Smith, Frederick W., Chief Executive (U.S.)
The proposed North American Free Trade Agreement holds great promise for companies in the U.S., Canada, and Mexico willing to look to the future and abandon old beliefs. No longer will invisible walls of tariffs, import quotas, and customs fees separate the three countries; the signs south of Tucson and El Paso that used to warn "proceed at your own risk" will be replaced with green traffic lights; and highways to prosperity will stream across the old borders, linking Montreal with Monterrey and Chihuahua with Chicago.
Despite determined lobbying by organized labor and environmentalists, and a U.S. federal judge's ruling in June that the Clinton Administration should not send NAFTA to Congress until it first prepares a formal statement on its environmental impact (an appeal is expected), the agreement is expected to go into effect early in 1994. By lowering duties and other barriers to the movement of goods, services, and capital, NAFTA will create a trading bloc of 362 million people and $6 trillion in GDP stretching from Alaska to the Yucatan.
Though the North American trading bloc still will rank No. 2 behind the European Economic Area, and trade restrictions won't disappear completely for another 15 years, NAFTA is a powerful instrument of change in the New World. It will accelerate a trend that's been underway for two decades: the north-south flow of commerce in search of operating efficiencies and untapped markets.
CEOs who want to benefit from new trading opportunities in North America must throw out old assumptions about who their customers are, what persuades them to buy, and how goods and services reach the marketplace. With or without NAFTA, economic integration on the continent continues apace. The opportunities are too great for CEOs to remain on the sidelines until the dust settles. Mexico's economy is primed to explode, and U.S. and Canadian companies must prepare to ride that wave into the next century.
Although NAFTA may mean harder times for some industries, the pact's overall benefits can't be denied. For U.S. and Canadian companies, NAFTA will unlock the door to what until now has been one of the world's most shielded economies: Mexico, a country of 86 million people with a burgeoning economy, deep labor reserves, and a middle class hungry for consumer products and services. For Mexican business, the agreement encourages foreign investment and opens the most affluent consumer market in the Western Hemisphere to south-of-the-border farm produce, clothing, and household appliances. NAFTA also is expected to further weaken the barriers still guarding Canada's borders four years after the signing of the U.S.-Canadian Free Trade Agreement. Duties on computers and telecommunications equipment, for example, will be eliminated Jan. 1, 1994.
Federal Express business in Mexico has doubled every year since 1990--a reflection of a dramatic upswing in transborder activity as U.S. and Canadian companies position themselves for the realities of the world after NAFTA. The growth extends beyond the border zone, a home away from home to such U.S. manufacturing giants as General Electric, Zenith, Ford Motor Co., and Texas Instruments. Anticipating NAFTA, blue-chip corporations that have expanded their operations deep into Mexico include 3M, Caterpillar, Xerox, Allied Signal, Northern Telecom, and the Bank of Nova Scotia. They are rethinking strategy, structure, marketing approaches, logistics production, and distribution in the context of borders that will become more porous with each passing year.
There are legitimate concerns as Mexico, formerly thought of as a Third World country, increases business with the U.S. Mexican commerce suffers from a customs system still dogged by the perception of corruption and sometimes breathtaking inefficiency; an outmoded, dilapidated infrastructure; uncertainty about continued protection of Mexican autos, textiles, agriculture, and oil; and Mexico's political stability under the successor to President Carlos Salinas de Gortari. …