Critics say NAFTA's 10-year record validates dire predictions

By DON McINTOSH, Associate Editor

On Jan. 1, NAFTA — the North American Free Trade Agreement —will turn 10.

On or around its birthday, expect to hear its supporters call NAFTA an economic success story.

You’ll hear that trade has increased under NAFTA. And it’s true: The total value of trade between the three countries — Canada, the United States, and Mexico — has more than doubled in 10 years, from $306 billion a year to $621 billion a year.

You’ll be told U.S. exports to Mexico and Canada increased under NAFTA — from $142 billion to $263 billion a year. Also true.

But as for the other side of the equation — imports — don’t expect the same interests that want to expand NAFTA to Central America and the entire Western Hemisphere to mention the dramatic increase in the U.S. trade deficit.

That’s because NAFTA, a treaty that was sold to U.S. audiences as a job booster, has done exactly what its critics said it would — led to job losses in the United States.

The Office of the U.S. Trade Representative, the trade negotiating arm of the White House, is reporting in several recently released “fact sheets” that NAFTA is a success, saying it resulted in the creation of 900,000 U.S. jobs in the export sector.

“That’s like counting only deposits and not withdrawals in your checking account balance,” says international economist Robert Scott of the Economic Policy Institute, a labor-backed think tank based in Washington, D.C.

Sure, U.S. exports to Mexico increased, Scott says, but imports increased even more. The year before NAFTA took effect was the last year the U.S. enjoyed a trade surplus with Mexico. Last year, the U.S. imported $136 billion of goods from Mexico, and exported $107 billion, for a trade deficit of $29 billion.

And every dollar spent on goods made in Mexico is a dollar that did not employ a U.S. worker to make the same item. Trade deficits mean job losses.

There are several ways to count job losses related to NAFTA. One is to count the jobs created by exports to the two countries and subtract jobs lost to imports. It’s the same methodology NAFTA boosters used in 1993 when they were predicting job gains. Scott uses it to estimate net job losses, and based on data covering 192 industries from the Bureau of Labor Statistics and the U.S. Census Bureau, he comes up with a net loss of 879,280 U.S. manufacturing jobs over 10 years.

Oregon’s share of that job loss is 9,700 jobs — 8,300 jobs gained from exports, minus 18,000 jobs lost to imports.

Another way to count job losses is to see how many workers come forward seeking benefits. When President Bill Clinton was pushing NAFTA in 1993 (against the majority of his own Democratic Party) he knew the vote in Congress would be very close. To answer those who believed NAFTA would sell out U.S. manufacturing workers, a retraining program was added to the NAFTA-implementing legislation. That program was terminated in February 2003, folded into a larger program dealing with manufacturing workers displaced by trade. But during the nine years the Labor Department was counting, it certified that 525,000 American manufacturing workers lost their jobs to NAFTA.

Hardest hit were textiles and electronics, and American small towns, where individual plant closings devastated local communities.

But Scott says even increased exports to Mexico may harm American workers. That’s because much of what is exported to Mexico consists of component parts for reassembly and reimportation into the United States. Such goods would have employed more American workers if they had not been exported to Mexico, because then American workers would have assembled the finished product.

And a second part of the increase in U.S. exports to Mexico has been agricultural products, which has severely displaced Mexican farmers, many of whom had to leave their homes to seek work in the maquiladoras or travel to the United States legally or illegally in search of work.

NAFTA backers said the treaty would slow immigration to the U.S. because of the prosperity that would come to Mexico. In fact, there has been a dramatic increase in the number of migrants into the U.S. in the last decade, despite increasing border control measures.

According to a recently-published study by the Carnegie Foundation, Mexico added 500,000 manufacturing jobs since NAFTA went into effect, but lost 1.3 million agricultural jobs. Whether they remain in Mexico or emigrate, such a large group of desperate job seekers has the effect of depressing wages all over.

The average factory worker in the United States makes $14 an hour; Mexican factory workers average about one-tenth of that. [Canadian production workers earn an average of $15 an hour.]

But ultimately, NAFTA was never about trade competition between nations; it was about wage competition between corporations and workers.

“NAFTA was sold as something that was going to create a lot of jobs,” says AFL-CIO trade policy expert Thea Lee. “But this was never an agreement about selling more goods to Mexico; it was about greasing the skids for U.S. investors to send manufacturing operations to Mexico.”

Under NAFTA, tariffs on a range of products were scheduled to be reduced over a 15-year period. NAFTA also set up a whole series of protections for investors, including trade dispute settlement mechanisms. More than tariffs, Lee says, it was the investor protections that paved the way for greatly expanded U.S. investment in Mexico.

Lee makes the comparison to China: U.S. trade with China was already on the rise, but it shot up after China offered many of the same investor protections in order to be admitted to the World Trade Organization.

NAFTA was the marriage of an economic giant to two smaller players, one of them vast and poorly populated but on par economically, the other populous and impoverished. The U.S. economy is 10 times the size of Mexico’s and 11 times Canada’s. And the United States has two-and-a-half times Mexico’s population and eight times Canada’s. The point was never to truly merge the three into a common society, critics say, but to solidify Mexico’s position as a source of cheap labor for U.S. corporations.

There are alternatives to the NAFTA model.

Labor allies Lori Wallach of Global Trade Watch and Sarah Anderson of the Institute for Policy Studies suggest a deal whereby Mexico would raise labor standards and expand labor rights in exchange for increased development assistance and debt relief. It would be a similar process to that undertaken by Europe with poorer countries like Greece, Spain, and Portugal prior to integration.

“The major lesson of the European Union is that NAFTA is way too narrow,” says Anderson. “In Europe, they made a very substantial effort to reduce inequalities between nations before integrating economically, and there was a strong emphasis on lifting up social and economic standards. In Europe, countries can even be sanctioned for not upholding their standards.”

“We have a long way to go before most people in the United States understand that it’s in our interest to bring up standards in other parts of the world.”

Similarly, Scott acknowledges that labor and other critics of NAFTA-style trade agreements are a long way from being able to set the trade agenda. But he likens the critics to the Lilliputians in Gulliver’s Travels, who waited until Gulliver was asleep and then used their numbers to tie him down and prevent him from doing more damage.

Allied with environmentalists and others, organized labor may be able to slow the Bush Administration’s rush to expand NAFTA to the rest of the hemisphere.

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