On January 1, 1994 the North American Free Trade Agreement took hold. The trade pact, known as NAFTA, lowered trade barriers and tariffs among the United States, Canada and Mexico with the promise that all three nations would reap the benefits of free trade. So have they? Is NAFTA a success? VOA’s Serena Parker finds the answers to these questions depend on who is doing the talking.
After a politically bruising fight in the U.S. Congress, the North American Free Trade Agreement was signed into law and went into effect on January 1, 1994. Free trade proponents argued that NAFTA, by lowering barriers to trade, would boost economic growth throughout North America. They said that Mexico - a developing economy - would benefit just as much as its industrialized neighbors to the north: the United States and Canada.
But opponents decried such claims. They insisted that American workers - especially those in high-skilled and highly paid manufacturing jobs - would lose out as U.S. companies moved production south to Mexico, where labor is abundant and cheap.
Ross Perot, a third party candidate who ran for president in 1992 against then incumbent George Bush and Democratic hopeful Bill Clinton, expressed those fears in a presidential debate: “You implement that NAFTA - the Mexican trade agreement - where they pay people a dollar an hour, have no health care, no retirement, no pollution controls, and you’re going to hear a giant sucking sound of jobs being pulled out of this country.”
“There’s no question that NAFTA did put some U.S. workers out of work. Trade does that. Technology does that,” says Dan Griswold, associate director of the Center for Trade Policy Studies at the Cato Institute, a libertarian research organization in Washington. He says that around half a million Americans have lost their jobs because of NAFTA.
“That’s about 40- or 50,000 a year, which is a drop in a bucket in a U.S. economy that is churning over millions of jobs every quarter. The giant sucking sound turned out to be a giant silence,” he says.
While half-a-million jobs lost over ten years may be a drop in the bucket, NAFTA’s impact has been especially hard on some cities, particularly those along the U.S.-Mexico border. Guillermo Glenn is a member of the Border Workers Association in El Paso, Texas, the largest city on the border. It has one of the highest U.S. unemployment rates at 11.4%, almost double the national average. Mr. Glenn says few cities have been as hard hit by NAFTA as El Paso.
“Since NAFTA we’ve lost over 29,000 jobs,” he says, “creating the largest number of NAFTA-displaced workers in the country. They city of El Paso estimates that each lost job costs $50,000 a year in lost wages and sales revenue, totaling over one billion dollars lost by NAFTA-displaced workers alone (in El Paso).”
While residents in El Paso struggle to find other work, the U.S. Labor Department reports a net gain of 15 million jobs in America over the past ten years. Meanwhile, the U.S. Chamber of Commerce, a trade association of American companies, says overall trade within NAFTA has doubled to over $600 billion. John Murphy, vice president for Western Hemisphere Affairs at the Chamber, says while a small percentage of Americans have suffered from NAFTA, many more have benefited.
“One of the clearest lessons we can draw from the NAFTA experience is just what a winner it has been for small business,” he says. “Often people claim that free trade agreements are principally for the benefit of multinational corporations. In fact, multinationals can typically find a way to do business anywhere in the world by creating a local affiliate, hiring local lawyers to represent them, and basically finding a way to operate despite difficulties in the local business environment or high trade barriers.”
John Murphy says small businesses face a very different scenario. They don’t have the luxury of opening up overseas operations. “What they need is for those barriers to exports to come down,” he says, “and that’s precisely what NAFTA did, and why the number of small companies in the United States that export has risen over the past decade from just over 100,000 companies to over 230,000 companies. That’s been a tremendous success. NAFTA is a very big part of it.”
Others question the impact NAFTA has had on the American economy. “In the last ten years the American economy has changed in very dramatic ways but I think that very little of that can be related to NAFTA,” says Sandra Polaski, senior associate at the Carnegie Endowment for International Peace, where she works on trade, development and labor market policy issues.
She says advances in technology play a bigger role in the growing U.S. economy than do free trade pacts like NAFTA. The real impact has been on smaller, neighboring Mexico, which is altogether dependent on the American economy: “In Mexico, which is an economy that has what labor economists call surplus labor, in other words, there are workers who want to work who can’t find enough work or can’t find good jobs you would have expected that under NAFTA that there would be very strong employment growth. And unfortunately the job picture in Mexico has been very disappointing.”
Sandra Polaski says some jobs have been created in the maquiladoras, the Mexican assembly plants that manufacture finished goods for export to the United States. But overall Mexico has suffered a slight loss in manufacturing jobs since NAFTA was established.
“And the biggest story in Mexico is in the agricultural sector,” she says, “where a long-term trend of declining jobs in agriculture has really accelerated. So about 1.3 million agricultural jobs have been lost in the last decade. You can’t say that every one of those jobs lost was because of NAFTA, nobody can establish exactly what the cause was and a precise percentage. But clearly the opening of Mexican markets to U.S. agricultural crops, including subsidized agricultural crops, has had a very negative effect on the rural sectors in Mexico.”
As NAFTA celebrates its 10 years, the United States continues free trade negotiations with other countries and regions. In 2004, the U.S. Congress will begin debate on the proposed U.S. Central American Free Trade Agreement, or CAFTA.
Sandra Polaski says NAFTA and CAFTA are structured to favor the United States at the expense of developing countries. While trade barriers for industrial goods and services, in which the U.S. holds a comparative advantage, are lowered, barriers to farm goods, in which developing countries hold the advantage, remain exceedingly high.
But Dan Griswold at the Cato Institute argues that Mexico has been a winner under NAFTA. By encouraging Mexico to reform, modernize and liberalize its economy, NAFTA has turned Mexico into one of the most stable and dynamic economies in Latin America.
“I think it has benefited the U.S. economy, but most importantly it has been a benefit for Mexico,” he says. “It helped Mexico bounce back from its peso crisis in 1995. It has helped create more political competition in Mexico. I don’t think it’s a coincidence that within seven years after the passage of NAFTA Mexico elected its first opposition party candidate Vicente Fox to the presidency after seventy-one years of basic one-party rule by the P.R.I. So NAFTA has created a more modern, competitive, open and democratic Mexico and that is profoundly in America’s interest.”
Dan Griswold says Americans need to be realistic: NAFTA was never going to have a huge impact on the U.S. economy. Instead, it has had a modest and positive impact. So does that make NAFTA a success? As with all things - it depends on whom you talk to.