NAFTA's a Disaster, So Why Expand It?

'Free trade' has hurt workers but corporations seek to expand south

Free trade advocates say they want to extend the benefits of the North American Free Trade Agreement to the rest of the hemisphere, but critics say the past seven years with NAFTA shows a pattern of stagnant worker incomes, lost job opportunities, increased insecurity, and rising inequality in the United States, Mexico and Canada.

"NAFTA's main outcome has been to strengthen the clout and bargaining power of multinational corporations, to limit the scope of governments to regulate in the public interest and to force workers into more direct competition with each other -- reinforcing the downward pressure on their living standards, while assuring them fewer rights and protections," noted the AFL-CIO Executive Council, one of the main critics of NAFTA and its proposed successor, the Free Trade Agreement of the Americas.

New reports on NAFTA's impact on jobs and the erosion of workers' rights are not encouraging for FTAA prospects.

"NAFTA at Seven," a report from the Economic Policy Institute (available at, warns that other countries are susceptible to the ill effects already experienced by NAFTA countries.

In the United States, NAFTA eliminated over 766,000 job opportunities between 1994 and 2000, as the trade deficit between the US and its northern and southern neighbors ballooned, according to Robert Scott, author of the US section of the report.

In Mexico, large trade surpluses with the United States have not been enough to overcome even larger trade deficits with the rest of the world. Wages and incomes in Mexico fell between 1991 and 1998. With NAFTA, inequality has grown and job quality has deteriorated for most workers, according to Mexican author Carlos Salas.

In Canada, exports now account for 40% of gross domestic product. Still, overall growth during the 1990s was worse than in any other decade since the 1930s, and productivity growth has not led to growth in wages, according to Canadian author Bruce Campbell.

Key findings from the study for the United States include:

* Since NAFTA took effect on Jan. 1, 1994, exports to Mexico have grown by 147% and exports to Canada have grown by 66%. But imports from Mexico have grown much faster, by 248%; and imports from Canada have grown 79%.

* As a result, the net export deficit between the US and its neighbors has grown from $16.6 billion in 1993 to $62.8 billion in 2000 in real terms.

* This growing trade deficit has led to the loss of 766,030 jobs in the United States since NAFTA's implementation. These job losses are spread across all 50 states and the District of Columbia, with the biggest losses &endash; where more than 20,000 job opportunities were eliminated per state &endash; in California, Michigan, New York, Texas, Ohio, Illinois, Pennsylvania, North Carolina, Indiana, Florida, Tennessee, and Georgia.

* By reducing the prices of import-competing products, the growing US trade deficit, and the new rules of the NAFTA agreement, have put downward pressure on the wages of non-college-educated workers in this country, who account for 72.7% of the workforce.

* This has happened for at least three reasons. First, displaced manufacturing workers have sought jobs in the service sector, where the average wage is 77% of the average manufacturing wage. Second, this movement from manufacturing to the service sector has increased the labor supply there, further depressing wages. And finally, employers have used their new freedom to move across borders as a tool in collective bargaining, by threatening to close plants.

Key findings from the study for Mexico include:

* Between 1995 and 1999, manufacturing exports improved rapidly, growing at an annual rate of 16%, due almost exclusively to maquiladora factories, factories built near the border for the purpose of manufacturing exports to the US.

* Maquiladora employment grew rapidly over the last two-and-a-half decades, from 60,000 jobs in 1975 to 420,000 in 1990 to 1.3 million in 2000. Maquiladora factories remained largely unaffected by the recession of the mid '90s, given their limited dependence on the Mexican economy. Though these factories have thrived under NAFTA, they have contributed little to Mexico's development and internal markets. Wages, benefits, and workers' rights are deliberately suppressed in maquiladoras.

* The growth in manufacturing imports during this period outpaced exports, however, growing by 18.5%, which explains Mexico's rapidly growing overall trade deficit from 1995 to 1999, and which could lead to another major currency crisis like the collapse of the peso in 1995.

* NAFTA has not delivered many of its promised benefits to Mexican workers. By 1998, incomes of salaried workers had fallen by 25% since 1991, while incomes of the self-employed had fallen 40%.

* During the 1990s, the minimum wage in Mexico lost nearly 50% of its purchasing power. Manufacturing wages fell 21% between 1993 and 1999.

* Mexico has no social safety net, so deteriorating labor conditions are likely to be reflected in lower quality of jobs rather than the unemployment rate. The growing share of urban workers holding low-productivity, low-paying jobs reflects the Mexican economy's inability to create higher-quality jobs. The share of salaried employees among all workers decreased from 74% in 1991 to 61% in 1998.

Key findings from the study for Canada, where NAFTA was largely an extension of the 1989 Free Trade Agreement with the US, include:

* Exports now account for 40% of Canadian gross domestic product, up from 25% in 1989. And 85% of Canadian exports now flow to the US, up from 74% in 1989.

* Imports destroyed more jobs than exports created; the net destruction of jobs was 276,000. This happened despite an annual average trade surplus of $19.7 billion (Canadian) during the 1990s, far higher than the $9.4 billion (Canadian) average in the 1980s. It also happened despite growth in employment in export industries.

* In an effort to be more competitive under NAFTA, the Canadian government cut public spending from 16% to 11% of GDP, removed much of the social safety net &endash; so that the share of unemployed collecting unemployment insurance declined from 75% in 1990 to 36% in 2000, and cut corporate and high-end taxes; all after the Bank of Canada worked to raise unemployment.

* Average per capita income in Canada fell steadily in the first seven years of the 1990s, and only regained its 1989 levels in 1999. Growth performance was worse in the 1990s than in any decade since the 1930s. Unemployment averaged 9.6% for the decade, compared with a US average of 5.8%, and was also higher than any decade since the 1930s.

* By the end of the 1990s, manufacturing employment was still 6% below its level in 1989. Self-employment and part-time employment skyrocketed, accounting for 43% and 37% of new job creation, respectively. The absolute number of full-time jobs did not reach its 1989 level again until 1998.

* Income inequality expanded in Canada during the 1990s, as the top 20% of families saw their share of pre-tax incomes increase from 41.9% to 45.2% by 1998; the bottom 20% saw their share drop from 3.8% to 3.1%. After taxes and transfers, the distribution still favored the top 20%.

"The experience [with NAFTA] suggests that any wider free trade agreement ... that does not give as much priority to labor and social development as it gives to the protections of investors and financiers is not viable," writes Jeff Faux, EPI's president, in the report's introduction. "Rather than attempting to spread a deeply flawed agreement to all of the Americas, the leaders of the nations of North America need to return to the drawing board and design a model of economic integration that works for the continent's working people."

Workers have not just suffered economically from the economic dislocations of NAFTA. Human Rights Watch recently reported that Mexico, the United States, and Canada have ignored labor rights obligations specified under the trade agreement.

"The NAFTA experience is an important lesson for any future trade agreements," said José Miguel Vivanco, executive director of the Americas division of Human Rights Watch. He added, "In the case of NAFTA, these three countries have actually worked to minimize the impact of the labor provisions."

The 64-page report, "Trading Away Rights: The Unfulfilled Promise of NAFTA's Labor Side Agreement" (available at analyzes 23 complaints filed under the accord since it came into force in 1994. The complaints alleged systematic violations in all three countries -- 14 in Mexico, seven in the US, and two in Canada. Companies named as violators include General Electric, Honeywell, Sony, General Motors, McDonald's, Sprint, and the Washington State apple industry.

The NAFTA labor provisions, known as the North American Agreement on Labor Cooperation (NAALC), cover 11 ambitious "labor principles" that are supposed to guarantee freedom of association and minimum wage and prohibit discrimination. Complaints filed under the NAALC so far have cited favoritism toward employer-controlled unions; firings for workers' organizing efforts; denial of collective bargaining rights; forced pregnancy testing; mistreatment of migrant workers; life-threatening health and safety conditions; and other violations. Human Rights Watch reported that not one of the 23 complaints filed under NAALC had so far resulted in sanctions against an alleged labor rights violator.

Human Rights Watch urged that labor rights protections should be recognized as an integral part of any trade agreement, rather than being relegated to a side accord, as it is with NAFTA.

George W. Bush at the Quebec City summit on April 21 said he would promote "a strong commitment to protecting our environment and improving labor standards" during FTAA negotiations. But later he seemed to confirm the fears of critics when he told reporters he would insist that trade accords include no "codicils to destroy the spirit of free trade ... While I understand that some unionists are interested in making sure there's labor protections, I don't want those labor protections to be used to destroy the free trade agreement."

(From staff and wire reports)

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