The
first day of this year marked the tenth anniversary
of NAFTA – the North American Free Trade Agreement,
which brought the economies of the United States, Canada
and Mexico together. This was a trade deal preceded
by much debate and opposition, but ultimately pushed
through with enthusiastic support from the large corporations
of the US, some would say even written by them. But
the decade’s experience suggests that it is mainly these
corporations that have benefited, while almost all of
the other promises of the agreement’s supporters have
turned sour.
NAFTA
was an ambitious agreement in some respects, bringing
together three very different economies: the rich and
powerful United States, developed Canada with its extensive
social security system and workers’ protection, and
developing Mexico with its regional inequalities and
backwardness. At the time, leaders in all three countries
assured the people that the agreement would not just
boost trade and investment in the region, it would create
millions of new and better jobs and raise living standards
“from the Yukon to the Yucatan”.
Of course, it was clear from the start that some would
gain more than others, particularly because of the way
in which the final agreement was structured. The United
States administration refused to make any commitments
with regard to agricultural subsidies, and retained
the right to protectionist measures against surges of
imports from Canada and Mexico. Despite this, it was
able to push through very significant liberalisation
of rules in Canada and Mexico with regard to investment
and intellectual property, which greatly increased the
power of US capital in these countries.
It is obviously difficult to separate the effects of
NAFTA from the effects of the broader process of global
economic integration over the past ten years. Nevertheless
it is clear that NAFTA did indeed dramatically transform
the economic landscape of North America, but not necessarily
in ways that have been beneficial for the bulk of the
people.
Certainly it is true that NAFTA has resulted in increased
trade and investment flows within the region. Total
trade among the NAFTA countries more than doubled between
1993 and 2002, growing much more rapidly than trade
with countries outside the region. Foreign direct investment
by NAFTA investors in the three countries jumped from
$137 billion in 1993 to nearly $300 billion in 2000.
However, this increase in trade and investment has not
translated into commensurate income increases, especially
for most workers, contrary to predictions. The gains
have been concentrated among corporations, whose profits
have increased manifold, and among favoured (typically
urban) consumers with purchasing power. In each NAFTA
country, the net effect upon workers as a whole has
been negative.
Canada is supposed to be one of the globalisation’s
few economic success stories, generating 560,000 new
jobs and growing 3.4 percent in 2002, the fastest rate
among the top seven industrial economies. But these
numbers for job increase do not take account of job
losses, and so do not give the net effect. At least
300,000 jobs are estimated to have moved south to Mexico
and low-wage locations in the US. More importantly,
almost everyone concedes that NAFTA has significantly
reduced the bargaining power of workers vis-à-vis
capital and has contributed to the erosion of social
security systems that were among the best in the world.
One Canadian analyst, Murray Dobbin, has argued that
real wages of Canadian workers have come down by 20
per cent over the decade, and productivity increases
have been appropriated entirely by capital. Unemployment
insurance and other social security provisions have
been scaled back. Health care provision and other public
utilities like water and electricity have been cut or
privatised. In consequence, Canada has slipped from
first to ninth place in the UNDP’s human development
ranking, in just a few years.
In the United States, NAFTA has brought about big increases
in profits for certain corporations, especially those
involved in making in automobile and auto components,
and agribusiness companies, which have seen profits
go up by 2 to 3 times since NAFTA took effect. Part
of the reason for this unprecedented increase in profitability
is the newfound ability of corporations to move to the
cheapest locations in the region, or simply to threaten
to move in order to contain workers’ wage and other
demands.
But corporations have also benefited greatly from the
provisions in NAFTA that allow companies to receive
compensation for supposed restrictions on their expansion
and behaviour by governments. NAFTA rules limit each
country's domestic policies to deal with issues ranging
from environmental health and food safety to banking
and truck safety regulation. Under the investor rights
guaranteed in the agreement, investors are allowed to
demand compensation for “indirect expropriation”.
This has been interpreted to include any government
act, including those directed at public health and the
environment, which can diminish the value of a foreign
investment. These cases are adjudicated by special tribunals,
bypassing the legal system of all three countries. Already,
suits with claims amounting to more than $13 billion
have been filed by large companies.
In a typical case in 2000, the Mexican government was
ordered to pay nearly $17 million to a California firm
that was denied a permit from a Mexican municipality
to operate a hazardous waste treatment facility in an
environmentally sensitive location. While the result
of such provisions has been an alarming increase in
environmental pollution, especially in the newly industrialising
border areas of Mexico, it has definitely allowed US
companies to reduce their operating costs and thereby
increase their profits. But the treaty affords no comparable
protection to those harmed by the actions of multinational
companies, for example in terms of adverse environmental
effects.
When the agreement was signed, workers in the US were
promised 170,000 additional jobs in each of NAFTA's
first ten years, based on the belief that this deal
would increase the US trade surplus with Mexico and
lower the pre-NAFTA trade deficit with Canada. But instead
of the surplus, the United States now has a trade deficit
with Mexico that averages nearly $40 billion per year,
and has lost close to three million manufacturing jobs.
Under only one government programme for displaced workers,
the NAFTA Trade Adjustment System - for which only a
relatively small number of affected workers could qualify
- 525,000 workers have been officially certified as
NAFTA casualties because their jobs were transferred
to Mexico.
Unemployment is currently low in the US only because
of the strong fiscal impetus provided by the Bush administration
over the past two years, which has created more service
sector jobs. However, despite the economic growth of
the 1990s, real wages in the US are still below 1972
levels, while income inequality has skyrocketed because
of the shift from manufacturing jobs to employment in
services, where wages are usually much lower.
It may appear that Mexico therefore must be the country
to have benefited from NAFTA – but precisely the opposite
is true. The most disastrous effects of NAFTA are to
be found in Mexico, with grave lessons for other developing
countries tempted to take this path of trade integration
with more developed economies in the hope of industrialisation.
In the early years of NAFTA, there was some increase
in both manufacturing output and employment through
FDI in the “maquiladoras” (workshops of gold) near the
border, set up by US companies to take advantage of
lower labour costs. However, import penetration because
of the trade liberalisation imposed by NAFTA destroyed
the domestic manufacturing sector which had catered
to the home market, so that even in the days of the
boom, net manufacturing employment barely increased.
Meanwhile, the overcrowding and environmental destruction
characteristic of the maquila areas, the insecure conditions,
worker harassment (including sexual harassment of young
women workers) and even large incidence of birth defects
in the maquila towns, have made them unsuitable models
to illustrate the benefits of NAFTA.
Since the late 1990s, recession in the US and competition
from other low cost locations such as China have weakened
the relocative investment effect, so that manufacturing
simply cannot generate enough jobs to counter the effect
of job loss in the other sectors, especially agriculture.
Even in the service sector, small Mexican businesses
including petty retailers have been badly hit by reduced
access to credit, as all but one of major banks on Mexico
have been sold to major US-based multinational banks
that are not interested in such low margin activities.
However, it is agriculture that has experienced the
worst effects of NAFTA, and underlined the unfair nature
of the original treaty. The US continues with and has
even increased its huge agricultural subsidies, which
allow large agribusiness corporations to sell produce
in Mexico at prices well below actual costs. Meanwhile,
NAFTA has eliminated 99 percent of Mexico's agricultural
tariffs. As a result, since 1994 the amount of US corn
dumped on the Mexican market has increased by 15 times.
Similarly, the amount of US beef going into Mexico has
doubled, poultry imports from US have tripled and pork
imports have quintupled.
The resulting collapse in crop prices in Mexico has
completely destroyed the viability of Mexican farming,
even subsistence maize farming which was the mainstay
economic activity in most of rural Mexico. Ironically
this has not meant much of a benefit for those urban
Mexican consumers who still have jobs, since retail
corn prices have barely fallen.
Estimates of the loss of agricultural employment because
of this unfair competition range from 1.3 to 1.85 million
workers, and the official estimates is that at least
1,000 people leave the Mexican countryside every day
in search of work opportunities or simply the means
for basic survival. They clog Mexico City as street
vendors, or add to the flow of legal and illegal migrants
to the US (now estimated to be more than 150,000 people
every year), because they have no other means of subsistence
left.
This also helps to explain why farmers’ groups such
as the Via Campesina have raised the demand for “food
sovereignty” and why agriculture was the dominant issue
among both developing countries and people’s groups
at the failed WTO meeting in Cancun last year.
Incomes in Mexico have also reflected this major crisis
in livelihood. According to the Centre for Economic
and Policy Research in Washington, in ten years income
per person has grown by only nine percent in Mexico,
which is around one-fifth of the growth in the 1960s
and 1970s.
All in all, therefore, NAFTA has a dismal record as
far as its impact on the people of the region is concerned.
It is all the more alarming, then, that the US administration
is trying to push the NAFTA model even further, through
its aggressive promotion of the FTAA (Free Trade Agreement
of the Americas). Once again, in these negotiations,
the US government has refused to allow agriculture or
non-tariff barriers to be negotiated, but wants the
Latin American countries to compromise their national
sovereignties in crucial sectors such as banking and
telecom, and to agree to NAFTA-style investor "protections."
After a failed meeting in December, the US managed to
arm-twist four relatively weak Central American countries
- El Salvador, Guatemala, Honduras and Nicaragua – to
sign up to this agreement. Costa Rica which still retains
some degree of autonomy from the US, withdrew at the
last minute. But the Bush administration has every intention
of continuing to pressurise other countries to comply,
even though this is creating enormous popular resentment
across the region.
Anniversaries are usually opportunities for stock-taking.
In the case of NAFTA, the popular assessment is summed
up by new joint the slogan of several movements across
the region: “ten years is enough!” |