Ratification of the North American Free Trade Agreement was a wake-up call to Utah businesses.

The call came again - this time louder - about a month later when negotiators from around the world gave final approval to the biggest-ever package for breaking down barriers to export, otherwise known as the General Agreement on Tariffs and Trades.The sweeping trade agreements are sharp reminders the world is doing business on a global basis. To do business just in Utah or just domestically, is shortsighted.

"It's really an opportunity for us to control our destiny as a country, as a state. In Utah, we've already made some strides in that direction," says Dan Mabey, director of international business development for the Utah Department of Community and Economic Development.

NAFTA created the largest world trading area, totaling 360 million consumers in a $6.5 trillion market. The agreement enfolds Mexico into an existing free-trade zone with the United States and Canada.

The pact eliminates tariffs over 15 years, phases in access to markets, provides protection of intellectual property and sets environmental standards for participating countries.

GATT, which Congress may not debate until next spring, slashes tariffs on manufactured products and expands the rules of world trade to cover agricultural products and the service sector.

Economists say trade liberalization under GATT could expand global output by $6 trillion over the next decade, $1 trillion in the United States alone.

"From my point of view, the whole country gains and Utah gains because of that," said University of Utah business professor James H. Gardner. "I think the state can really take advantage of what we're good at. What we're good at is what's in demand now."The vast majority of economists, business leaders and government officials contacted by the Deseret News for this report say NAFTA and GATT are good for the country and good for Utah. But are there hidden victims?

Hidden victims?

Opponents and proponents agree there will be job losses due to the trade agreements. Job losses also may be attributed to industries that have become technologically obsolete, the end of the Cold War and Asian reforms, among other reasons.

Ed Mayne, president of the Utah AFL-CIO, said labor organizations worry whether there will be sufficient money to retrain displaced American workers and whether they will be re-employed in good-paying jobs.

Statistics show most displaced workers find new employment. "But what kind of jobs are they? Are they decent-paying jobs? Are they jobs that a person can raise their family with a little dignity? Are they jobs that provide a tax base for decent sewers, roads and schools?" Mayne asks.

From a global perspective, the unions also are concerned about the treatment of workers in developing countries. On a recent visit to a cluster of foreign-owned businesses along the Mexican border, Mayne observed appalling working and living conditions.

"They were shanty towns with people living in cardboard shacks. It was just ugly, no kind of infrastructure, no sewers or power. People were bathing in a contaminated river. They talk a lot about their environmental laws, but it's a joke," Mayne said.

"We are not opposed to nor are we afraid of free and fair trade. There's got to be something said about these oppressed workers. Too often, it's the poor workers being taken advantage of in these Third World nations. We will continue to be their voice."

It may be years before the impact of NAFTA and GATT can be assessed. But on the short term, Mayne believes NAFTA cost Utah jobs when when the U.S. Department of Transportation did not grant Salt Lake City a London air route.

U.S. Secretary of Transportation Federico Pena denies NAFTA played any role in the decision. But freshman Rep. Karen Shepherd, D-Utah, says otherwise. When the air routes were awarded to Nashville and Raleigh-Durham, N.C., three members of Utah's congressional delegation were uncommitted. When the final vote was cast, all but Rep. Bill Orton, D-Utah, voted for the pact.

"They deny it, but there was politics played in that decision. We lost jobs in customs and baggage handling positions. We probably lost 150 to 200 jobs already in the state of Utah because of NAFTA," Mayne said.

At this juncture, Utah's business community is scrutinizing the possible impact of NAFTA. Even businesses that likely will benefit from the increased trade opportunities are cautiously optimistic.

Agriculture should gain

At a recent "post-NAFTA" meeting in Utah hosted by U.S. Sen. Orrin Hatch, Utah agriculture interests expressed excitement about new markets for Utah agriculture and value-added products.

"Ross Perot did the Mexican people a major disservice in the way he portrayed them when he was fighting the ratification of NAFTA. As I've looked at the major cities in Mexico, it reminds me a little bit where we were in the 1950s when the consumer class was gaining by leaps and bounds.

"The thing we have in agriculture is, food is their priority down there. They'll pay more for value-added food," said Randy Parker, director of marketing and promotion in the state Department of Agriculture.

Even so, Utah farmers and ranchers are wary of competitors that may pay lower wages without initially comparable health and safety standards.

Recently, there have been rumblings that dairies in Southern California may move 300,000 head of dairy cows to Mexico to trim labor and other costs. By comparison, Utah has about

85,000 head of dairy cattle, Parker said.

"Taken as a whole, I think agriculture and the added value products that come from agriculture will be major winners," said Parker.

A boon to trucking

Reed Reeve, executive vice president of the Utah Motor Transport Association, said the trucking industry also stands to gain as Mexican consumers' needs increase. The vast majority of goods now shipped to Mexico are transported by truck.

"We very much support the concept of it, but we have some real concerns along the way. Utah could very well be left out of loop if something doesn't happen," Reeve said, referring to transportation corridors that would link Mexico to major U.S. distribution hubs.

Part of the problem is the structure of the roadways and their dedicated axle limits, which correspond to the pounds each truck axle may bear on a certain roadway. While the Intermountain states are fairly uniform, axle limits along the feeder systems from the West Coast and the Midwest are much lower, which curbs the east-west flow of freight. The axle weights are set by the federal government.

On the short term, the existing roadways should suffice, says Glenn Goodrich, director of motor carriers for the Utah Department of Transportation. Under the first three years of NAFTA only cross-border shipments to border states will be permitted.

A feasibility study conducted by the Utah and Arizona state transportation departments pegs an existing route that links I-15 to I-17 via U.S. 89 as an "interim short range option." Southbound traffic would then follow I-17 to Nogales or intersect I-10 at Tucson to travel southeast to El Paso-Juarez area. (See map on B1.)

"The roads at present will handle a lot of traffic. It takes at least 10 years to get anything in motion in building a new roadway. It's unlikely the present interstate systems could be built under today's environmental restraints," Goodrich said.

The need for transportation infrastructure will grow as traffic increases. After six years under NAFTA, all countries will allow unlimited access through cross-border international trucking through the countries.

In the meantime, affected states will continue to assess their options, Goodrich said. But Goodrich predicts the bulk of highway money will be spent to maintain existing roads rather than construct new ones.

"The needs are so much greater than the projected funding that it is very difficult to look at a brand new route," Goodrich said.

In addition to physically getting the products to market, Utah businesses must concentrate on the emerging marketplaces themselves.

Good for high tech

Peter Generaux, president of the Utah Information Technologies Association, said he believes NAFTA will be a boon to Utah's high-tech industries if they educate themselves how to participate in trade.

"Lowering or eliminating tariffs and the strong intellectual property rights protection are profound benefits to our industry. I think the difficulty for most of our industry is that they need to take the time to learn how to work those to their advantage," Generaux said.

A foot in Mexico's door

Utah has a solid foot in the door in trade with Mexico. The Beehive State is one of only five states nationwide that operate economic development offices in Mexico.

Utah's office has been open 21/2 years and is run by a woman who is a certified interpreter and has worked for Mexico and the U.S. in government positions.

The office is as a resource to help introduce Utah businesses to Mexican markets and acquaint Mexican executives to Utah products and services. "We spend a lot of the time making the rounds of the chambers of commerce. International business is long-term process. You build relationships first, then you have a business involvement," Mabey said.

A language advantage

Utah has another advantage edge in foreign trade arena: language capabilities of many of its citizens. The Church of Jesus Christ of Latter-day Saints, through its Missionary Training Center and Brigham Young University, teaches more than 60 languages.

Missionaries live abroad for up to two years. Many return fluent in the native language and familiar with the customs and culture of the area they served.

Gardner, who has 25 years of experience in international business in addition to his academic pursuits, said the combined business and language skills of the graduates of Utah's largest universities rival those of the pristine Ivy League business schools.

"They don't have the same skills on a practical basis that exist around here. If you can have a luncheon conversation or read the local newspaper and stay in touch with a country or get a feel for what's going on in a county, you make friends about 100 times faster. In business that's really what it's about," Gardner said.

While missionary training provides a strong language base, Mabey said former missionaries should also be schooled in business before entering the foreign trade arena.

"We come back with good conversational skills, especially when talking about religion but the `business language' is not very well developed. But we do have a good basis to work from," Mabey said.

One-way benefit

For the short term, it would appear most of the trade between the United States and Mexico will be one way, with the United States exporting to its neighbor to the south.

"I don't see the Mexican goods getting in any faster. Our duties were pretty low to start with," Gardner said.

To read the trade statistics, Utah is a tiny fish in the worldwide sea of trade and there is room for vast improvement.

With respect to Mexico, exports have have declined 15 percent annually since 1988. Utah has the third lowest percentage of exports to Mexico, despite its geographic proximity, according to prepared by the Governor's Office of Planning and Budget.

The report suggests Utah exports to Mexico account for less than one-tenth of 1 percent. If NAFTA doubles or triples Utah's exports to Mexico, the new jobs will be relatively small. "Thus, NAFTA will not significantly affect the Utah economy because Utah's economy is on dependent on trade with Mexico," according to "Utah in the Global Economy."

Utah's exports worldwide have grown 260 percent since 1987, nearly three times the country's total export growth, the state report indicates. The report states Utah companies export to more than 130 countries but five countries consume 70 percent of the state's exports: the United Kingdom, Taiwan, Hong Kong, Canada and Japan.

Bureau 1992 statistics indicate Utah ranked 31st nationally in the export of merchandise. The state ranked second nationwide in growth of manufacturing exports, climbing nearly 44 percent over last year.

Census Bureau numbers used in the state report do not reflect Utah's service sector, a strength domestically and abroad. Therefore, the statistics tell only part of the story, Mabey said.

However, an examination of NAFTA's anticipated impact on employment nationwide helps put the issue in perspective.

Compared to the United States, the Mexican economy is very small, comprising only 6 percent of the U.S. gross domestic product.

Nationwide, NAFTA will result in a net increase of 130,000 jobs over the phase in period or slightly over 0.1 percent of 1991 U.S. employment, said Gary Hufbauer, the Reginald Jones Senior Fellow at the Institute for International Economics at a recent Foundation for American Communications conference on trade issues.

Hufbauer, author of "NAFTA: An Assessment," said the U.S. economy is too large and too diverse to be significantly impacted positively or negatively.

At this point, it would appear Mexicans would benefit more from NAFTA than their American or Canadian counterparts. Yet, Mexican are at the same time optimistic and pessimistic about the agreement.

"In Mexico, NAFTA is very popular and at the same time, people are scared to death what NAFTA is going to do," said Luis Rubio, political analyst and former planning director of Citibank, N.A. Mexico.

"NAFTA was not launched out of a democratic urge to transform Mexico. One would be very stupid to think that. But it might very well advance that event."



North American Free Trade Agreement

NAFTA will create the world's largest and richest trading bloc among the United States, Canada and Mexico, a $6.5 trillion market with 360 million people.

What will it do

Tariffs - Tariffs will be eliminated over a 15-year period Levies on half of more than 9,000 products would phased out immediately, 65 percent of them within five years. U.S. tariffs on Mexican products now average less than 4 percent; Mexican tariffs on American products average 10 percent.

Agriculture - Trade barriers on bilateral U.S. -Mexican farm trade will be eliminated within 15 years to allow producers to adjust to a duty free status on sensitive products. Under the treaty, sensitive products include corn and dry beans for Mexico and orange juice concentrates, melons, sugar and asparagus for U.S. farmers. Mexico's import licenses will be eliminated.

Computers - Mexican tariffs as high as 30 percent will be eliminated NAFTA also will help facilitate commericial dealings, removing barriers to investment and protect intellectual property rights.

Telecommunications - U.S. companies may compete for contracts from Mexico's public phone system and investment restrictions will be eliminated by July 1995.

Transportation - Three years after NAFTA's implementation, Mexico and the United States will allow cross-border shipments in border states. After six years, all NAFTA countries will allow unlimited access through cross-border international trucking through the countries. The vast majority of U.S. -Mexico trade is carried by truck. More than 80 percent freight shipped to Mexico or Canada by Utah, travels by truck.

Financial Services - Mexico will allow U.S. and Canadian banks, insurance companies and brokerage firms free access after Jan. 1, 2000, after a six-year transition period during which bans on foreign ownership are phased out. U.S. and Canadian financial services firms couls set up whollyowned subsidiaries in Mexico for the first time in 50 years.

Side Agreements - Would establish trinationa commissions to oversee environmental and labor laws with the possibility of sanctions, either punitive trade tariffs in the case of the United States and Mexico or fines in the case of Canada, for failure of a country to enforce its own laws.

Trade with Mexico

1992 exports - $26.6 million

Majority of trade comprised of scientific instruments, food products and insustrial machinery. More than 80 percent of Mexican expotrs are shipped by rail.

Trade with Canada

1992 exports - $360.5 million

Majority of trade composed of transportation equipment, electrical machinery and equipemtn and primary metals. Nearly 90 percent of good exported to Canada travels by truck or rail.



Those who benefit

The following companies should benefit from NAFTA:

Consumer products

- Arrow Dynamics (amusement rides)

- Clover Club Foods (potato chips and snacks)

- Fosgate Inc. (surround sound pro cessors, speakers and amps)

- Huish Detergents Inc. (soaps and detergents)

- Miniworld Inc. (girls' and infants' outerwear)

- O.C. Tanner Manufacturing Inc. (jewelry and precious metals)


- Dairy

- Cattle

- Hay

- Cache Valley Cheese Co.

- Smithfield

- Nelson Ricks Creamery Co.

- Sheep

- Fruit (a labor intensive industry

that would benefit from immigration)

Industrial goods

- Ballard Medical Products (surgical appliances and supplies)

- Christensen Mining Products (drill ing and mining equipment

- Cooper Systems Inc. (mine commu nication and sampling systems)

- Deseret Medical Inc. (surgical and medical instruments)

- Eastman Christensen Co. (oil equipment)

- Evans & Sutherland Computer Corp. (computer storage devices)

- Geneva Steel Inc. (blast furnaces and steel mills)

- Iomega Corp. (computer storage devices)

- Jetway Systems (passenger load ing bridges, airline tug tractor)

- Logan Manufacturing Co. (tracked vehicle and parts)

- Longyear Co. (core drills and parts)

- Minerals Equipment Co. (mining machinery)

- Omni-Lift Inc. (belt cleaners, conveyors)

- Rubber Engineering Inc. (rubber lin ings, custom rubber)

- Stott Inc. (steel construction)

- Valtec Inc. (industrial valves)

- Young Machine Co. (mining ma chinery and equipment)

Food processing and

processing equipment

- Agrinautics (agricultural spraying equipment)

- Cowen Manufacturing Co., Inc. (honey extracting equipment)

- E.A. Miller Inc. (meat-packing plants)

- Tri-Miller Packing Co. (meat products)

Pollution control equipment and services

- Data Chem Labs (environmental testing laboratories)

- EarthFax (environmental water treatment equipment)

- EnviroSearch (environmental equipment)

- Precision Systems Engineering, Inc. (environmental equipment)

Banks, insurance companies,

telecommunications and service

- First Security Corp.

- Zions Bancorp.

- Beneficial Life Insurance Co.

- Security National Financial Corp.

- Surety Life Insurance Co.

- BTS Broadcasting Systems (telecommunications equipment)

- Bonneville International Corp. (telecommunications equipment)

- Gentner Electronics Corp. (telecommunications equipment)

- Intraspace Corp. (telecommunications equipment)

- Ivie Technologies Inc. (telecommunications equipment)

- Seagull Technologies Corp. (telecommunications equipment)

- Big D Construction Corp. (building and contracting)

Transportation and motor carriers

- C.R. England & Sons Inc.

- Great Western Leasing Inc.

- Norton Enterprises Inc.

- PST Vans Inc.

- Unit Distribution of Utah Inc.

- Southern Pacific Transportation

- Union Pacific Railroad

Firms owning intellectual property rights:

- Murdock Healthcare (pharmaceuticals)

- NaturPharma Inc. (pharmaceuti cals, health food supplements, herbs, vitamins, ointments and extracts)

- Century Software (computer software)

- Covenant Communications Inc. (cassette tape duplication, books)

- Datamax Computer Systems Inc. (computer software)

- Dayna communications Inc. (com puter software)

- GTE Health Systems Inc. (com puter software)

- Novell Inc. (Computer software)

- Softcopy Inc. (computer software)

- Wasatch Education Systems, Corp (computer software).

- Wicat Systems Inc. (computer software)

- WordPerfect Corp. (computer software)

Those who don't benefit

- Geneva Steel

- Kennecott

- Stott Inc.

View Comments

- Nucor Steel

(While raw materials are a major export in Utah, the state's producers suffer from vulnerability of raw materials to global price fluctuations. Most Utah firms, however, are completing extensive modernization programs to help keep them competitive worldwide.)

Note: Some firms will be both helped and hurt, because of the diversity in their operations.

Source: "Utah in the Global Economy, Selected Trade Issues for the Utah Economy," Governor's Office of Planning and Budget.

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