A Bad Idea That Failed
By John Cavanagh and Sarah Anderson
NAFTA offers a rocky road map for the Americas. More than eight years of monitoring reveal that, yes, the accord has boosted investment and trade, just as the negotiators promised. And yes, increased international competition may have helped fuel the dramatic rise in labor productivity rates during the 1990s, particularly in Mexico and the United States. But workers, communities, and the environment in all three countries have suffered from the agreement's flaws.
In Mexico, for example, 50 percent productivity growth didn't prevent an 11 percent slide in real manufacturing wages between 1994 and 2001, according to a Global Policy Network study by Mexican labor economist Carlos Salas. The U.S. government reports that even in nominal dollar-value terms, Mexican manufacturing wages were no higher in 2000 than in NAFTA's first year and considerably lower than in 1981, prior to Mexico's sweeping free market reforms.
Making ends meet in Mexico's rural areas is even tougher. NAFTA opened the floodgates to cheap U.S. corn imports, leading to an 18-fold increase between 1993 and 2000. The devastating impact on Mexican small farmers is reflected in the rising rural poverty rate, which climbed from 79 percent in 1994 to 82 percent in 1998, according to the World Bank.
Why have increased trade and investment failed to reduce poverty or raise wages? Part of the answer is that in a globalized marketplace, highly mobile employers have even more power to suppress workers who fight for their fair share of the benefits. And these firms often find allies among governments desperate for foreign investment. Just ask the mostly female workers at Duro Bag Manufacturing in Río Bravo, Mexico, a U.S.-owned plant that makes decorative bags for Hallmark. When these workers demonstrated peacefully in June 2000 for their right to form an independent union, local police swept in and beat them, reportedly sending one pregnant woman to the hospital. Later the Fox administration reneged on promises to allow a secret ballot in the union election, forcing terrified Duro workers to vote in front of management, with armed thugs allegedly hovering nearby.
In the United States, workers face globalization pressures of their own. Cornell University Prof. Kate Bronfenbrenner has documented how U.S. employers increasingly threaten to move their factories to Mexico and other low-wage countries in order to fight unions and restrain wages. Such "whipsaw bargaining" was a major factor in the meager level of U.S. real wage growth in the late 1990s, despite near-record low unemployment.
Unfortunately, the agency set up under the NAFTA labor side agreement has proved incapable of holding governments or corporations accountable for worker rights violations. More than 20 complaints have been filed regarding alleged violations in all three NAFTA countries, but in not a single case has the process yielded more than a bit of public exposure to the problem.
Residents on both sides of the U.S.-Mexico border also face rising environmental hazards related to the NAFTA-induced industrial development that has far outstripped investment in environmental infrastructure. Although NAFTA promoters theorized that trade-related economic growth would produce greater environmental spending, a forthcoming Tufts University study reveals that such expectations were pure fantasy. Despite steady growth in gross domestic product, Mexican government investment in environmental protection has declined in real terms by about 45 percent since 1994. Environmental funding from a trinational commission established under NAFTA has amounted to a paltry $3 million per year. Meanwhile, air pollution from Mexican manufacturing has nearly doubled.
When officials in any of the NAFTA countries attempt to tackle environmental problems through regulation, they face the threat of expensive lawsuits, thanks to NAFTA rules allowing foreign investors to sue governments directly over any act that might diminish the value of their investment. Following one such suit, the Mexican government was ordered to pay nearly $17 million to a California firm that was denied a permit from a municipality to operate a hazardous waste treatment facility in an environmentally sensitive location. Similar suits in Canada and the United States have stirred up rancor among state and local governments that have historically supported free trade agreements.
Of course, not everyone is worse off under NAFTA. According to a January 2002 International Monetary Fund working paper by Ana Corbacho and Gerd Schwartz, increased incomes at the top explain why inequality in Mexico was higher in 2000 than in any year since the mid-1980s. In Canada and the United States, the wealth gap has also widened.
Ten years ago, we cautioned NAFTA negotiators to heed the lessons of the European Union, where a "social protocol" combined with the channeling of resources into the poorer nations has helped level the playing field as economic integration advanced. Instead, the negotiators argued that free trade alone would lift all boats. We argued that strong controls were needed to ensure that trade and investment supported social goals, rather than the narrow interests of large corporations. Again, we were ignored. Today, trade officials continue to ignore these concerns, despite mounting opposition to NAFTA-style free trade across the hemisphere.