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NAFTA - Trinational fiasco: remember the rosy promises about jobs, etc.? Here's a reality check.

One issue you can be sure that Bob Dole and Bill Clinton will not disagree on is free trade. Both men were strong advocates of the North American Free Trade Agreement, which went into effect in January 1994. The peoples of North America have now lived with the agreement for 900 days and, contrary to the promises of Dole, Clinton and their advisers, NAFTA has turned out to be a losing proposition for all but the Fortune 500.

Rather than increasing by the hundreds of thousands, as promised, jobs have been disappearing in all three countries; those jobs that remain pay less with fewer benefits. The U.S.-Mexico border, already a development debacle when NAFTA was signed, is mired even deeper in health and environmental nightmares. Mexico's highly touted middle class has been slammed back into poverty. In Canada, one of the world's finest social welfare systems is under siege [see Maude Barlow and Tony Clarke, page 231. Many more promises on funding, immigration, agriculture and other issues did not materialize. The leaders of the three NAFTA countries rarely mention the trade pact, fearing, perhaps, that they will remind voters of their exaggerated claims for it and how much needless misery it has produced.

Several dozen researchers and activists from all three countries have recently completed a series of comprehensive studies on NAFTA that debunk the prevailing myths. We focus here on five of the most prevalent ones. But first a caveat: We do not argue that NAFTA caused Mexico's latest economic collapse, nor did it create the growing inequality in all three nations, nor most of the other problems outlined below. NAFTA did, however, make them worse. In economic terms, NAFTA cased the movement of goods and investment among the three countries; it sped up the free-trade model that large corporations have been pushing for decades. NAFTA codifies an economic ideology that glorifies the market, that demonizes and defunds government and that regards human beings as little more than customers in a continental shopping mall.

Myth #1: NAFTA Had Nothing to Do With the Recent Mexican Crisis

The evidence of Mexico's economic failure, which burst into public view on the eve of Christmas in 1994, is so overwhelming that even the Clinton Administration doesn't deny it. What it says is that the fault lies with poor economic management by the Mexican government. Although NAFTA proponents claim that the crisis has postponed many of the benefits they predicted would emerge from the agreement, they argue that Mexico is continuing on the right free-trade track and that things would be much worse in the absence of NAFTA. In fact, NAFTA merely formalized and extended policies that were first imposed upon the country by the International Monetary Fund in 1982 in response to Mexico's massive foreign debt. These policies, popularly known as structural adjustment, represent an approach to economic development that requires slashing government expenditures and opening the country to foreign goods, services and capital without government regulation; in four words: Trade more, spend less.

In Mexico's case and for many other countries suffering structural adjustment, the effect of everyone exporting more drives prices down and makes servicing the debt even harder. Meanwhile, during the NAFTA negotiations, the International Monetary Fund and World Bank pressured the Mexican government to ease trade and investment barriers even further. As a result, foreign capital is increasingly coming in the form of speculative portfolio investment, or "hot money," which requires high interest rates that discourage productive investment.

In previous crises, Mexico saved scarce foreign exchange by using controls to exclude non-essential imports. But under NAFTA, this is no longer allowed, even during emergencies. The agreement also prohibits restrictions on foreign-exchange transactions without special permission. Finally, under NAFTA's "rules of origin" provisions, Mexico cannot impose requirements that could channel foreign investment into productive endeavors and away from speculation.

Myth #2: Increased Exports Will Lead to More Jobs

President Clinton boasted that NAFTA had created some 340,000 US. jobs. But the President's claim is based on an erroneous formula that asserts that every $1 billion in new exports creates another 15,000 to 20,000 jobs. The formula is flawed, in part because it considers only exports and doesn't subtract jobs lost when the United States imports goods that used to be produced here. Although US. exports to Mexico have grown some since NAFTA went into effect, the Administration's own numbers show that imports from Mexico have gone through the roof, a U.S. trade surplus of $1.7 billion in 1993 spiraled downward into a deficit of S 1 5.4 billion by 1995. Hence, by the Administration's formula, many more U.S. jobs have been destroyed by NAFTA than have been created.

The Administration admits that 75,000 U. S. workers have been thrown out on the street as a result of the free-trade agreement. These figures are from the NAFTA Transitional Adjustment Assistance program, which provides retraining and other aid to US. workers who lose their jobs as a result of a shift in production to Mexico or Canada, or of increased imports from those nations.

The surge in Mexican exports to the United States should, in theory, have created many new jobs in Mexico. Indeed, Mexico's plummeting peso has drastically lowered labor costs for global companies operating there, and several hundred thousand new maquiladora jobs have been spawned on the border. However, this increase has been dwarfed by the 1.4 million to 2 million jobs that vanished during NAFTA's first two years, as record numbers of small and medium-sized businesses lost the battle with high interest rates and filed for bankruptcy. NAFTA proponents had claimed that the agreement would so improve the Mexican economy that pressures to migrate to the United States would greatly subside. In fact, displaced workers and peasants swelled the number of Mexicans apprehended in attempted border crossings by a dramatic 43 percent from 1994 to 1995.

And there is an even deeper flaw in the NAFTA jobs argument. Even if a country does have a trade surplus, it is faulty to assume that corporations always use profits generated by exports to create new jobs. Many successful exporting companies have instead chosen to use these profits to finance mergers or invest in labor-saving machinery, which can lead to job cuts. Firms like Zenith, Xerox, Caterpillar and Allied Signal are major exporters from the United States, yet all of them have eliminated thousands of US. jobs. A study of Illinois's top export industries showed they were laying off workers at a higher rate than other industries.

In Canada, an equally alarming job hemorrhage dates back to the Canada-U.S. Free Trade Agreement, which was signed in 1988. Between 1988 and 1994, Canada lost 17 percent of its manufacturing jobs, and unemployment rose from 7.5 percent in 1989 to just under 10 percent in 1995. A study by the Canadian Centre for Policy Alternatives shows that companies that lobbied hard for the free-trade pacts have been the biggest job slashers. Thirty-seven firms belonging to a pro-NAFTA business association have cut more than 215,000 jobs since 1988.

Myth #3: Increases in Productivity Will Be Spread to Workers

In lobbying for the free-trade agreement, the corporate group USA*NAFTA claimed that "NAFTA itself will improve working conditions by generating economic growth, which will enable all three countries to provide more jobs with higher pay in a better working environment" [see Charles Lewis and Margaret Ebrahim, "Can Mexico and Big Business USA Buy NAFTA?" June 14, 1993]. To the contrary, NAFTA has given corporations increased power to drive down wages and working conditions.

The most direct method is through "whipsaw bargaining," or threatening to shift production to Mexico unless workers agree to concessions. Xerox used this technique effectively in Webster, New York, where workers agreed to reduce the base pay rate by 50 percent for new employees and cut workers' compensation in exchange for job guarantees through the year 2001. The Webster workers had reason to take the company's relocation threats seriously, since Xerox had recently moved jobs south of the border from plants in Illinois and Massachusetts.

Another common corporate tactic is to use the argument that increased international competition under NAFTA requires greater "flexibility" through hiring more workers on a part-time or temporary basis. Corporate-backed lawmakers are using the same argument to push antiworker legislation, such as the efforts to strip away the government's power to enforce health and safety regulations; outlaw union shops and unions' use of corporate campaigns; legalize company unions; and abolish overtime pay.

Thus, while corporations experience productivity growth, workers are not sharing in the benefits. in all three NAFTA countries, increases in real wages are lagging far behind increases in productivity. In Mexico, real wages as of May 1996 were 35 percent below their pre-1994-crisis levels. In Canada, as in the United States, real wages are stagnating and the proportion of full-time workers living in poverty continues to grow.

In response to NAFTA's critics, the Clinton Administration negotiated a labor side agreement, but it contains a narrow definition of worker rights and is weighted down with an enormously complex, time-consuming and bureaucratic dispute resolution mechanism. Not surprisingly, to date, complaints about violations of worker rights have been filed at only four plants (three in Mexico and one in the United States). Not a single worker involved in these complaints has benefited so far from the process. However, through tremendous persistence, unions and other groups have been able to use the agreement to draw more attention to the general problem of worker rights violations.

Myth #4: Increased International Competitiveness Will Benefit All

"We must be internationally competitive." This is the mantra now parroted by heads of state throughout the world, including Clinton, Ernesto Zedillo in Mexico and Jean Children in Canada. The benefits of such enhanced competitiveness, however, have turned out more often than not to be a mirage, as the evidence presented above indicates. But the tragedy of NAFTA and free trade runs deeper than lost jobs and falling wages. A key element of the drive for international competitiveness has been an assault on government.

Nation readers are familiar with the attack on social programs and federal regulations in the United States. In Canada, cuts in unemployment insurance reduced the number of unemployed Canadians who qualify for benefits from 87 percent in 1989 to 49 percent in 1994; this will fall to 33 percent when the latest round of cuts is fully implemented.

In Mexico, NAFTA has worsened conditions engendered by twelve previous years of austerity. These measures have been particularly devastating for rural Mexicans. A requirement for entry into the agreement was the removal of subsidies for family farmers, who also face drastic cuts in available credit and public services in areas such as veterinary medicine, agricultural extension and public health. In December 1995, Mexico's Institute of Social Security, which oversees health care and social security for salaried workers, was shifted from public to private administration and funding.

Myth #5: Growth From Free Trade Will Help Clean Up the Environment

NAFTA supporters promised that the trade agreement would mean increased investment in environmental cleanup and a decline in the concentration of maquiladoras along the already heavily polluted U.S.-Mexico border. But as Public Citizen has documented, the increase in industrial activity in the border zone has not been met by any appreciable improvement in the disposal of industrial wastes or expansion of health care facilities. Many communities still lack access to both water and sewage systems. Today, only 10 percent of Mexico's yearly output of 7 million tons of hazardous waste receives adequate treatment, with the rest poured into clandestine waste dumps or municipal sewers.

Nor are NAFTA's environmental threats confined to the U.S.-Mexico border. Standards established through the struggles of environmental groups throughout each of the countries can now be challenged as "nontariff trade barriers." Groups trying to protect these standards will have to justify them according to the principles of "risk assessment"--the notion that health risks incurred because of lower standards must be great enough to justify the cost of restrictions on trade. Rather than the highest possible standards for a healthy environment, risk assessment leads to standards that pose the lowest restrictions on businesses.

As with labor, the Clinton Administration used the handy device of a side agreement to gain support of some environmental groups during the NAFTA fight. A number of them--dubbed "the shameful seven"--acquiesced. Yet the institutions set up under NAFTA have made little progress in addressing environmental concerns. The North American Development Bank has yet to fund a single cleanup project. Widely perceived as ineffectual, the North American Commission for Environmental Cooperation was supposed to insure high levels of environmental protection and foster public discussion. Yet the C.E.C. has received only four petitions, three of which it has rejected. It has also been asked to investigate the mysterious mass death of birds in a reservoir in Guanajuato, Mexico.

NAFTA has not, however, been a total failure. Its most salutary effect was to catalyze new coalitions that crossed borders and political party lines, and embraced constituencies as diverse as workers, farmers, environmentalists, consumers and religious groups. Unfortunately, one would scarcely know this from press accounts. With its blinkered focus on officialdom, the press gave credence only to critics on the fight. Hence, coverage of NAFTA opposition focused on Pat Buchanan, who, although correctly critiquing the agreement, presented a racist, "America First" solution that called for sealing US. borders to goods, capital and people from other countries.

The progressive opposition to NAFTA, on the other hand, has rejected the process, politics and policies of the pro-NAFTA forces. Opponents attacked the process because NAFTA was negotiated secretly, without a hearing from ordinary citizens; opponents advocated a transparent process that would bring all parties to the table. They condemned the politics because NAFTA's passage revealed how legislators' votes are often sold to the highest bidder in a system corrupted by corporate money. And on the policy level, they rejected the deregulatory framework of NAFTA and the new protections for corporations.

The main progressive citizen networks in the NAFTA countries proposed alternative policies that would protect worker rights, advance environmental standards and food security, and promote sustainable energy and agriculture. This approach was summed up in a document titled "A Just and Sustainable Trade and Development Initiative for the Western Hemisphere" by the key networks in all three countries that fought NAFTA.

These groups continue to fight for better economic alternatives. The Action Canada Network, which includes a broad array of social forces from the Canadian Labor Congress to cultural and indigenous movements, has helped forge an "Alternative Federal Budget" aimed at creating jobs through public investment and halting the dismantling of social programs.

In the United States, the Alliance for Responsible Trade, the Citizens Trade Campaign and many other groups from the economic and environmental justice movements continue to monitor NAFTA's impact and promote bi- and tri-national alternatives.

In Mexico, a similar array of citizen groups, represented by the Mexican Action Network on Free Trade, has worked with others to draft a twelve-point "Liberty Referendum," which outlines a national alternative to the government's neoliberal policies. At polling places around the country, half a million Mexicans signed their approval by November 1995.

NAFTA has unleashed a major war in all three countries over our economic future. While the pro-NAFTA forces won the opening battle, evidence continues to build that the agreement is not in the interest of the vast majority of people in any of the three countries. And in their silence over trade issues, candidates Clinton and Dole are acknowledging that they face even more difficult battles in new arenas: the trade deficit with China, NAFTA expansion to other countries and proposals to enhance the powers of the World Trade Organization.

Sarahanderson is a fellow at and John Cavanagh co-director of the Institute for Policy Studies. David Ranney is a professor of urban planning at the University of Illinois, Chicago. The three are editors of "NAFTA's First Two Years: The Myths and the Realities " (I.P.S.). This article also draws from "NAFTA: At the Centre of the Crisis" by the Mexican Action Network on Free Trade and "Challenging `Free Trade' in Canada: The Real Story" by the action Canada Network.
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Title Annotation:North American Free Trade Agreement of 1994
Author:Anderson, Sarah; Cavanagh, John; Ranney, David
Publication:The Nation
Article Type:Cover Story
Date:Jul 15, 1996
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