NAFTA: An Assessment (review)

152 SAIS REVIEW States can effectively contribute to efforts oflocal communities to help themselves, without intervention ofthe state, which is so remote anyway outside ofthe capitals. NAFTA:An Assessment. By Gary C. HufbauerandJeffreyJ. Schott. Washington, D.C: Institute for International Economics, 1992. 192 ppiPaperback Reviewed byKai Mander, Trade CommunicationsDirector, InstituteforAgriculture and Trade Policy. The purpose ofNAFTA: An Assessment, according to authors Gary C. Hufbauer and Jeffrey J. Schott, is to "provide a road map so that legislators, businessmen, labor leaders, and environmentalists can get a quick handle" on the text of the North American Free Trade Agreement (NAFTA). The no-nonsense style of the book does offer a lucid and understandable breakdown ofthe provisions contained in the 2,000-page NAFTA document, but the authors are so entrenched in the ideological school of free trade that their analysis fails to adequately address the full impacts of NAFTA. One hopes their bias is obvious enough that most of the VTP audience, for whom the book is clearly intended, will not allow Hufbauer and Schott's "road map" to steeroffcourse theirtrains ofthought atthis criticaljuncture in the North American integration effort. It is clear the authors and their employer, the conservative Institute for International Economics (??), have had significant influence on the NAFTA negotiations thus far. In fact, in this book, the authors are preoccupied with which ofthensuggestions were followed and not concerned enough about the potentially serious consequences of this trade pact. NAFTA: An Assessment can be viewed as an examination ofhow many ofHufbauer and Schott's ideas for negotiating NAFTA— contained in theirMarch 1992 book, North American FreeTrade: Issues andRecommendations —can be found in the text signed by the US, Canada and Mexico on December 17, 1992. The authors even provide an appendix offering an evaluation of NAFTA based solely on whether the text for each sector "beats," "meets," or "falls short" of their own prior suggestions. The section at least offers a glimpse into how much influence this Washington-based think-tank has had on negotiators. Hufbauer and Schott used what they call an "historical" model to conclude that 171,000 net new US jobs will be created under NAFTA. Because all of the predictions stem from two key variables — Mexican exports and net capital inflows into Mexico—Thea Lee, of the Economic Policy Institute (EPD, has called this model "extremely simple." While Lee claims the model has certain advantages over econometric models, she says the authors "employ different techniques to analyze trade and employment changes for the US and Mexican economies, which leads to a scenario which is internally inconsistent in places." Thus it is hardly surprising that the authors' findings are consistently more positive than studies conducted using other models. Hufbauer and Schott reject as "basedon an erroneous model ofthe international investment process" studies by the EPI, Economic Strategy Institute and others which conclude that increased investment flows from the US to Mexico could cost as many as 490,000 US jobs. Yet Hufbauer and Schott's own research found that as the Mexican economy grows over time, imports and exports will roughly balance and any USjobs gained under NAFTA will eventually BOOK REVIEWS 153 be lost. At a luncheon January 14, Hufbauer and Schott distributed a chart, depictingjob creation andjob loss resulting from NAFTA, which showed a small decrease in jobs over the long-term. Disturbingly, this same chart is included in the book without the long-term forecasts. In an interview in The New York Times, Schott said the long-term results were not included because they relied on complicated assumptions and that long term economic forecasts are unreliable. But why undertake a long-term forecast if they are inherently unreliable? The conclusion one must draw is that the numbers do not turn out as Hufbauer and Schott want, so they dismiss them as incorrect. It's difficult to imagine that the Institute for International Economics would have excluded the predictions oftwo ofthe country's most prominent economists had the results turned out differently. The authors also weakly claim that the book's length was a factor in leaving out the statistics. Yet at 192 pages, it does not seem an extraordinary length, especially when considering that...