Down The Shafta With Nafta Essay, Research Paper

Down the SHAFTA with NAFTA

Introduction

The North American Free Trade Agreement (NAFTA) is a regional trade pact that calls for the elimination of all tariffs and trade barriers existing among Canada, Mexico, and the United States of America (”North Agreement” 420). Some tariffs disappeared immediately when NAFTA took effect, while others will eliminate over a 15-year period. The pact also includes bilateral provisions intended to resolve sensitive issues between the partners.

Supporters maintain that this regional integration venture would lead to benefits for North America much like those that accrued to the members of the European Community, because it would create a single market of 370 million people producing and consuming goods and services. For Canada, NAFTA extends the 1989 Canadian-American Free Trade Agreement and promises additional benefits for consumers, manufacturers, and the agricultural sector. For Mexico, the agreement establishes an agenda for continued progress and further economic reforms. For the United States, NAFTA is more ambiguous, since it pits businesses against labor unions and skilled professionals against unskilled factory workers concerned about losing jobs to Mexican laborers if US companies decide to move south. NAFTA opponents cite this potential loss of American jobs and the lack of adequate environmental protections as sufficient cause to reject the agreement.

In response to these objections, US President Bill Clinton concluded several side-agreements to protect the environment and to prevent unfair competition from Mexican low-wage earners. The three countries ratified the pact in 1993, and it went into effect January 1, 1994.

Five years after its introduction, the North American Free Trade Agreement fails to produce its promised benefits. Even its boosters have been forced to acknowledge that prosperity, jobs, and environmental cleanup have not materialized. These unfulfilled promises have crippled the North American Free Trade Agreement; enough so, many are calling NAFTA a failure.

Counter-Argument

The North American Free Trade Agreement calls for several benefits in key service sectors. Expanded trade in financial services is one example. Due to NAFTA, Mexico has opened its financial services markets to US and Canadian banks and securities firms, which allows these new participants to establish wholly owned subsidiaries and engage in the same range of operations as similar Mexican firms (North American Perspectives 24). Because transitional restrictions will be phased out by January 1, 2000, Mexico s ability to place future constraints on foreign-owned firms will be limited. Other financial services, including leasing and consumer finance, have already established operations in Mexico and are not subject to any limitations. In addition, Mexicans and Canadians are guaranteed the right to purchase financial services from firms in the United States.

Another long-term benefit from NAFTA is the new opportunities for insurance. NAFTA eliminates restrictions on US ownership and provision of services in the $3.5 billion Mexican Insurance Market (27).

US and Canadian firms with existing joint ventures were permitted to obtain 100 percent ownership by 1996; new entrants to the market could have obtained a majority stake in Mexican firms by 1998 and 100 percent ownership by the year 2000 (27). New entrants may start their wholly owned firms in Mexico immediately, subject to certain size limitations in effect until January 1, 2000 (27). US insurance companies may sell cargo insurance, and reinsurance on a cross-border basis in Mexico. They may also sell life, health, and travel insurance to Mexican residents who come to the United States.

NAFTA also opens Mexico s market for international truck, bus, and rail transport. It also locks in US access to Canada s already open transportation market. Currently, over 90 percent of US trade with Mexico is shipped by land (28).

NAFTA also provides US and Canadian charter and tour bus operators full and immediate access to the cross-border market. Regular bus route companies gained full cross-border access in 1996 (30). US and Canadian trucking and bus companies gained the right to set up international cargo subsidiaries or new companies in Mexico, as well as acquired minority ownership in 1995, majority ownership by 2000, and 100 percent ownership in 2003 (30).

NAFTA has also permanently opened the Mexican market for US and Canadian railroads, locking in the market-oriented reforms undertaken by the Mexican National Railroad. This permits US and Canadian railroads to market their services directly to consumers, use their own locomotives, construct and own terminals in Mexico, and provide infrastructure financing (Coffey 51).

However, these benefits do not account for the imperfections that the North American Free Trade Agreement suffers. Because of NAFTA, pollution along the US-Mexican border is increasing heavily. The public health, due to lax environmental and food importing laws, is in serious danger. And the prosperity promised by NAFTA though the creation of jobs has not materialized.

Jobs and Wages

NAFTA has effectively reduced the number and quality of US jobs. Proponents claimed that NAFTA would create 200,000 jobs annually in its first two years. This prediction was based on the assumption of an increasing US trade surplus with Mexico, using a US Commerce Department formula that estimates jobs per billion dollars of net exports. However, according to this method of analysis, NAFTA has cost the US at least 400,000 jobs (Riley n. pag.). But, vague economic estimates need not be relied upon when a wealth of experiential data provides conclusive evidence. As of April 15, 1998, the number of US workers certified by the US Department of Labor as having lost their jobs because of NAFTA (under the narrowly defined NAFTA Trade Adjustment Assistance [NAFTA TAA]) had reached 170,395 (Riley n. pag.). These figures, representing 2,601 firms in 48 states, are only the tip of the NAFTA job-loss iceberg. Not only are service workers officially excluded from the program, but also many employees who could apply, prefer to turn to more generous, less “administratively constipated” programs (Riley n. pag.). According to the Florida Department of Agriculture, for example, over 100-state tomato processing and packing plants closed after the agreement s inception with a loss of 40,000 jobs. Only one of these companies is registered in the NAFTA TAA program records (Riley n. pag.). Similarly, in December 1996, employees of Guess Clothing Company were sent packing when 1,000 jobs were shunted from Los Angeles to less labor-costly areas, including 800 to Mexico (Riley n. pag.). None of these job losses appear in the records of NAFTA s TAA.

On the other side of the coin, NAFTA proponents can only identify a few thousand specific NAFTA-created jobs. In February 1997, a study compiled by Public Citizen found that 89% of the companies that had made specific promises to create jobs under NAFTA had failed to meet their job-creation promises (NAFTA’s Broken n. pag.). Instead, research revealed that many of these companies had actually laid-off thousands of US workers in order to relocate to Mexico. Corporate proponents such as Allied Signal, General Electric, Johnson & Johnson, Kimberly-Clark (formerly Scott Paper), Lucent Technologies (formerly AT&T), Mattel, Proctor & Gamble, Siemens, Whirlpool, Xerox and Zenith oiled a smooth passage for NAFTA s implementation by assuring everybody that they would create more jobs, or at the worst, maintain existing employment levels in their factories. Two years later, all eleven companies had accumulated sorry job-loss records. Allied Signal, for example, had laid off 1,125 US workers in eight states to relocate factories to Mexico under NAFTA. General Electric shed 2,608 jobs in six states for the same reason (Uchitelle D2).

Another problem that has emerged is real wages have declined since NAFTA’s introduction. Under Chapter 11 of the NAFTA agreement, investors are granted new rights and protections for shifting employment from one NAFTA country to the next (Betts 31). NAFTA promoters were keen to assure the US that increased trade under NAFTA would not only guarantee new jobs, but a greater percentage of high-wage, high-skill employment.

However, in the United States, Canada and Mexico, wages have declined since the implementation of NAFTA (”Drop Countries” n. pag.). Between 1993 and 1996 there was a 4.1 per cent decline in wages in the US, while in California, the state with the largest economy in the US, wages fell 3.1 per cent (”Drop Countries” n. pag.).

US data reveal that American workers who have lost their jobs to cheaper employees across the border, are largely re-employed in the lower wage service sector (Uchitelle D2). In fact, the US Labor Department predicts that over the next decade the top four job-growth categories will be cashiers, janitors, retail sales clerks, and waiters and waitresses (D2).

Faced with disgruntled staff, US companies increasingly point out the insecure ground upon which their employees stand. A report commissioned by the Secretariat of the NAFTA Commission for Labor Co-operation found that, since the implementation of NAFTA, the number of US companies threatening to shift their plants and employment facilities to Mexico, in response to staff turbulence and unionization, has tripled (D2).

The Environment & Public Health

NAFTA has also contributed to an environmental and health catastrophe along the 2000-mile US-Mexican border. NAFTA began its third year sinking in a sea of unbroken promises relating to the environment, public health, jobs and wages. NAFTA has intensified severe problems of water and air pollution, hazardous wastes dumping, and increased the incidence rates of certain diseases and birth defects in the border region (Fraser n. pag.). In its report, NAFTA s Broken Promises: The Border Betrayed, Public Citizen said NAFTA s proponents promised a healthier and environmentally cleaner border (NAFTA’s Broken n. pag.). These positive elements would result from fewer maquiladoras, a foreign-owned factory in Mexico, concentrating on the US-Mexican border, more wealth in Mexican border communities, and NAFTA-created institutions that would enhance environmental law enforcement and coordinate funding for cleanup projects.

Vice President Al Gore voiced the views mentioned above in a 1993 televised debate with H. Ross Perot. Perot said one Mexican attraction was lax environmental controls. Gore responded that NAFTA would give the US clout over Mexico with respect to environmental standards (Fraser n. pag.).

Pro-NAFTA lobbyists agreed. Calman Cohen of the Emergency Committee for American Trade, representing major US corporations, said: For those who are trying to say that we will see more facilities [maquiladoras]. I say it is 180 degrees the other way. Those are the facilities that will close down” (Fraser n. pag.).

Public Citizen s report says, however, that maquiladora growth had increased 20 percent in NAFTA s first two years (NAFTA’s Broken n. pag.). In addition, the report contends, the maquiladora industry is changing from assembly plants to full-scale manufacturing facilities.

The environmental repercussions of increased activity includes an increase in the creation of hazardous waste, much of which the report says is simply washed down the drain” (NAFTA’s Broken n. pag.). Only 70 of the 352 industries generating hazardous waste report proper disposal. Public Citizen quotes Oscar Canton Zetin, chair of the Mexican Ecology Commission, who said, Each year, seven million tons of toxic waste are, without controls, illegally dumped in drains and marine waters. Only 1 percent are under surveillance in the country (Zetin qtd. in NAFTA’s Broken n. pag.).

The impact of NAFTA on the residents health on both sides of the border is also serious. Prior to NAFTA s approval by the US Congress, unusually high levels of birth defects along the US-Mexico border were being examined. Lloyd Bentsen, then Treasury Secretary, said he had seen babies with birth defects and added, The NAFTA package gives us the ability to assure that those problems will be addressed (Milich and Varady n. pag.).

The incidence of neural tube birth defects has not improved since NAFTA took effect in 1994, and may actually be increasing. The rate of anencephaly (a rare birth defect in which full-term babies are born with incomplete or missing brains and/or skulls) has declined nationally in the US but increased in Texas (NAFTA’s Broken n. pag.). Brownsville, Texas, a border town, is particularly affected. Brownsville s sister city is Matamoros, Mexico, and a 1995 epidemiology report correlating 12 years of Matamoros industrial activity and Brownsville anencephaly rates, finds that the prevalence of anencephaly is strongly correlated to the level of activity at the nearby Matamoros maquiladora zone (NAFTA’s Broken n. pag.).

Another health issue is low-birth weights of the border community babies. According to the Public Citizen report, the Journal of Industrial Medicine published a study in December 1993 that says women working in garment and electronics maquila plants in Tijuana, Mexico had babies with lower birth weights than babies born to women working in service-related industries (NAFTA’s Broken n. pag.). The issue is highlighted because more than 350,000 women working in maquiladoras are of reproductive age.

Another health issue affecting the pact is the spread of waterborne infectious disease. Representative Ron Coleman argued that passage of NAFTA would help curb waterborne infectious disease,

The incidence of hepatitis, shigellosis, and amebiasis along the border is two to three times the national average. Fifteen percent of the families living in the colonias [border slums] report at least one family member suffers from diarrhea every week. This legislation seeks nothing more to protect poor children from becoming sick (NAFTA’s Broken n. pag.).

Public Citizen says rather than diminish, the incidence of infectious diseases has in some cases increased. For instance, two years after NAFTA was implemented, the hepatitis rate in the border region remained two to five times the US national average. Waterborne disease had also grown drastically in some areas (NAFTA’s Broken n. pag.).

Proponents also promised NAFTA would clean border-area water. Since NAFTA, there have been no appreciable changes in the public water or sewage treatment infrastructure. And the border region s water shortage crisis is growing with severe drought that has plagued Northern Mexico and Southern Texas for the past three years. Improvements in that infrastructure have been promised. The Clinton Administration said the NAFTA-related Border Environmental Cooperation Agreement would furnish new financing for projects to treat wastewater and provide clean drinking water (NAFTA Environment 42).

In reality, several water and sewage projects under way before NAFTA have been halted as a result of the Mexican economic depression (41). The surge in funding for such projects promised by NAFTA supporters never materialized.

Food and Farm

Food safety and agriculture have also been affected by the implementation of NAFTA. US agricultural imports from Canada and Mexico have increased 57% since 1993. Five years after NAFTA, 52% of all US fruit and vegetable imports come from Mexico (”New Tables” A2). During this same period, Food and Drug Administration (FDA) inspections of imported food declined from 8% of total imports to less than 2% (A2).

Also, NAFTA does not require member countries to maintain a minimum level of food safety standards. The flood of fruit and vegetable imports from Mexico coincides with severe cuts to Mexico’s domestic food inspection budget. In 1992, Mexico’s spending on food safety was US $25 million, but by 1995 had been slashed to US $5 million (A2). In 1997, an outbreak of potentially fatal Hepatitis A from frozen strawberries imported from Mexico sickened 270 people in five US states, including 130 children in Michigan (A2). The children had received the strawberries through the Federal Government’s nationwide school lunch program. NAFTA also forbids special, more rigorous inspections on Mexican produce imports. In 1993, imported strawberries from Mexico were found to have an 18.4% violation rate for illegal levels of pesticides (A2). Five years later, Mexican strawberry imports into the US have increased 31% under NAFTA, and comprise 96% of total US strawberry imports (A2).

US agriculture is in crisis. The “free market-free trade” farm policies of the 1990s have gutted US wheat, winter fruit and vegetable, and tomato producers. And they have tied the hands of policymakers preventing them from safeguarding US farmers from the dumping that has resulted from recent shocks like the currency depreciation in Canada and the suppression of worldwide demand for commodities caused by the Asian financial crisis. In addition, as a result of NAFTA, US producers are now forced to compete with products from Mexico, where agribusiness though not farm workers or consumers benefit from lower wages and less rigorous standards on pesticide residues, bacterial contamination and other potential public health threats. Meanwhile, since NAFTA, the number of small US farmers has declined 9% while the percentage of US farm households at or near the federal poverty level has skyrocketed to 93% (Menser n. pag.). Consumer prices for food, however, have not dropped.

A consensus among farmers from all three NAFTA countries is emerging about NAFTA’s effects on the agricultural trade. While agricultural exports have increased under NAFTA, neither farmers in Canada, Mexico nor the US have reaped benefits in an increase in their standard of living. During the five years of NAFTA, US exports to Canada and Mexico grew 35%, but net farm incomes have remained the same (Menser n. pag.). In fact, 45% of US small- and medium-sized farms suffered real declines in income (Menser n. pag.). During that same period, Canadian agricultural exports to the US grew 57%, but net farm income in Canada hasn’t caught up to 1986 levels (Menser n. pag.).

Over the past five years, the worldwide US agricultural trade surplus has been growing. However, since 1993, the US agricultural surplus with Mexico and Canada has declined by two thirds under NAFTA (Menser n. pag.).

Under NAFTA, Mexican tomato imports have increased 63% (”NAFTA Woes” n. pag.). Between 1993 and 1998, over 100 Florida tomato farmers have gone out of business and 24 packing houses have closed (”NAFTA Woes” n. pag.). The loss of tomato farmers has cost Florida agriculture $1 billion (”NAFTA Woes” n. pag.). During the same period, consumer prices for tomatoes increased by 16% (”NAFTA Woes” n. pag.).

NAFTA’s prohibitions on import quotas and snap-back tariffs (tariffs that kick in when domestic producers are threatened by dumping of commodities on the US market) have made US farmers and meat producers vulnerable to floods of cheap imports from Canada. Canada’s currency has suffered a drastic depreciation of 11% over the past year, making Canadian agricultural imports much cheaper. This has hurt many US farmers, especially hog farmers who have watched hog prices fall 62% since 1997 (Barboza C4). This has been attributed in part to the influx of Canadian hogs, which have increased from a pre-NAFTA level of 670,000 head in 1992 to an enormous amount of 5 million head by the end of 1998 (C4). Yet, consumer prices for pork remain the same as they were last year, and have increased 6% in real terms since 1993 (C4).

Before the 1988 Canada-US Free Trade Agreement and NAFTA, Canadian wheat imports to the US a major wheat producer and exporter were virtually zero. Five years after NAFTA, the US is Canada’s number two export market for wheat. US imports of Canadian spring wheat increased 2,000%, to 1.45 million tons, from 1990 to 1997. The Canadian wheat flood has taken its toll on US wheat farmers, who are prevented by NAFTA from imposing new quotas, imposed on Canadian wheat in 1994, have been lifted.

The big winners under NAFTA have been large “agribusiness” companies exploiting the below-market priced cheap imports to drive down domestic commodity prices such as wheat, hogs and cattle. NAFTA’s market access provisions ensure that the US imports Canadian wheat even though US grain stocks are high (”Message Pork” 35). One observer notes the same practice with below-market priced cattle imports: “Iowa Beef Packers is bringing Canadian cattle in and using it to drive the market against our people. . . .There would be no NAFTA without multinational corporations. Somebody didn’t wake up one morning and say, Hey, let’s open the borders” (”Message Pork” 35).

Conclusion

NAFTA has not simply failed to provide some of its promised benefits, but it has led instead to unemployment, environmental devastation, and serious health problems. The few beneficiaries have been corporations who benefit from deregulation that reduces their costs and the free market that they largely control. The North American Free Trade Agreement has proved a failure and at the very least must be revised in order to compensate for the damages that have occurred. As long as economic motives are behind any legislation, people and the environment will unfortunately always be expendable. Bibliography

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