NAFTA paves way for all Latin America - North American Free Trade Agreement - Free Trade Forum

The U.S. toy industry started down the path to internationalization in the 1950s when we moved low-cost production to the then low-wage country of the Orient, Japan.

Today the members of the Toy Manufacturers of America, both large and small, produce more than 75% of U.S. consumption of toys outside the United States.

In addition, most of our member companies have foreign sales that range from 10% to 50% of their total sales. While we have moved low-cost, labor intensive production to less developed countries needing entry-level jobs, we have maintained, and in many cases added, employment in the areas of product development, production and safety engineering, marketing, advertising and distribution.

Today, we employ about 31,000 in the United States. Most significant is the fact that the U.S. toy industry invents, engineers and creates the marketing programs for close to two/thirds of all the toys in the world.

Because our industry thrives on free and open trade, our interest in trade agreements and legislation is keen; and we support the policies of the U.S. in opening markets abroad and in allowing legitimate product into the U.S. without unnecessary tariffs and other barriers which only burden the U.S. consumer. We actively supported NAFTA among the United States, Canada and Mexico.

In terms of bringing product into the U.S. from Mexico, there is little short-term advantage to NAFTA as our industry was already importing product under the Generalized System of Preferences. Accordingly, most product from Mexico continues to move duty-free into the United States. As far as U.S. exports to Mexico are concerned, duties on the majority of toys remain at a 20% level, although over a 10-year period they will move to zero.

While in our opinion protective duties are unnecessary, the staged reductions will encourage U.S. toy exports as well as toy retailers in the United States to move into the Mexican market. We have already seen the movement of major U.S. retailers into Mexico and passage of NAFTA will encourage others. This will help the U.S. toy industry.

Perhaps the biggest benefit of NAFTA as far as the toy industry is concerned is its symbolic impact on the rest of Latin America. Most Latin American governments are now officially committed to building market economies, and the free movement of merchandise in and out of their countries is a fundamental requirement to achieve the prosperity that their citizens expect. Accordingly, we now find a new environment in which foreign manufacturers and importers can compete with domestic industries.

The Uruguay Round of the General Agreement on Tariffs and Trade, the agreement signed in Marrakech, is of historic proportion. When ratified by the more than 110 countries that are parties to the agreement, the foundation will have been laid for the World Trade Organization, which should over time be the engine that drives greater prosperity throughout the world. Accordingly, we were able to persuade the U.S. Trade Representative to add toys to the zero tariff agreement and to table a U.S. offer of immediate zero tariffs when the Uruguay round goes into effect probably in mid-1995. Everyone benefits -- consumers, retailers, manufacturers and importers. We will actively support the Administration and hope that it will bring GATT-enabling legislation to a vote in this session of Congress.

Perhaps the most perilous trade issue the toy industry faces this year, as it has for three previous years, is the renewal of Most Favored Nation status for China. Toys imported from China today account for between 35% and 40% of all toy sales in the United States. If China were denied MFN status, duty rates would rise from an average of 9% to 70% on all toy products. This would mean the imposition of an additional $2.7 billion of duties, which would eventually tax the U.S. consumer significantly. The chilling events which transpired in June 1989 in Tiananmen Square galvanized the activities of human rights advocates in the United States and allowed them to portray the U.S. relationship with China as one pitting trade against human rights.

This of course, is an over-simplification but one that persuaded some in Congress to vote for denial of normal trading status with the People's Republic of China.

The issue is far more complex. First, removal of MFN trading status unilaterally is the economic equivalent of shooting oneself in the foot. Instead of McDonnell-Douglas and Boeing selling airplanes to China, Airbus will get the business. Instead of U.S. wheat growers selling grain to China, wheat farmers in Argentina, Canada and France will benefit. Second, and most significant, is the fact that the geopolitical interests of the U.S. demand a cooperative relationship with China to further peace and security along the Pacific Rim. Accordingly, the toy industry has rigorously supported normal trade relations with China, both in its own economic interest as well as in the best interests of the United States.

Toy sales in the Unived States in 1993, including video games, were $22 billion. It is due in large part to the dynamic manufacturing, importing and retailing environment in which the best products get the maximum exposure to American children and their parents and make for profitable sales at all levels. Maintaining free and open trade relations with the rest of the world is the cornerstone of this prosperity.

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