Nafta Case Study

NAFTA Five Years of Failure By: Jeff Dotson In December of 1992, Presidents Salinas (Mexico), Bush (U.S.) and Prime Minister Brian Mulroney of Canada signed the North American Free Trade Agreement (NAFTA). The Mexican legislature ratified NAFTA in 1993 and the treaty went into effect on January 1, 1994, creating the largest free-trade zone in the world. NAFTA's promoters promised 200,000 new jobs per year for the U.S., higher wages in Mexico and a growing U.S. trade surplus with Mexico, environmental clean-up and improved health along the border. The reality of the post-NAFTA surge in imports from Mexico has resulted in an $14.7 billion trade deficit with Mexico for 1998. By adding the Mexican trade deficit to the deficit with Canada, the overall U.S. NAFTA trade deficit for the year 1998 is $33.2 billion dollars. In the last five years we have gone from a pre-NAFTA trade surplus of $4.6 billion with Mexico to a $14.7 billion deficit. Using the Department of Commerce trade data in the formula used by NAFTA proponents to predict job gains, the real accumulated NAFTA trade deficit would translate into over four hundred thousand U.S. jobs lost. A number of companies that specifically promised to create new jobs actually laid workers off because of the agreement. Allied Signal, General Electric, Mattel, Proctor and Gamble, Scott Paper and Zenith all made specific promises to create jobs, and all have laid workers off because of NAFTA as certified by the U.S. Department of Labor's special NAFTA unemployment assistance program (NAFTA TAA). (1) These are not the only companies who broke their promise of new jobs. In February 1997, Public Citizen's Global Trade Watch conducted an investigation of companies that had specifically promised that they would create jobs if NAFTA were enacted in 1993. Of the 67 companies studied, 60 had not created jobs or even increased their exports to Mexico. When we look at the goods exported from the U.S. to Mexico, we must understand that the figures used do not mean goods to be sold in Mexico. Most of the figures released by the government include what is termed as "industrial tourism". This means we send goods to Mexico to be assembled in their low wage plants and then re-imported into the U.S. as finished products. (2) A significant portion of the jobs lost to Mexico due to NAFTA are in the higher wage sectors of manufacturing. Many of these are in the automobile and electronics industries. The latest government data shows that 70% of the jobs lost were in manufacturing. The U.S. has gone from a pre-NAFTA manufacturing trade surplus of $4.6 billion with Mexico in 1993 to a $8.9 billion deficit in 1998. Imports from Mexico have increased 129% since NAFTA went in to effect. (3) According to the U.S. Department of Labor, approximately 214,902 American workers have been certified as having been laid off due to NAFTA. These numbers do not take into account the workers displaced out side of the factories. When a plant closes and moves to Mexico it is not only the line worked who is affected but also the entire community. One must look at the retailers who have to layoff works due to decreased sales; restaurants and all service industries tied to the consumer are affected. These workers are not considered by the government as being displaced by NAFTA. The wages paid in the new high tech plants being built in Mexico, are so low there is not a single U.S. worker who could take enough of a pay adjustment to compete. The average hourly compensation for a U.S. manufacturing job is approximately $18.74/hour,) and the average wage in Mexico is $1.51 per hour. (4) NAFTA is directly responsible for the wage stagnation being experienced in the U.S., this is largely due o the threat of closing the business and moving to Mexico every time workers try to organize and negotiate a wage increase. Kate Bronfrenbrenner of the Cornell University School of Industrial Relations found that the percentage of U.S. companies following through on threats to close in response to union drive tripled under NAFTA. NAFTA was supposed to raise the standards of living in Mexico so that the Mexican citizens would be able to buy U.S. goods and stem the flow of illegal immigration into the U.S. Unfortunately since NAFTA's enactment; 7,771,607 Mexican workers in 1997 were documented as earning less than Mexico's legal minimum wage of $3.40 a day, a 20% increase from pre-NAFTA figures taken in 1993. By 1997 Mexico's working class was earning 40% less than they were in 1994. (5) Manufacturing jobs are not the only jobs lost to NAFTA, the American farmer has suffered greatly under the program. American exports to Canada and Mexico have risen 35%, but net farm incomes have remained the same. In fact, 45% of small and medium farms in the U.S. have had dramatic decreases in income. American farmers are finding it difficult to compete with the cheap labor cost across the Mexican border.