NAFTA stands tall

NAFTA stands tall
Here's how the agreement will affect the automotive industry

BY PROFESSOR JOHN KIRTON
Center for International Studies, University of Toronto

IN CONSIDERING the regulatory and environmental issues that will affect the strategic direction of the automotive industry and its aftermarket, it is entirely appropriate to begin with a review of the North American Free Trade Agreement (NAFTA).

NAFTA represented the culmination of an historic vision. With NAFTA the U.S. took the unprecedented step of forging its first regional free trade agreement with a developing country.
NAFTA also had a major impact on the auto industry. This is because the auto industry leads the uniquely intense trade and investment relationship among the three North American countries. It is also because the NAFTA regime changed the rules of the game for that industry in a major way. Indeed, to a large extent, NAFTA is about autos.
NAFTA, moreover, is an expanding force. Despite the current political controversy in the U.S. over NAFTA and the ongoing debate about giving President Clinton fast track authority for further trade liberalization, NAFTA is well on its way to becoming the genuine North American community its visionaries intended.
What have been and will be NAFTA's effects on the North American automotive industry and its aftermarket component in particular? Now, almost four years after the agreement came into effect, there are three clear, central trends:
First, NAFTA is leading to the full integration and rationalization of the North American auto industry on a regional rather than national basis. It is doing so by absorbing the historically protected Mexican market into the long integrated U.S.-Canada production system, and by drawing the latter ever more tightly together. With this integration comes major opportunities for aftermarket producers. Increasing demand, and export and investment possibilities in Mexico outweigh new import competition from Mexican producers in the U.S. In particular, the new openness of the Mexican market, and the relatively poor condition of the Mexican aftermarket and parts producing industries, confer major advantages on U.S. and Canadian firms. The NAFTA opportunity is there to be seized.
Second, NAFTA and its accompanying environmental consciousness and protection, have unleashed a new wave of high level harmonization of environmental and safety regulations. Canada as well as Mexico is rapidly moving up to the U.S-wide and even pioneering Californian levels. In contrast to those who feared NAFTA would bring a regulatory "race to the bottom," there is instead a "push to the top." Citizen, corporate and regulators demands for the latest generation of automotive emission and fuel technology standards are becoming widespread. While the greatest impact is currently on original equipment manufacturers (OEMs) and the oil industry, this pressure will increasingly affect aftermarket participants in turn. It will call for new investments and create new lines of business in Canada and Mexico.
Thirdly, environmentally-driven regulatory pressures on aftermarket producers will increase even more in the coming years. Managing the automotive aftermarket is key to addressing the critical environmental and health challenges of the future and the ones that American and Canadian publics are overwhelmingly asking to have solved.
The facts are clear. Cars and trucks are the single leading source of air pollution on the North American continent. In highly populated and industrialized areas of the continent, auto emissions account for up to 80 percent of benzene, 60 percent of nitrogen oxides, 55 percent of volatile organic compounds, and 4 percent of sulphur oxides released into the air. A full 80 percent of this automotive pollution comes from only 20 percent of the vehicles — the older, poorly-maintained ones. A poorly maintained car produces two and a-half times more pollution than a properly tuned one. Older cars are ten times more polluting than a new car. Thus the dirty, indeed deadly, deadly arithmetic — each older, poorly maintained car or truck produces the same amount of pollution as 25 new vehicles. Changing the automotive aftermarket through upgraded products and new services is thus central to the task of cleaning up North America's air, environment, and health.

An overview of NAFTA

To understand the significant breadth, depth and impact of NAFTA, it is important to begin by recalling that NAFTA was no ordinary trade agreement. Rather it was and is a full fledged economic and political "regime" with five consequential dimensions.
The first was the NAFTA debate and negotiations from 1990, when the agreement was first conceived, through to its successful conclusion at the end of 1993. The debate itself raised the consciousness of many in the three countries, particularly smaller companies and those not previously trading with or investing in the other countries, about new opportunities. It pointed them to the prospective emergence of a regional community with more common practices, policies and a common identity to those within and outside.
The second was NAFTA's specific rule changes taking effect starting on January 1, 1994. These included not only tariff reductions and eventual elimination but the end to a host of other trade restrictions and behind-the-border barriers such as different and often opaque product standards.
Thirdly, to settle the disputes that would inevitably arise over the application of these new rules, NAFTA created three dispute settlement mechanisms: for antidumping and countervailing actions; for general disputes; and, innovatively, for investment disputes.
Fourthly, NAFTA created or subsequently catalyzed the creation of a network of over 50 trilateral intergovernmental Commissions, Committees and Working Groups to manage, govern and extend the agreement. This complex system is increasingly drawing the officials and the policies of the three countries together. About half of these NAFTA institutions have clear environmental responsibilities or impacts.
Fifthly, NAFTA created a dynamic, living regime by including incentives for further trilateral cooperation, policy harmonization, and regional community building. In their dealings within North America and as three countries facing the outside world, NAFTA induced its members to adopt new forms of co-operation and a progressive path toward togetherness. That growing sense of an irreversible common future was most clearly seen in early 1995 when President Clinton took the lead to assemble a $40 billion rescue package for the plummeting Mexican peso. At that moment, "they" became "us."
Three and a half years after this NAFTA regime came into force, its impact on trade, investment and economic life and on the prevailing framework for environmental and safety policies and regulations in North America continues to be the subject of a vigorous debate. Defenders of NAFTA point to improvements in trade, investment, business partnerships, insulation from macroeconomic shocks, job creation, government compliance with NAFTA, and Mexican domestic reform. In contrast, critics highlight job loss, income polarization, and environmental degradation. A review of the underlying arguments and actual record, however, strongly suggests that it is the defenders who have the better case. Indeed, on most grounds, NAFTA has been a striking success.
The first benefit is expanded trade. Total U.S. trade with its North American partners increased 44 percent during NAFTA's first three years. The increase alone is more than the total level of U.S. trade with all countries save for Canada, Mexico and Japan. During the same time U.S. exports with the rest of the world increased only 33 percent. A recent study by the U.S. Federal Reserve Bank of Chicago has calculated that NAFTA will lead to a 20 percent increase in US-Mexican trade and output gains for all three countries twice as large as previously thought.
A second benefit is U.S. export growth. From 1993 to 1996 U.S. exports to Mexico grew 37 percent. U.S. market share in Mexico increased 10 percent, to 79 percent of total Mexican imports. The opportunities were widespread, as 44 of the 50 US states increased their exports to Mexico during 1996. These are high quality, value added exports, as the largest gains have come in high technology manufacturing sectors such as transportation.
For U.S. exporters, now more than ever, NAFTA is market number one. U.S. exports to North America now take one-third of U.S. global exports. They exceed those to Europe as a whole or those to the entire Pacific Rim. In the most recent period — the first four months of 1997 — Mexico and Canada alone accounted for over half (53 percent) of total U.S. export growth.
NAFTA also protected the Mexican market for U.S. exports, in the face of Mexico's many shocks. In 1995, when Mexico's peso plunged 45 percent, its economy 7 percent, its real wages 22 percent, and its imports from the rest of the world 25 percent, U.S. exports to Mexico contracted by less than 2 percent. Exports to Mexico from the other NAFTA partner, Canada, actually rose by 5.4 percent. The NAFTA insurance policy clearly works.
A further reward is U.S. job growth. U.S. exports to its two NAFTA partners currently support 2.3 million U.S. jobs, a substantial increase from 1993. It is clear that U.S. exports directly generate jobs, and good jobs, in the U.S. But it is not the case that rising U.S. imports destroy jobs. For in many cases, without those imports, such as oil from Mexico, it is highly unlikely that a competitive U.S. industry would emerge or remain to supply those products at home.
Another reward is the enhanced rule of law. On the whole the U.S. and its partners have complied with their NAFTA obligations. There have been relatively few cases taken to NAFTA's three dispute settlement panels and none from the automotive industry — a striking result given the leading share of manufacturing production, trade and investment that the automotive industry commands in North America. The very credibility of the NAFTA dispute settlement process appears to have deterred unfair actions. Moreover, the NAFTA institutions have avoided, managed or politically-settled disputes before they have had to go to the NAFTA court. Such government compliance brings the certainty and stability to the marketplace that business needs.
There have, of course, been some disappointments. Indeed, there is a prevailing consensus, among both NAFTA's defenders and critics, that one area where the regime has not lived up to expectations is in regard to the environment. Here concerns relate to the absence of a NAFTA development fund to support needed scientific research and environmental enhancement, the low level of environmental enforcement action, and the limited access environmental groups have to the environmental dispute settlement system. Such criticisms have some merit. But looking ahead, it is clear that scientific co-operation, and policy convergence, not the encouragement of more litigation, are the more productive means to build the North American community in economically rewarding and environmentally-friendly ways.

NAFTA's impact on the automotive industry

NAFTA's impact on the automotive industry more specifically has been equally beneficial.
As NAFTA dawned, the auto and auto parts industry dominated the economies of all three NAFTA countries and the three trading and transborder investment relationships among them. The automotive industry was and is the single most important sector in two way U.S.-Mexican trade. In 1995 the U.S. exported $394 million in vehicles and $6.7 billion in parts to Mexico, while importing $7.8 billion in vehicles and $10.5 billion in parts. The industry was also highly integrated. Indeed, most of overall U.S.-Mexican trade comes from intra-corporate shipments by the Big Three and U.S. parts producers.
The auto parts component of the industry had very unbalanced capabilities across the three NAFTA partners. As Mexican analyst Isobel Studer has documented, the U.S. began the NAFTA era with 30,000 auto parts producers, with $100 billion in annual sales, servicing 15 million vehicles. Canadian firms produced $12 billion worth of parts for about 2 million vehicles. In contrast, Mexico had only 680 parts manufacturers, selling $6.5 billion worth of parts for 1 million vehicles.
These Mexican parts producers, which represent almost half the Mexican auto industry, were relatively small in size and limited in technology. About 500 were majority Mexican-owned, producing, in family-controlled labor-intensive firms, low value added and low technology parts largely for the local market and particularly the aftermarket.
To survive in an era of NAFTA-intensified regionalization and globalized production, these Mexican auto parts firms needed economies of scale, technological infusions, and total quality and environmental management systems. As NAFTA started they were moving to get them. Many received government credits to do so and many were and are anxious to forge strategic alliances with foreign firms.
Particularly among the 100 largest and most dynamic firms, the process of NAFTA modernization began in earnest. In the four years to 1993, many Mexican suppliers received awards for reaching international quality standards. Led by the export-oriented engine plants of the Big Five assemblers in northern Mexico, the parts industry was becoming more export-oriented. Foreign capital and technology started to move in. In 1993 there were about 100 joint ventures in auto parts. They accounted for 40 percent of auto industry employment and over half of auto parts exports from Mexico. With Mexico's 1994 removal of all remaining FDI restrictions in the industry, their ranks were clear to expand. The 750 maquiladora's producing auto parts in Mexico, many U.S.-owned and associated with assemblers, were also expanding their operations.
But there remained much room for this segment of the auto industry to increase its exports to, and thus the competition in, the U.S. market. In 1992 70 percent of Mexican auto part sales were to OEM assemblers within Mexico. 20 percent were repositioned parts. Only 10 percent were exported, largely to the US.
With the advent of NAFTA, the rules of the game for the automotive industry changed dramatically. Before NAFTA, auto trade across the northern U.S.-Canada border had been basically barrier-free. Mexico also had largely free access to the U.S.. But U.S. vehicle and parts exports to Mexico faced trade balancing requirements, local content rules, and 20 percent tariffs.
NAFTA levelled the playing field. It brought major rule changes to the automotive sector, aimed at a substantial liberalization within 10 years and complete free trade by the year 2018.
The key change was liberalization of the Mexican market, with the end of Mexico's trade balancing and local content requirements by 2004, the quota-free import of new vehicles immediately, and used car and truck imports beginning in 15 years (with free import in 2018). In 1994 Mexico reduced from 20 percent to 10 percent its tariff on cars and light trucks. It will end them on light trucks at the start of 1998 and on cars in 2003. By the beginning of 1998, 75 percent of U.S. parts exports will enter Mexico duty free. By 2003 all will do so.
During the three years these new NAFTA rules have been in force, their impact on trade, investment and production has been very beneficial for the U.S. auto industry the aftermarket sector.
Total two-way U.S.-Mexico automotive trade is increasing, despite the severe dampening effects of the peso crisis in 1995. Total vehicle and parts trade doubled from 1991 to 1995.
From 1993 to 1996 U.S. exports of vehicles and parts to Mexico increased 11 percent. U.S. exports of vehicles alone increased more that 500 percent. As the President's July 1997 report on NAFTA's impact concluded: "..with the growth in U.S.-made vehicle sales to Mexico, the opportunities for sales of U.S. aftermarket parts in Mexico should rise." The current evidence indeed suggests they will. U.S. exports of parts themselves were 25 percent higher in the first quarter of 1997 than in the first quarter of 1993. The U.S. share of Mexico's parts imports rose steadily, from 66.3 percent in 1993 to 71.7 percent in 1996.
During the same period, U.S. imports of vehicles and parts from Mexico doubled. But recall that U.S. imports of Mexican-assembled vehicles contain more than 50 percent U.S. made parts. This percentage is rising, as NAFTA eliminates the old requirement to use Mexican-made parts. Buying imported cars from Mexico thus means buying parts made in the USA. U.S. imports of Mexican parts directly rose 58.4 percent from 1993 to 1996. The result is lower costs to U.S. consumers, more sales for U.S. parts exporters, and increasing competitiveness for the U.S. industry in the world.
There is also a reasonable automotive trade balance. In the first quarter of 1996, U.S. passenger vehicle exports were 111 percent and trucks exports 339 percent higher than their year earlier equivalents. This big bounce back from the trade imbalance of 1995 shows the large vested interest the U.S. automotive industry has in a booming Mexican market, and the prospects of greater balance to come.
Furthermore, despite the concerns of NAFTA's critics from outside the region about the discriminatory effects of NAFTA's restrictive rules of origin, there has been limited trade diversion. For example, during the first six months of 1997, car and truck sales in Canada rose to the highest level since the first half of 1991 (697,546 vehicles). The increases were led not by the Big Three but by European and Japanese-based automakers. While many of these produce in Canada there is no evidence that NAFTA's content and tariff provisions are having a discernable discriminatory effect.
NAFTA has increased regionally integrated production systems and thus North American efficiency and competitiveness in the global market. For example, Ford has stopped producing Thunderbirds and Cougars in Mexico and concentrated their production at Lorain, Ohio. In each of the three years after NAFTA, the U.S. has led the world in vehicle production, for the first time in 15 years.
NAFTA has also led, in defiance of its critics charge, to increased automotive investment in the U.S. In the three years after NAFTA, the Big Three invested $39.1 billion in plant and equipment in the U.S. They invested less than one-tenth of that amount ($3 billion) in Mexico. There has been no southward migration or "giant sucking sound" as U.S. industry moved to Mexico here.
Nor has there been job loss. During NAFTA's first three years U.S. automotive employment increased 14 percent overall. Parts led the way at 16 percent. Assembly followed at 10 percent.

Managing NAFTA's environment and safety issues

NAFTA's rules have thus generated broad benefits for the automotive industry. But the NAFTA institutions, dispute settlement mechanisms and incentives for national policy harmonization have also changed the policy and regulatory framework facing the industry, especially in regard to environmental issues. In particular, the NAFTA institutions have produced rapid harmonization in operating areas such as the transportation of dangerous goods. Most importantly, the incentives to build a full North American community are leading toward high level harmonization in vehicle emission standards, fuel standards, and inspection and maintenance programs. In all cases the moves open important new opportunities, and create some concerns, for the aftermarket industry.
The array of 50 NAFTA's institutions includes several bodies of consequence for the automotive industry. The two most directly relevant are two components of the Committee on Standards-Related Measures: the Land Transportation Subcommittee (LTS) dealing with operating standards, and the Automotive Standards Council dealing with manufacturing standards.
The most effective body thus far has been the LTS, particularly in promoting a high level harmonization of regulations for the transportation of dangerous goods. It has already delivered a single Emergency Response Guide giving the three NAFTA countries identical procedures to deal with emergencies caused by an accident during the transport of a dangerous substance. It has assisted Mexico in upgrading its relevant standards. And it is moving rapidly to address such difficult issues as bulk packaging, halogenated organic chlorides (HOCs), and manifests for hazardous waste. With a mandate to make the parties standards for the transportation of dangerous goods compatible by the year 2000, based on broader U.N. standards, it has taken as its vision the development of single North American Dangerous Goods Code.
There is, however, one important area where the LTS has been unable to move. The LTS has a NAFTA obligation to implement a work program, within three years of NAFTA coming into effect, to render compatible the parties' vehicle standards, including emissions, environmental and pollution standards not covered by the work program of the ASC. The deadline has now passed and little has been done. Nor has its sister body the ASC, which lacks any NAFTA-imposed deadline for action, done much more.
The ASC has also not yet taken up its NAFTA authority to address emissions from on-road and non-road mobile sources, even though off-road vehicles may account for up to 30 percent of all transportation emissions. Yet the ASC's initial consultations with industry identified a list of 17 priority issues that included major environmental concerns.
The list of such issues, which involved all three NAFTA countries, included: emission and emission test procedures (especially California emission regulations adopted by British Columbia, and prospectively New England states); alleged Mexican non-enforcement of emission regulations; the safety of MMT in gasoline; the non-availability of low sulphur fuel in Canada; and different noise standards in the three countries.
This delay in formal institutional action has not, however, prevented the broader NAFTA regime from inducing a substantial move toward high level harmonization in these cases. Its strength can be seen in the pressures on Canada, already benefiting from high level environmental standards and a tight integration with the US.
In the spring of 1996, Canada's new environment minister announced that a priority for his portfolio was a new car emission standards, new fuel efficiency rules and new encouragement for alternative fuels. In March 1997 he announced that the federal government would tighten emission standards for cars and trucks, by harmonizing in 1998 its regulations with those of the federal government in the United States, in order to reduce emissions of hydrocarbons by 30 percent and of nitrogen oxide by 60 percent.
Canada would also require manufacturers to equip new vehicles in the 1998 model year with diagnostic systems that can monitor emissions. It would further bring emissions regulations to new types of vehicles (such as motorcycles), fuels (such as methanol, liquefied petroleum gas, and natural gas), and processes (including exhaust, evaporative and refuelling emissions).
The minister also urged the provinces, who have responsibility for cars once they are on the road, to follow British Columbia's "Aircare" program of mandatory vehicle inspection and repair. Such a move would reduce by half the pollutants emitted into congested southern Ontario.
Finally, the minister pointed to one of the inescapable physical incentives for high level environmental regulatory harmonization. Because half the smog in Canada's core, the Windsor-Quebec corridor, is produced in the United States, he called for the Canada-U.S. Air Quality Agreement on acid rain to be expanded to regulate smog, air toxins, and inhalable particulate matter, with a goal of reducing imported pollution by 50 percent by the year 2010.
This move to harmonize Canadian emissions and diagnostic standards with those of the U.S. in 1998 reflects the pace and politics of regulation within the U.S., and the integrated automotive industry's desire for a single product standard for North America. The slogan of the standards community — "One standard, one test, one mark" — well expresses the ideal.
The U.S. EPA will move in 1998 to Tier 2 standards and then define the next level for the twenty-first century. Massachusetts and New York states are currently before the courts seeking to join California in having the right to set their own, higher vehicle emission standards. Such a prospect of regulatory proliferation is anathema to industry, especially for smaller producers who face different rules for ever smaller marketplaces. Thus the US auto industry developed its voluntary NLEV program, its Canadian counterpart joined, and further urged its government to harmonize on the EPA's U.S.-wide 1998 level.
The dynamic opens considerably opportunities for the aftermarket producers. It makes the Canadian market more open to their products and services. By encouraging the smaller and substantially U.S.-owned Mexican industry to follow suit, it will help open the Mexican market as well. Regional uniformity will be of particular advantage to those smaller aftermarket producers who lack the capacity to absorb the transaction costs to produce separate products and services for segmented markets, each with different rules.
Because high level controls on auto emissions require similar controls on fuel quality, the dynamics of high-level harmonization are moving to the petroleum industry. Thus in 1996 the Canadian government banned international and interprovincial trade in MMT, a substance first introduced in 1977 to replace lead as an octane-enhancer in gasoline.
The U.S. had banned MMT 17 years earlier. Although a recent administrative ruling has now allowed its use, 15 major U.S. petroleum refiners are refusing to use it while EPA tests its health affects. California has banned it altogether. The Canadian move also led Mexico, where MMT is still legal, to initiate an evaluation of its effects.
Here, however, NAFTA may be a potential obstacle. The only Canadian supplier of MMT, Ethyl Corp of Virginia, has charged the Canadian government under NAFTA's investment dispute settlement mechanism with treating the Canadian distributor it owns less favorably than Canadian producers of MMT that might emerge in the future. It also charged that the law constitutes de facto expropriation, and violates NAFTA's performance requirements.
The MMT issue raises the issue of who will incur the costs of developing the technology required for enhanced pollution control — refiners, the OEMs, parts makers or governments. It may also require aftermarket parts producers to engage in equally expensive product upgrades, or open new markets for their advanced products.
The MMT case could be a test of whether the NAFTA investment dispute settlement mechanism takes proper account of environmental concerns and scientific evidence in making its judgement. It underscores the need for the NAFTA institutions, from the ASC onward, to develop the competence and financial capacity to undertake scientifically credible evaluations and resolutions of such disputes.
The desire to ban MMT is being followed by a similar move to reduce or remove the level of sulphur in Canadian gasoline. In early 1997 Cabinet passed new Diesel fuel regulations requiring, as of January 1, 1998, all on-road vehicles, to use diesel fuel no more than .05 percent by weight of sulphur. The government also said it planned to offer a plan and a timetable to further reduce the sulphur content of gasoline.
However, its action here is being clouded by the uncertainty surrounding what the U.S. emissions standard will be for the year 2001, in particular, whether it should include a mandatory sulphur standard of 30 ppm on average and 80 ppm maximum. While a total systems approach to environmental control strongly suggests it should, the oil and auto industries are currently conducting a study to see if catalytic technologies might work with a less stringent standard.
The emerging total systems approach to automotive environmentalism involves, as its third component, enhanced mandatory inspection and maintenance programs. Here NAFTA's informal pressures toward high level harmonization are also having a slow effect. States and provinces have begun to co-operate to adopt similar programs, and create coalitions for more advanced measures such as quotas for zero emission vehicles. Such mandatory vehicle inspection and maintenance programs, if they spread from province to province and state to state to become the new North American norm will themselves open major new opportunities for the aftermarket and lead to additional demand for replacement parts.
The movement is clearly evident in Ontario, a jurisdiction whose current government is generally averse to environmental regulation, but is nonetheless now considering adopting a variant of the "Aircare program" pioneered in British Columbia a few years ago.
The Canadian assembly industry, naturally, prefers a uniform system across Canada and the continent, one that is consistent and has a central repository for test data that the assemblers can challenge in regard to warranty claims. Such a system (IM 240) could steer the bulk of the work to the OEM dealerships. The Ontario government currently seems inclined to adopt a more decentralized, "repair grade" model, under which any properly licensed, equipped and trained service station could perform the inspection.
From an aftermarket industry perspective, it will be important to ensure that the North American norm for such programs emphasizes parts replacement and upgrade, with appropriate warranty programs, rather than the early scrapping of vehicles. There is, however, some possibility, that scrapping programs, combined with a move to the disposable-reusable vehicle, could open up a major new segment of the aftermarket industry as it has in Europe.

Conclusion: NAFTA and its implications for the aftermarket

Given this evolution NAFTA and its ensuing industry integration and regulatory harmonization, there are five trends that will importantly affect the aftermarket industry over the next decade.
First, NAFTA will be a growing force. NAFTA is expanding trade and investment opportunities and resulting economic benefits for all three countries, with the greatest gains, costs and adjustments taking place in the smaller and less previously integrated partners. It will continue to do so at an accelerating pace in the years ahead, particularly as Mexico makes its painful one-time adjustment to the new regime.
Secondly, NAFTA will matter more to the U.S. and its automotive industry in the coming years. The U.S., led by NAFTA, is inexorably becoming an increasingly traded and ultimately internationally open economy. Indeed, U.S. trade as a percentage of US GDP is inexorably growing, from 10 percent in 1970, to 23 percent in 1996, to an estimated 36 percent by 2006. US trade will continue to concentrate on its NAFTA partners and generate the integrated production systems vital for global competitiveness. And the changes first felt and reacted to by assemblers and original parts producers will rapidly affect the aftermarket in train.
Thirdly, the upward, high-level harmonization of environmental regulations will continue. Even Canada, with levels of environmental protection far more similar to those of the U.S. than those of Mexico, and far more able to afford the required modernization and adjustment, is finding it necessary, if occasionally difficult, to upwardly adjust to the highest level North American norm.
This move to high level harmonization is currently being driven more by industry integration, public pressure in all three countries, and NAFTA consciousness raising rather than NAFTA's specific rules or leadership from the NAFTA institutions. But as these institutions become established and acquire a constituency, they will assume a more proactive role.
Fourthly, it will become increasingly important for these NAFTA institutions and their stakeholders to generate region-wide environment regulations, and to give maximum access to the expanded NAFTA marketplace for automotive and aftermarket producers. They must resist the claims of some environmentalists and protectionists for local relief.
Fifthly, NAFTA alone is not enough. It will also be increasingly important for such region-wide standards to reflect an appropriate blend of mandatory regulation and voluntary standard setting, and be as compatible with, and ideally pioneering for, emerging single standards for the global marketplace as a whole.
With Chile already joined to Canada and Mexico by bilateral free trade agreements, with all three NAFTA countries agreed to bring about Free Trade throughout the Americas by 2005, and with world cars already being produced, the need for a broader vision is already here.
The automotive industry, in considering harmonization of regulatory standards, must already look beyond NAFTA to the Americas as a whole, to APEC and to the broader multilateral process. The advent of the global car — Ford's Windstar produced in 41 countries — will ultimately call for a global aftermarket industry as well.
That is why President Clinton needs and should ultimately get the fast track authority to negotiate new trade deals, and ones with NAFTA-like environmental side accords. Otherwise Canada and Mexico alone and not the U.S. will continue to have privileged access to the Chilean and prospectively Central and South American market. And American producers will confront the costly patchwork of particular rules that impede the ideal of "one standard, one test, one mark."


Dr. John Kirton is the acting director, Center, International Studies, at the University of Toronto. He is currently a team leader of the Commission on Environmental Cooperation's project on NAFTA's environmental effects. Also, he is a member of the Canadian Govern- ment's International Trade Advisory Committee and Chair of the North American Environmental Standards Working Group. Phone (416) 978-4652 or email= jjkirton@uhura.trinity.toronto.edu

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