and elsewhere, the outcome reflected less the pattern of preferences among the national negotiators than the limits of possibility imposed on them by domestic politics in one or more of the three countries.
The Interaction of Domestic Interests: The Auto Rule of Origin
Much of the NAFTA negotiation focused on the rules of origin that established how much of a good needed to be made in North America for it to be considered “North American,” thus qualifying for preferential tariff treatment. For the same reasons as described above, but perhaps to an even greater extent, these negotiations are hard to explain in terms of an international-level bargain alone. In these negotiations, domestic politics does not so much constrain the national interest as actually define it.
The negotiations over the automobile rule of origin illustrates this dynamic. The issue was what percentage of a car would need to be North American before the car was declared North American. After long and tough bargaining, the negotiators finally settled on 62.5 percent. The content percentage actually started at a lower level before being stepped up to this percentage.)
We might interpret this result strictly as an international negotiation among three parties with differing interests. The evidence indicates that the United States's preference was for an agreement as close to 65 percent as possible. It was unwilling to agree to a rule as low as 60 percent (and probably as high as 70 percent, although that was moot given the location of Mexican and Canadian interests). Both Mexico and Canada wanted a somewhat lower percentage. Mexico's optimum was somewhere between 50 and 60 percent, but it was willing to agree to as much as 65 percent. Canada's optimum was close to Mexico's but it was more reluctant to go above 60 percent. Figure 5.3A illustrates this interpretation of the negotiation.
Given these interests, the outcome of 62.5 percent is not hard to explain. As described earlier, the bargaining proceeded with the United States committed strongly to 65 percent and Mexico and Canada starting lower but ultimately committing equally strongly to 60 percent. Near the end, Mexico expressed willingness to agree to 65 percent, but Canada continued to hold firm. Finally, under enormous pressure to complete the negotiations, the United States and Canadian negotiators did what negotiators often do in such circumstances: They split the difference to settle at 62.5 percent.
This seems a satisfactory explanation in some regards. It certainly accounts for most of the observable facts. But on further reflection the explanation begs some interesting questions. The outcome is (more or less) predictable given national “preferences” and constraints. But why should these be the preferences of the parties? That 65 percent should be the apparent optimum for the United States is not the least bit obvious. Neoclassical trade theory would suggest, for instance, that the optimum should be 0 percent, since any protection at the borders of North American has efficiency costs. To the extent that the assumptions about perfect competition do not hold and the United States enjoyed some market power, strategic trade theory allows the optimal percentage to be positive, but there is no reason to believe it would have to be 65 percent, and in any event there is no good way to calculate the optimum. (There is also no evidence that anyone in the United States tried to do so.)
Similarly, little indicates that Canada's or Mexico's interests would be best served by something close to a 60 percent rule. Both Canada and Mexico had an incentive to make it easier for manufacturers to locate auto production within their borders and to ship assembled vehicles to the United States duty free. Hence, to the extent that strategic considerations were at work, one would expect these two countries to prefer a lower rule than the United States, but why it should be 60 percent and not 30 percent or 0 percent is unclear.
This deal, although murky when viewed strictly internationally, comes into sharper focus when viewed as a two-level bargain in which the preferences of powerful factions within the three domestic arenas largely determined the positions taken by negotiators in the international arena.
The United States's position can be explained as the outcome of a domestic-level bargain among strong domestic interests, most importantly the “Big Three” automakers—GM, Ford, and Chrysler—and the domestic autoparts makers. The UAW also certainly had an interest in the negotiations, but the very low probability that an agreement would secure the union's support meant that it had very little leverage in the domestic-level bargain. All three automakers had an interest in a reasonably high rule of origin to make it more difficult for European and Japanese competitors to locate assembly plants in Canada or Mexico and thereby ship finished automobiles to the United States duty free. But GM differed from Ford and Chrysler in an important regard. Because of GM's joint venture with Izuzu in Canada, GM favored a lower rule of origin, around 60 percent. For reasons that reflected their own patterns of production and competitive position, Ford and Chrysler preferred a higher rule, approximately 70 percent. Autoparts makers had every incentive to push for as high a percentage as possible, since high percentages protected them from foreign competitors.
In addition to preferences, each party in the domestic-level bargain had limits to what was acceptable. Ford and Chrysler appeared unwilling to accept anything below 60 percent. Autoparts makers had similar limits. GM, on the other hand, had limits on how high a percentage it would accept, certainly below 70 percent. Figure 5.3B illustrates this interpretation of the U.S. domestic bargain.
Assuming these preferences and given that the rules of the game required something close to consensus, the only outcomes acceptable to the United States were somewhere above the 60 percent minimum acceptable to Ford, Chrysler, and the autoparts makers and below 70 percent, the maximum acceptable to GM. When these interests agreed to make 65 percent the U.S. bargaining position, the U.S. negotiators' flexibility was even further reduced. Any change from 65 percent would involve reopening a contentious internal debate.
The Canadian internal negotiation involved a slightly different cast of players than the U.S. negotiation and was conducted under different rules. It can be modeled as a game involving the Big Three again and Canadian autoparts makers, but joined by several European and Japanese transplants who assembled vehicles in Canada. (The Canadian UAW, like its American counterpart, urged a high rule of origin—perhaps 80 percent—but, with few ties to the Conservative party, had little relevance in the internal Canadian negotiation.) GM, Ford, and Chrysler had the same interests as in the U.S. negotiation. However, the transplants, with very different interests, wanted the rule of origin as close as possible to the 50 percent rule in the CUFTA so that they could continue to assemble vehicles in Canada from parts imported from Europe and Asia. (The percentages are not strictly comparable since the method for counting was different in the CUFTA.) They would strongly resist any rule above 60 percent, the point at which their Canadian assembled vehicles might not qualify as North American. Because Canadian negotiators were more insulated than their American counterparts from political pressures, agreement in Canada did not require complete consensus, but the Canadian negotiators were sensitive to the concerns of the transplants, giving them a near-veto over the Canadian position. As illustrated in Figure 5.3C the agreements acceptable to Canada, therefore, ranged roughly from close to the status quo to the limit imposed by the transplants, somewhere in the vicinity of 60 percent.
In Mexico, the constellation of players engaged in the internal negotiation included the Big Three, Mexican autoparts makers, foreign transplants, and the Mexican labor unions. As in Canada, negotiators' concerns about attracting transplants gave these interests considerable clout in the internal deliberations in Mexico, where they also pushed for lower rules of origin. GM, Ford, and Chrysler, while important, had relatively less clout. Mexican autoparts makers, the most significant indigenous economic interests, generally shared with their American and Canadian counterparts a desire for high rules of origin. The opinions of the labor unions mattered relatively more than in the United States or Canada because of their historically close ties to the PRI, but they were willing to live with lower rules of origin than their American and Canadian counterparts. Given the preferences of these players and the rules of the game, the set of outcomes acceptable to Mexico corresponded reasonably closely to those acceptable to Canada, although the Mexican negotiators had perhaps a bit more flexibility. Figure 5.3D illustrates the Mexican domestic-level negotiation.
From all these domestic negotiations put together emerges a picture of private interests, some national and some transnational, playing in domestic arenas to determine national positions and the international outcome. This way of thinking not only provides a richer and more satisfying interpretation of what we observe after the fact, it also provides a way of identifying the critical constraints at a level of specificity that might guide an actor in the moment. Thinking in these terms reveals that the central negotiation is likely to be between Canada and the United States, because Mexico's interests lie in between. Even more specifically, the essence of the problem lies in two specific interests, transplants in Canada and the Ford-Chrysler-autoparts maker alliance in the United States, whose preferences are the key constraints on national negotiators. Identifying the constraints on this level not only defines the realm of the possible, but also may point to where efforts should be concentrated should shifting constraints become necessary.
In this bargain, as with other parts of the NAFTA negotiations involving highly concentrated and powerful economic interests, the negotiation begins to look less like a deal among three nations than a deal among a collection of private interests, many of whom span national borders. That said, one cannot simply reduce the negotiation to these interests. National institutional structures matter in determining the rules of the domestic games, and hence the clout of the domestic players in determining national bargaining positions and international outcomes.
Nested Politics: Mexican Financial Services
Puzzles in the pattern of the financial services negotiations are also not easily explained without reference to domestic politics. Why did Mexico resist opening its markets so fiercely? Clearly, protecting one's banking, securities, and insurance markets, thereby imposing costs on the rest of the economy, is poor economic strategy. It is relatively easy to explain U.S. and Canadian interests in opening the Mexican market, but why the United States should have pushed so hard in this area is harder to explain.
The answers to these questions lie, at least partly, in the roles played by financial services in Mexico and the United States. Mexico's initial resistance to market opening had little to do with conceptions of Mexican national interest. Mexico's trade negotiators, left to their own impulses, would gladly have traded away much of the protection for financial services, but they were heavily constrained not simply because of the political clout of financial services in Mexico, but also because the NAFTA negotiations coincided with negotiations conducted by the Mexican Finance Ministry over the privatization of the banks. A market-opening move in NAFTA meant less value for the banks, so the Mexican trade negotiators were under enormous pressure to keep protection in place.
U.S. negotiators pushed hard for Mexican market opening, in part because they thought it good policy. But their efforts were reinforced by very strong pressure from the U.S. financial services industry, which saw opportunities in Mexico. These interests had considerable influence because of the prominent role they played in the business coalition supporting NAFTA. As time passed, and the prospect of a significant political battle for ratification of NAFTA loomed larger, their clout only increased. When they threatened to withhold support, they got the attention not only of the U.S. negotiators, but also of the Mexicans, who were watching the American domestic politics of NAFTA with growing interest.
That the Mexicans relented, at least in some areas of financial services, reflected in part their assessment of the importance of keeping this key American interest supportive of the overall deal. But it also may have reflected a changed context in Mexico. By this time, the bank privatization was complete, and although there were commitments to uphold, Mexico was no longer playing two games at once and could afford to be a bit more flexible.
The financial services chapter demonstrates the intricate linkage between domestic politics and international negotiations. The broader political contexts in which domestic bargaining takes place can affect the powers of domestic interests in those bargains and thereby the way in which nations conduct international negotiations. As the context changes, clout in domestic arenas may grow or wane, thus creating a dynamic for changing national behavior. Changing domestic contexts decreased leverage for financial services interests in Mexico and increased them for financial services interests in the United States.
Conclusions
The preceding analysis demonstrates how a two-level analytic framework can provide insights that would be hard to obtain using only a one-level, international approach. In particular, the two-level framework provides a way to map from observable characteristics of domestic politics to international outcomes. National behaviors that are hard to square with notions of rational choice (and, therefore, hard to predict) when viewed solely from an international perspective can be explained as the outcome of bargaining processes among rational actors at the domestic level. The approach also provides a way of thinking about points of leverage in the system, in ways that not only help explain outcomes but also could provide useful guidance for a participant in such a negotiation.
To the question “Why this NAFTA?” there is now a better answer: This was the NAFTA that followed the contours of the possible as determined by the configuration of domestic interests in three political systems.
Nevertheless, the usefulness of a two-level games approach has its limits. The skeptical reader may have wondered about some issues brushed over in the preceding analysis. It is one thing to assert that a domestic constraint limited Mexican flexibility on oil; it is another to explain its existence. Negotiation analysis is a framework for working forward from assumptions about players, issues, interests, and alternatives to predictions about likely outcomes. Yet the parameters of the model must be established outside the model. The existence, shape, location, and mobility of the constraints that define what is possible may depend on deeper levels of negotiation, on the institutions that define the rules of the game, or on belief systems that generate conceptions of interest. For example, if we want to explain why the Mexicans were reluctant to open their oil market, it is helpful to recognize the existence of a domestic constraint, but if we want to know why the constraint is there, then we need to understand the institutional arrangements that gave Pemex power in the Mexican political system, and more importantly something about oil's unique historical importance as a symbol of Mexican independence and sovereignty. For that, we may need to step out of the rational choice framework entirely, a matter we consider in more depth in succeeding chapters.
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Figure 5.1. The Logics of Trade Negotiation: Economic and Political |
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Figure 5.1. The Logics of Trade Negotiation: Economic and Political |
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Figure 5.1. The Logics of Trade Negotiation: Economic and Political |
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Figure 5.1. The Logics of Trade Negotiation: Economic and Political |
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Figure 5.2. The Oil Negotiations Preference curves for the United States and Mexico with respect to the degree of openness of the Mexican oil sector. (The dashed curve indicates Mexico's preferences in the absence of a domestic constraint.) The optimal point for each party has a value of 1, the status quo a value of 0. The solid horizontal lines beneath the x axis indicate the zone of possible agreement (ZOPA), with thicker lines indicating the most efficient outcomes. The constrained ZOPA (shorter horizontal line) leaves a very small set of efficient outcomes. |
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Figure 5.3. The Auto Rule of Origin Negotiations |
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Figure 5.3. The Auto Rule of Origin Negotiations |
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Figure 5.3. The Auto Rule of Origin Negotiations |
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Figure 5.3. The Auto Rule of Origin Negotiations |
Endnotes
Note 1: See Gustavo del Castillo, “Private Sector Trade Advisory Group in North America: a Comparative Perspective,” in Gustavo del Castillo and Gustavo Vega Cánovas, eds., The Politics of Free Trade, 21–50. Back.
Note 2: Juanita Darling, “Just Below the Surface: Reform of Mexico's Oil Industry Is Underlying Issue in the Free-Trade Talks, Breaking Down the Borders,” Los Angeles Times, 15 June 1992, D1. Back.
Note 3: Gustavo Vega Cánovas, “NAFTA and the Auto Sector,” in Gustavo del Castillo and Gustavo Vega Cánovas, eds., The Politics of Free Trade, 159–183. Back.
Note 4: The actual value content of a car could be considerably less than 50 percent and still qualify under the CUFTA. In a practice known as “roll up,” a component such as an engine, which might itself be only 51 percent U.S.–Canadian, was treated as if it were 100 percent U.S.–Canadian when subsequently assembled into a car. A recent dispute between Canada and the United States over whether Hondas produced in Canada met the 50 percent standard made negotiators on both sides determined to eliminate roll up. Back.
Note 5: “Citrus, Vegetable Growers Tell Panel That NAFTA Could Ruin U.S. Industries,” BNA Daily Report for Executives, 30 August 1991. Back.
Note 6: Steven V. Marks, “A Reassessment of Empirical Evidence on the U.S. Sugar Program,” in Steven V. Marks and Keith E. Maskus, eds., The Economics and Politics of World Sugar Policies, 79–108. Back.
Note 7: Gustavo Vega Cánovas, “NAFTA and Financial Services,” in Gustavo del Castillo and Gustavo Vega Cánovas, eds., The Politics of Free Trade, 187–222. Back.
Note 8: “NAFTA Public Hearings Conclude with Recommendations, Warnings,” BNA International Trade Reporter, 18 September 1991. Back.
Note 9: “Free Trade: Enviros Blast Draft US-Mexico Green Plan,” Greenwire, 18 November 1991. Back.
Note 10: “USTR Sued Over Lack of Environmental Impact Statements for GATT and NAFTA Negotiations,” BNA International Trade Reporter, 7 August 1991. Back.
Note 11: Stuart Auerbach, “Raising a Roar Over a Ruling: Trade Pact Imperils Environmental Laws,” Washington Post, 1 October 1991, D1. Back.
Note 12: “Boxer Pummels Trade Ruling,” Greenwire, 24 September 1991. Back.
Note 13: Stuart Auerbach, “Raising a Roar Over A Ruling,” D1. Back.
Note 14: Dianne Dumanoski, “Free-Trade Laws Could Undo Pacts on Environment,” Boston Globe, 7 October 1991, 25. Back.
Note 15: “GATT: Boxer Pummels Trade Ruling,” Greenwire, 24 September 1991. Back.
Note 16: Juanita Darling, “Tuna Turnabout; Mexico Announces a Dolphin Protection Plan,” Los Angeles Times, 25 September 1991, D6. Back.
Note 17: “Gephardt, Other House Democrats Outline Parameters for NAFTA and GATT Agreements,” BNA International Trade Reporter, 30 October 1991. Back.
Note 18: “Senate Finance Members Introduce Bill to Assure Adjustment Benefits Under NAFTA,” BNA Daily Report for Executives, 31 October 1991. Back.
Note 19: “Free Trade Talks Reach Negotiating Stage—Mexicans,” Reuters, 24 October 1991. Back.
Note 20: Keith Bradsher, “Few Gains Reported in 3-Way Trade Talks,” New York Times, 22 February 1992, Sect. 1, p. 41. Back.
Note 21: “Environmentalist, Texas Group Cool to Bush Integrated Border Plan,” BNA International Environment Daily, 26 February 1992. Back.
Note 23: Center for Public Integrity Staff, The Trading Game: Inside Lobbying for the North American Free Trade Agreement (Lanham, Md.: University Press of America, 1995). Back.
Note 24: “Citizen Groups Say Leaked NAFTA Draft Would Undermine U.S. Standards,” BNA International Trade Daily, 26 March 1992. Back.
Note 26: Karen Tumulty, “Key Senator Assails Administration on Mexico Talks,” Los Angeles Times, 22 May 1992, D2. Back.
Note 27: “Environmental Issues to Decide Fate of NAFTA, Representative Richardson Predicts,” BNA International Environment Daily, 29 June 1992. Back.
Note 28: NAFTA, Article 712, paragraph 1. Back.
Note 29: “Southern State Legislators Say NAFTA Will Harm U.S. Agriculture, Environment,” BNA International Environment Daily, 12 August 1992. Back.
Note 30: “Absense of GATT Deal Snags NAFTA Talks on Domestic Supports, Crowder Says,” BNA International Trade Daily, 9 April 1992. Back.
Note 31: “Florida Agriculture Commissioner Calls for Excluding Winter Produce from NAFTA,” BNA International Trade Daily, 28 May 1992. Back.
Note 32: Rod McQueen, “ ‘Prosperity Deal’: Business Welcomes Free Trade Pact but Labor Fears for Jobs,” Financial Post, 13 August 1992, Sect. 1, p. 1. Back.
Note 33: Maude Barlow, “NAFTA: ‘A Corporate Charter of Rights and Freedoms,’” The Toronto Star, 13 August 1992, A23. Back.
Note 34: “Canada Opposition Says Not Supporting NAFTA Deal,” Reuters, 12 August 1992. Back.
Note 35: “President Bush Announces NAFTA Accord, But Labor, Others Promise Renewed Attack,” BNA International Trade Daily, 13 August 1992. Back.
Note 36: “AFL-CIO, Other Unions Blast Free Trade Pact as Prescription for U.S. Job Loss,” BNA International Trade Daily, 13 August 1992. Back.
Note 37: “Environmentalists React Cautiously to Announcement that NAFTA Completed,” BNA International Environment Daily, 14 August 1992. Back.
Note 38: The two-level bargaining approach is derived from Richard E. Walton and Robert B. McKersie, A Behavioral Theory, Howard Raiffa, The Art and Science of Negotiation, and David A. Lax and James K. Sebenius, The Manager as Negotiator. Robert D. Putnam, “Diplomacy and Domestic Politics” is responsible for spawning widespread interest in international relations. See also Frederick W. Mayer, “Managing Domestic Differences”; Peter B. Evans, Harold K. Jacobson, and Robert D. Putnam, eds. Double-Edged Diplomacy, and Leonard J. Schoppa, Bargaining With Japan. Back.
Interpreting NAFTA : The Science and Art of Political Analysis
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