Foreign Affairs Focus: Carla Hills on NAFTA at 20

In the 20 years since it entered into force, the North American Free Trade Agreement has been both lauded and attacked. Few, however, question the treaty's lasting impact on the economies of Canada, Mexico, and the United States. Gideon Rose, editor of Foreign Affairs, recently sat down with Carla Hills, the treaty's lead U.S. negotiator, to discuss its legacy.

For more, read Hills' recent essay on NAFTA here. A transcript is available below:

ROSE: Hi there. I'm Gideon Rose, the editor of Foreign Affairs. We're here today for another edition of "Foreign Affairs Focus," with Carla Hills as our guest, talking about NAFTA 20 years on. 

Carla is the co-chair of the Council on Foreign Relations and the chair and CEO of Hills & Company and, from 1989 to 1993, she served as the U.S. Trade Representative and was one of the key figures behind the passage of the North American Free Trade Agreement.

So let's start right out. Why, Carla, was NAFTA necessary, and what did you think was going to happen by signing it?

HILLS: We wanted to open markets around the world. The Uruguay Round was in trouble in 1990. We negotiated a marketing opening agreement, a free trade agreement, with some exceptions, with Canada. And then, Mexico called and said we want a free trade agreement with you.

And President Bush senior, who was for free trade, from the tip of Alaska down to the tip of Argentina, was enthusiastic. We talked to the Mexicans and they said, if we can have fast track as broad as Canada's, we'll sit down and open up our market.

ROSE: Explain was fast track is.

HILLS: That is authority -- we call it trade promotion authority, sometimes called TPA. And because we have a divided government, it's very important that we allocate responsibilities. The president has power to negotiate with foreign governments, enter treaties. Congress has power over the purse strings.

A trade agreement cuts through both ways, but to get a really good agreement, you have to have a deal, where Congress says, you do -- you get an agreement of the following description and we will not amend it. We will vote it up or down. If I don't like it, I'll vote it down, but we will vote it up or down. And that way, we could get a very good agreement.

ROSE: So Mexico wanted the same kind of restriction on further negotiations that Canada had gotten.

HILLS: What it wanted was not to put its hot political issues on the table and then have Congress amend the agreement, bit by bit, so that the agreement unraveled, so that they would take the political heat at home for the positions of putting the market openings on the table, but not get the benefit. 

And President Salinas very much wanted to use a market-opening agreement with its largest trading partner to encourage and to affect market reforms. And that's exactly what happened. Mexico was as restricted a market as you could imagine -- hundreds of licensing and restrictions on everything dealing with services to goods and high tariffs. So if we could create a market with 100 million consumers that would be an advantage. And we sat down on the table, and that's what we aimed to do was to open up the North American market.

ROSE: Were you ever worried that it wouldn't pass in the U.S.?

HILLS: I never thought it wouldn't pass. I didn't even think about that as an option. We worked night and day. I met with 535 of my very best friends in Congress to explain to them how competitive and effective the North American Free Trade Agreement could be for our country, in so many ways. And by bringing the three economies together, we could set an example. And we did. The fact of the matter is that, within four months of the NAFTA becoming effective, the trade ministers were back at the table and finished the Uruguay Round. They created the World Trade Organization, which has been an enormous benefit -- for not only our nation but for the world.

ROSE: So 20 years on, when you look back at what NAFTA proponents had promised and what its opponents or critics had feared, how do you think it's done?

HILLS: I think it's done well. Of course, the proponents sometimes exaggerated what the immediate effects would be, but let's face it:  Intraregional trade is up 400 percent. Our largest trading partner -- our single largest trading partner -- is Canada. Our second single largest export market is Mexico. We sell more goods to Mexico than we sell to all the rest of Latin America. We sell more to Mexico than we sell to the BRICs: Brazil, Russian, Indiana and China. And we sell more to Mexico than we sell to England, France, Germany, and the Netherlands.

So, yes, it was good for our entrepreneurs, large and small, but especially for the small entrepreneurs, because Mexico is, by proximity, available to small entrepreneurs, more readily than distant markets. And the opening created new opportunities that they never had.

ROSE: Were there any downsides or job losses or problems? Were there criticisms that people had levied at the time borne out by anything that happened after?

HILLS: You know, trade creates growth. And so the whole -- as President Kennedy said, a rising tide raises all boats. However, it doesn't mean every individual benefits. If it's more efficient for you to invest in an operation in Canada, even though there is more investment from Canada to the United States, it may be that industry A is getting the increased investment and industry B is getting less.

So, as our leaders think about trade and creating new opportunities, which it does, always -- and growth and prosperity and opportunity -- they also have to think of those who are dislodged. And what do we do for those who did not get the increase in opportunity? And that's what adjustment assistance programs are supposed to address.

ROSE: Looking at the contemporary trade agenda of the U.S., there's TPP, TTIP, a Pacific agreement, a European agreement. Are you optimistic about the future of new U.S. trade agreements?

HILLS: I think it's indispensable. I'm not optimistic that it'll be tomorrow, but I do think that we are surrounded by bilateral and plurilateral agreements, where we, as a government, are not a part. And that disadvantages all of our entrepreneurs, large and small. That takes away jobs and growth opportunities.

So, if we were to get a good agreement; the Trans-Pacific Agreement, and reach out to Asia, it could be the first step in having a Trans-Pacific Partnership, which is what the Asia-Pacific Economic Forum said they were going to achieve in 2005. So it could be that first step.

And, similarly, with the 28 states that comprise the European Union and the United States; if we were able to get a really good agreement, and with Europe, across the Atlantic, the problem is not high tariffs; it is regulatory barriers, and unnecessary, cumbersome, and costly regulatory barriers, where I will do the same test on a chemical in Great Britain and have to repeat it in the United States. So those costs make that product less competitive when compared with others in the rest of the world. And so I think that these two trade agreements are very important and I would put a lot of leadership behind it. If I were to whisper in the ear of the president, I would say, use your bully pulpit.

Tell the American people the advantages they will get. Get these charts out and show the -- what each state benefits, what are the projected gains in exports from both agreements, state by state by state, because, frankly, some of the criticism are kneejerk without being based on real facts.

ROSE: So what's the obstacle standing in the way of these trade agreements at the -- at the moment?

HILLS: Well, they're not completed. I think that when you're negotiating with the 12 -- the total of 12 in the Trans-Pacific agreement -- each one offers different challenges. Japan has its concerns over opening its agricultural market, Vietnam has its concerns over the textile market and we could go through the whole list.

If you're talking across the Atlantic, I think that you have issues dealing with regulations where we think we do it best and they think they do it best. And would it be possible to find, if not harmonization, equivalency? Could I say I like my test better than your test, but your test produces a safe product.

You know, we talk about automobiles, we have different regulations on lights, steering wheels, seatbelts, seats, mirrors. I mean, the list is endless. And yet I don't have any problem in driving a Mercedes when I'm in Germany.

ROSE: That's funny. What about fast track on the U.S. side? Is that something that is necessary for these agreements to go forward?

HILLS: I believe it is. I believe it's indispensable, A, to get a good agreement, because I do not believe that those across the table from our trade negotiators can afford to put their toughest issues on the table if they don't believe the agreement is going to be voted up or down and they fear that it will be amended and so that they will take two hits at home.

And I think that, apart from getting a better agreement, and I, in my own experience, I can assure you you get a better agreement when you have fast track or trade promotion authority.

ROSE: Because they know they won't be asked for anything more afterward, so they're willing to give more during the negotiations.

HILLS: That's right. That is the agreement.

But then, for our own credibility, to have our Congress say, either I like what you're did or I don't like what you did and vote it up or down is a tremendous benefit for our government's credibility.

ROSE: Carla Hills, thank you very much.

HILLS: Great pleasure to join you.

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