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!