December 31, 2003
10 YEARS AGO, NAFTA
by James Cox
NAFTA, the landmark deal that let goods and investment
flow freely among the USA, Canada and Mexico, turns
10 on Thursday. There won't be many birthday cheers.
The North American Free Trade Agreement is almost
as contentious today as the day it took effect in
Supporters see NAFTA as a much-maligned treaty that
set Mexico firmly on a path toward democratic reform,
open markets and a stable economy, while giving a
modest boost to the U.S. and Canadian economies.
Critics, including unions and social activists, consider
it a costly flop. They say it has led to a hemorrhage
of U.S. jobs and damaged Mexico's workers, economy
and environment. They've used NAFTA to launch an anti-globalization
movement that has battled expansion of free trade
around the world.
"You've seen a marriage of groups either economically
or ideologically opposed to trade, and NAFTA kicked
off that marriage," says Brink Lindsey, a trade
specialist at the Cato Institute, a pro-trade think
NAFTA backers and bashers alike have made herculean
efforts to quantify the impact of NAFTA on jobs, income,
living standards, growth, labor rights and environmental
The Bush administration says income gains and tax
cuts that resulted from NAFTA "are worth $ 930
each year" for the average U.S. household of
four. The accord also has been "improving lives
and reducing poverty in Mexico," it says.
The administration credits the world's largest free-trade
zone for many of the 20 million U.S. jobs created
from 1993 to 2000. Blame weak demand abroad and a
recession at home -- not NAFTA -- for the ballooning
U.S. trade deficit and three years of job losses in
manufacturing, the administration says.
NAFTA success claims are bogus, insists the Institute
for Policy Studies, an anti-globalization think thank.
Since the accord took effect, real wages for Mexican
manufacturing workers have dropped 13.5%, and more
than half a million U.S. workers have gone into government
retraining programs after their employers shifted
production south or north of the border, IPS says.
It blames the agreement for decimating Canadian social
programs and Mexican farmers.
The Carnegie Endowment for International Peace concluded
in a recent study that NAFTA has done little to slow
the flow of illegal Mexican immigrants to the USA
in search of work. In Mexico, job gains have been
minimal and disappointing; in the USA, NAFTA might
be responsible for "a very small net gain"
in jobs, the Carnegie study said. "NAFTA has
been neither the disaster its opponents predicted
nor the savior hailed by its supporters," the
Most efforts to measure NAFTA's effects are futile,
says William Gruben, vice president of the Federal
Reserve Bank of Dallas. Studies purporting to show
gains or losses from NAFTA use economic models that
can't isolate its effects from other factors, such
as downturns, policy changes, currency fluctuations
and industry cycles.
Increased trade is good, Gruben says, but seldom
good enough to end the debate. That's because all
trade agreements produce losers as well as winners,
and the losers "tend to be smaller, harder hit
and more vocal than groups that are helped."
Lindsey says NAFTA backers got trapped by foes' doomsday
rhetoric and made the mistake of claiming it would
"create jillions of U.S. jobs." The true
beneficiary all along was to be Mexico, stuck in poverty
and looking to draw more trade and investment from
its big, rich neighbors, he says.
Mexico "was a state-dominated, highly protected,
cronyfied, autocratic political system," Lindsey
says. "We needed to help our neighbor break free
from decades of stagnation, bad economics and bad
A World Bank study says Mexico has failed to build
on opportunities created by NAFTA. It is still plagued
by corruption, substandard schools, low research investment
and backward infrastructure, the bank said.
Foreign investment in Mexico quintupled from 1994
to 2001, says Tufts University economist Kevin Gallagher.
Unfortunately, he says, "It didn't translate
into growth" or jobs.
Opponents want a Democratic president -- particularly
Howard Dean or longtime NAFTA critic Richard Gephardt
-- to demand renegotiation of the accord. Even supporters
say NAFTA needs tinkering.
Renegotiation could be explosive with trade protectionism
on the rise in Congress and among the public.
That's not to say critics in Congress want to tear
up NAFTA. But they might not pass it again today if
they had the chance, says Greg Mastel, chief trade
adviser for Miller & Chevalier, a Washington law
firm. "I'd bet against it."