NAFTA fails to deliver predicted job growth.

Supporters of trade pact blame peso devaluation 

In 1993, when El Segundo-based Mattel Inc. was lobbying for passage of the North American Free Trade Agreement, company Vice President Fermin Cuza told a U.S. House subcommittee that the trade pact would lead to new jobs being created at Mattel's U.S. facilities.

But less than a year after Nafta went into effect in January 1994, Mattel closed down a manufacturing plant in Medina, N.Y, laying off 520 workers.

According to the Nafta Trade Adjustment Assistance program, a division of the U.S. Department of Labor created to monitor and mitigate negative effects of Nafta on U.S. employment, the Medina plant was shuttered as a direct consequence of Nafta - a conclusion disputed by Mattel.

The closure of the Medina facility is one of dozens of examples cited as "broken promises" in a study completed in September by Public Citizen, the Washington D.C.-based consumer advocacy group founded by Ralph Nader. According to the report, 90 percent of the promises made by Nafta supporters in testimony before Congress or published in government reports had been broken within 20 months of the agreement being put into effect.

Promised jobs

Specifically, Public Citizen was able to identify a total of 80 promises made by U.S. companies before the passage of Nafta, most of them claiming the pact would lead to job growth within the United States or increased exports of U.S.-made products to Mexico. Researchers then contacted all 80 companies to determine whether the promises had been kept.

Fifteen of the companies were Unable or unwilling to provide data to the researchers, the report stated. Of the remaining 65, only seven demonstrated that their promises were being kept.

Further, the report cited statistics from the Nafta Trade Adjustment Assistance program showing that 38,148 manufacturing workers had lost their jobs by August 1995 as a direct consequence of Nafta. And although the United States enjoyed an annual trade surplus with Mexico of $3 billion in 1993, the United States ran an $8.6 billion trade deficit with Mexico in the first six months of 1995.

While all of these numbers might seem a damning indictment of Nafta, the agreement's supporters unanimously decry Public Citizen for releasing what they call misleading information. It was the devaluation of the peso, which has declined in value approximately 50 percent against the U.S. dollar since December 1994, that led to the U.S.-Mexico trade imbalance and the loss of American jobs, not Nafta, the pact's supporters say.

"In its first year, Nafta was working beautifully. The second year is seeing problems (with U.S.-Mexico trade), but it has nothing to do with Nafta," said Carlos Valderrama, director of Latin American operations with the L.A.-based law firm of Carlsmith, Ball, Wichman, Murray, Case & Ichiki.

Mattel rebuttal 

Glenn Bozarth, a spokesman for Mattel, accused Public Citizen of manipulating the data to suit its own agenda.

"I don't think there is anyone who was doing business in Mexico (at the time Nafta was being studied) who would say the peso crisis could have been foreseen," Bozarth said. "Obviously, it's going to take some time for the agreement's benefits to take effect, because (the devaluation) was a very big setback. But the agreement was still a good one."

Public Citizen spokeswoman Lori Wallach disagreed. Like many of the agreement's opponents, including outspoken Texas billionaire Ross Perot, she believes Nafta contributed to Mexico's peso crisis. And some economists and members of Congress warned that the pact might be followed by a major peso devaluation long before Nafta was approved.

The House Committee on Small Business held a hearing on precisely that issue on May 20, 1993, which was followed up by a letter to President Bill Clinton from committee chairman Rep. John J. LaFalce, D-N.Y., urging safeguards in the agreement to protect against the impact of a peso devaluation.

"I noted (at the May 20 hearing) that since 1981, the peso has fallen from 25 to the dollar to a current 3,200 pesos to the dollar. ... Economists at the hearing suggested that the peso is overvalued by 10 to 20 percent, and some believe a major devaluation is inevitable," LaFalce wrote. He was answered by a letter from then-Treasury Secretary Lloyd Bentsen stating that a side agreement on exchange rates was unnecessary because Nafta would bolster investors' confidence in Mexico and support the peso.

Of the 65 companies that responded to Public Citizen's survey, three are based in Los Angeles County. They include Mattel, Woodland Hills-based Litton Industries and Downey-based Montero International Products.

Litton, a major defense contractor, made the following statement in a report published in November 1993 by the National Association of Manufacturers:

"Presently, 600 of the company's U.S. employees manufacture products for export to the Mexican market. All of the company's manufacturing is performed in the U.S. Litton believes Nafta will increase both U.S. and Mexican employment."

Litton no longer does business in Mexico, having split off its consumer goods manufacturing divisions into a separate company called Western Atlas Inc. in March 1994. Beverly Hills-based Western Atlas does export products to Mexico, but Nafta has had no impact on its business activities there and has not led to increased employment, according to company spokesman Dirk Koerber.

Contradictory quotes

Montero is an export firm cited in the same National Association of Manufacturers report, in which company President George Montero is quoted as saying, "Montero predicts a 20 to 30 percent increase in sales of its high-technology products via increased access to Canada and Mexico."

Montero later told a Public Citizen researcher that his company does not do business with Canada or Mexico. Contacted by the Business Journal, he said his company still might trade with those countries eventually, but has elected to concentrate its current efforts on South America.

"Nafta has nothing to do with the fact that I'm not doing business in Mexico," Montero said. "I think Nafta is wonderful; I think it will help trade throughout America."

Mattel, meanwhile, disputes the contention made by Public Citizen that it broke its promises on Nafta. Bozarth said the Medina plant was closed because of excess capacity following the November 1993 acquisition of East Aurora, N.Y.-based Fisher Price Inc.

Public Citizen spokeswoman Lori Wallach claims Mattel closed its Medina plant to take advantage of cheaper labor in Mexico. Bozarth conceded that some of the Medina plant's manufacturing capacity was taken up by Mexican facilities, and imports from Mexico have increased since the plant was closed. But other factories in Asia and the United States have also increased production to make up for the Medina closure, he said. In addition, he said, Mattel has opened three new plants in the United States in the past year, while no new Mexican facilities have been opened since the passage of Nafta. And the company expects new U.S. hires eventually to more than offset the Medina layoffs.

"We said Nafta would strengthen the Mexican economy and lead to more toy sales there, and eventually lead to more hiring in the U.S.," Bozarth said. "We still believe all that to be true."

Mattel suffered a 1994 pretax loss of $20 million attributed to the devaluation of the peso. The company expects to increase exports to Mexico once the peso is stabilized, Bozath said.