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December 31, 2003

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 1994.

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 tank.

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 quality.

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 authors wrote.

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 politics."

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."


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