How did the US benefit from NAFTA

The North American Free Trade Area NAFTA

Interview with a trade unionist from the USA

Photo: BorderExplorer / Flicr

Solid economic growth and countless new jobs - this is how the governments are promoting the transatlantic free trade agreement TTIP. When the North American Free Trade Agreement NAFTA between Mexico, Canada and the USA was negotiated before 1994, the same promises were made.

We asked Celeste Drake, trade expert in the American trade union federation AFL-CIO, which promises and fears have become reality in 20 years of NAFTA.

"We knew these promises were wrong"

At the beginning of the 1990s, the North American free trade agreement NAFTA was discussed in the USA. What were the hopes and promises of the supporters of the agreement?
The supporters promised 200,000 new jobs through NAFTA - some even spoke of 200,000 jobs per year because they misinterpreted the forecasts or deliberately misrepresented them. They also promised that the side agreements on environment and labor would raise standards for workers in Mexico and prevent pollution. And they promised that a strong middle class would finally grow in Mexico and that migration from Mexico to the US would stop. NAFTA was sold to us as the North American answer to the EU. The three countries Mexico, Canada and the USA would merge and thus become economically stronger and more competitive against Europe and the rising China.

The trade unions and consumer protection organizations in the USA fought NAFTA at the time. Why?
We knew these promises were wrong. We feared that the investment protection, in particular the investor-state dispute settlement mechanisms, would enable corporations to have even more influence on the economy and encourage the manufacturing sector to relocate jobs to Mexico and thus lower wages in the USA. The side agreements about work were far too weak to noticeably improve conditions for workers in Mexico. We feared negative effects on the environment and the safety of imports for consumers. We were concerned about the weak rules about product origins that would allow countries outside of NAFTA to benefit from them. And we were against regulations that weaken “Buy American” programs.

We knew what multinational corporations were saying behind closed doors - that NAFTA was not about increasing US exports to Mexico, it was about moving manufacturing to Mexico and then reimporting the products from Mexico to the US. We understood that the threat that production could be relocated to other countries would be used to weaken the bargaining power of workers in all three countries.

When you look back at the time before NAFTA, what has really changed?
Not only have all of our predictions about the negative consequences of the agreement come true. I think today that the negative consequences go beyond what we feared back then. The unions have become weaker in all three countries. Social inequality has increased in all three countries. Several million Mexican farmers gave up farming because they had no chance against subsidized US agricultural exports. Many of them emigrated to the USA, where they do not have a residence permit. The companies in which they find work take advantage of their fear of deportation. You pay them less than the minimum wage and break the welfare laws. This also reduces wages and the quality of jobs for other employees.

We cannot blame all of these negative developments solely on NAFTA, but NAFTA has done a great deal to solidify the neoliberal economic model in the USA. It was also a framework for further trade agreements. The influence of large corporations on the economy grew. NAFTA has encouraged deregulation and tax reforms at the national level in favor of corporations and the super-rich.

The ISDS mechanisms were used exactly as we suggested: to attack laws, administrative acts and court judgments that were neither discriminatory nor dispossessed of anyone. They have been used so extensively that Canada, Mexico, and the United States are all three of the top 10 most sued states today. For example, Mexico lost a case in which a Mexican municipality refused to give a US company a permit to dispose of hazardous waste in an environmentally sensitive area.

Was NAFTA a sudden shock or a process over a long period of time?
A process over a long period of time. For example, tariffs have slowly decreased over a transitional period. Actually, this process is still going on. For example, Mexico and the United States have not yet reached an agreement on whether large trucks and truck drivers from Mexico will be allowed on the roads in the United States.

"NAFTA has failed at job creation"

Has NAFTA also had positive effects or at least fulfilled some of the promises made by its proponents?
NAFTA has had exactly two positive effects. One is that trade between the three countries has increased. All those who defend NAFTA use these statistics. From our point of view, these numbers are meaningless. Increasing trade is not a value in itself. It is only good if it contributes to general prosperity and enables workers to have a better life. If you measure it by that, NAFTA has failed. Wages are stagnating in all three countries - in Mexico the minimum wage has even lost purchasing power compared to before NAFTA.

And the second positive effect?
The second positive effect is that the cooperation of the trade unions from Mexico, the USA and Canada has become much more intensive. We have strengthened our relationships across borders because we are fighting the negative effects of NAFTA together.

Has NAFTA created jobs?
NAFTA has also failed in job creation. The Economic Policy Institute estimates that nearly 700,000 jobs have been relocated from the US to Mexico. The US has developed a permanent trade deficit with Mexico that did not exist before NAFTA.

Have consumer prices for imports from Mexico decreased?
It's really hard to measure. But if imports from Mexico really got cheaper, then that effect would be marginal compared to the many other factors influencing consumer prices in the US. We assume, however, that most of the “savings” that resulted from the relocation of production to Mexico were retained by the companies and not passed on to the consumers. Meanwhile, prices for education, health and housing have risen significantly faster than the average inflation rate and tore holes in the household budget.

Above all, however, it is workers who have lost their jobs because of NAFTA, regardless of whether, for example, socks or strawberries from Mexico have become cheaper. The social network in the USA doesn't catch much. For many families, losing their job can mean financial ruin and the loss of their own four walls.

So has NAFTA failed completely or are there groups that have benefited from the deal?
There are, of course, groups who have benefited from the agreement. Global corporations - but also a few smaller companies - and their employees who had new opportunities that they would not have had without NAFTA. But if you look at the whole economy, the profits are concentrated with those who are already doing well. Large corporations have the lion's share of the profits from the deal, while the negative effects are spread across the middle and working class. NAFTA has not brought us the boom that was promised.

Global corporations could use TTIP to tear down the European social model

The trade unions in the USA are now also dealing with the trans-Pacific free trade agreement TPP and the free trade agreement with Europe, TTIP. Why are you concerned when you look at the TPP negotiations?
TPP carries many risks. The deal is so big (about a third of world trade is in the Pacific) that bad rules will have a far greater effect than a small deal like NAFTA. In particular, the US will receive investor lawsuits from Japan and Australia, which are the largest economic powers in the TPP.

In addition, there are countries such as Mexico, Vietnam, Brunei and Malaysia, where there are serious problems with human rights: forced labor, child labor, the lack of religious freedom and discrimination on the basis of gender, sexual orientation and origin. They also have major deficits in workers' rights, freedom of organization and collective bargaining. In Vietnam, for example, the last two rights simply don't exist. Increasing trade with countries that do not respect human and workers' rights is the best recipe for a downward spiral in wages, working conditions and employee participation - unless clear, concrete and quickly enforceable standards are created that correct these mistakes the whole TPP region.

This trade model will not be enough to build up a middle class in the poorer countries, but to fix it in the current development. This is especially true if, with the help of ISDS, social security and legislation and regulation can be attacked in the interests of the common good. ISDS provides corporations with a tool they can use to prevent these countries from developing a modern, regulated economy in which workers and consumers are protected.

We are also concerned about negative effects on the environment, climate, food safety, privacy, drug prices, public procurement, public services and consumer protection if TPP continues the path it has taken.

And what do you worry about when you look at the TTIP negotiations?
At TTIP we are less concerned about losing jobs to less regulated companies in Europe. But we worry that global corporations are using TTIP to tear down the European social model. In other words: to bring Europe's regulatory regime closer to that of the US.

Stopping new neoliberal trade deals is the first step

If you look to the future, we believe we can stop this new generation of free trade agreements. Do you think there is a chance to change NAFTA?
Michael Froman (the US representative on trade issues) has described the TPP as a renegotiation of NAFTA. If that is true, then it is not a renegotiation in the right direction.

I think the first step is to always stop new neoliberal trade deals. We are thus showing that civil society can prevent corporations from building up global supremacy. After we stop this movement in the wrong direction, it becomes difficult and tedious to change the direction of the global economy. But we have to do this in the interests of all workers around the world. Difficult does not mean impossible, however. Every journey begins with a first step.

If at the end of this journey you could create a world trade regime the way you want it to be. What would it look like?
A progressive international trade regime would have strict rules ensuring that all workers can effectively exercise their fundamental rights. It would contain rules that promote the protection of the environment and the economical use of resources and it would force states to combat climate change. It would also contain rules that address international tax evasion and tax havens, and encourage growth through higher wages.

Instead of creating methods with which corporations can attack state regulation, it would create structures in which states cooperate in regulation in the interests of the common good. It would promote the development of poorer countries and create jobs by preventing states from undercutting wages and regulations, rather than condemning them to it. It would contain technical and financial assistance to countries that want to establish the rule of law and modern regulatory regimes, and encourage states to publicly invest in infrastructure and education.

Thank you for taking the time to answer these questions.
You're welcome. Those who are still interested in NAFTA can take a look at our publication on the 20th anniversary of the NAFTA treaty.


Translation from English: Karl Bär