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Is NAFTA To Blame?

There is no shortage of opinion about the effects NAFTA has had on America and American jobs over the past thirteen years. Despite the fact that most of the information provided is vague at best and bias at worst, Americans have come to feel the effects personally. While some have prospered under NAFTA, the majority has seen wages stagnate or decrease as prices for consumer goods and services have steadily risen, contrary to the promises and prophesy of early promoters of the treaty.

Socially, NAFTA has had an even greater impact on America. While early promoters suggested that the treaty would help stabilize Mexico and build a strong middle class that would end the flood of illegal immigration, the fact is that illegal immigration from Mexico into the U.S. has increased. Critics suggest that NAFTA is at least partially to blame for the current tide of illegal immigrants flooding into the country. While it is difficult to point to any one specific reason, it is clear that NAFTA has adversely impacted Mexico and the Mexican worker.

Canada was also supposed to benefit from NAFTA with the creation of jobs and elimination of inflation. But critics maintain that the cost to Canadians of NAFTA far outweighs any benefit yet derived from entering into the treaty. While measurements can and have been taken since inception of NAFTA, the world has changed significantly during the same time. How much events which have occurred and continue to unfold play in the state of any country’s economy is difficult to measure.

Despite questions that still abound regarding the value, if any, that NAFTA has to the United States, the country is quickly proceeding forward with infrastructure changes and regulatory changes that will profoundly impact American business and the American people. The proposed NAFTA Superhighway that is being discussed will open a corridor through the U.S. for the passage of tons of goods from Mexican ports into the American heartland and Canada. While some benefits will be gained for American and Canadian businesses by the introduction of this highway, the most noticeable beneficiary will be China.

Hutchinson Ports, is the wholly owned subsidiary of Hutchinson Whampoa Limited. The giant Chinese corporation has invested millions of dollars in expansion of deep-water ports at Lazaro Cardenas and Manzanillo on Mexico’s Pacific coast. The Chinese are clearly positioning themselves to directly benefit from delivery of goods manufactured in China to the U.S. and Canada via the new NAFTA superhighway. The Chinese equation never entered into debate when NAFTA was first introduced. Whether it was ever considered will probably not be known. Regardless, however, the rising economic power of China will be felt within all three countries who joined in NAFTA.

Looking at the consequences of the treaty from the northern side, Bruce Campbell, writing for the Canadian Centre for Policy Alternatives noted in a paper entitled: False Promise - Canada in the Free Trade Era, that growth performance in the 1990’s in Canada was worse than in any other decade of the last century.

Campbell found that under NAFTA, Canada had become a more unequal society in the free trade area. He pointed out that while income increased for the top fifth of the population, the vast majority of Canadians experienced a reduction in real income. Campbell also noted that job security declined and the social safety net had been frayed in Canada as a direct result of NAFTA.

Perhaps the greatest disappointment experienced from NAFTA in Canada is the same one experienced in the U.S. While early proponents promised greater employment and increases in wages - the facts show that wages have fallen under NAFTA in both countries.

While the average U.S. and Canadian citizen didn’t prosper under NAFTA, most believe that Mexican citizens gained from the pact. But clear evidence indicates that the opposite is true. Under NAFTA, Mexico and many Mexican citizens have actually faired far worse than their northern neighbors.

Following the signing of NAFTA, millions of investment dollars flowed into Mexico. Birdseye, Green Giant, Campbell’s Soup, Hunt, Arthur Daniels Midland, ConAgra, Cargill and Tyson all increased or began operations within Mexico. Each of these companies have prospered as a result of their investment in Mexico’s agricultural industry. But the effect this investment has had on the average Mexican agricultural worker has been devastating. According to the Mexican Agricultural Ministry, 81.5% of the Mexican people living in rural areas were living in poverty as of 2001. This data revealed an increase in the poverty rate of 64% in 1998 alone. The number of Mexican workers employed in agricultural work dropped by 10% and wages in rural areas of Mexico shrunk by 30% in comparison to wages in other sectors of the economy.

According to the World Bank, half of all Mexicans live in poverty while 1 in 5 Mexicans live in abject or extreme poverty. Most significant in this finding is the fact that Mexico is not a poor nation. Mexico’s economy ranks around 12th in the world, coming in above the $1 trillion dollar mark. That puts Mexico’s economy on an even par with Canada.

The profound poverty rate in Mexico, and especially rural Mexico, is blamed for an increase in social unrest and violence. Protests and armed conflicts have occurred in areas of Mexico and talk of full-blown insurrection has been followed by serious clashes between rebels and Mexican officials. The rate of kidnapping in Mexico has also soared. It is difficult to pinpoint exactly how many kidnappings are not reported to authorities. Some analysts claim that the rate of kidnapping in Mexico now exceeds that of Columbia, which would make it the highest in the world.

While some kidnappings in Mexico have been traced directly to political or guerrilla groups and have resulted in ransom payments as high as $30 million, the majority of kidnappings occur to middle-class victims who may be abducted and forced to drain their bank accounts to secure release. It is not uncommon that a tourist will enter a taxi in Mexico City and be held for ransom by the driver. Mexican authorities have long been perceived to be accomplices to kidnapping gangs and, in some cases, allegedly operate their own kidnapping enterprises.

While this increase in kidnapping cannot be blamed solely on NAFTA, analysts cite the treaty as a direct contributor and point to Mexicans who were displaced from rural areas or were dispossessed of property and income. While Americans and Canadian workers were also dispossessed of property and income, when NAFTA was instituted in Mexico, many government subsidies were ended for farmers and others who, as a result, fell upon hard times. Mexican officials mistakenly believed that the treaty would foster economic changes so sweeping that social programs would no longer be necessary. Judging NAFTA on the criterion alone, it would be hard to describe the treaty as having lived up to the expectations of Mexico and its citizens.

When NAFTA was instituted, it allowed certain trade barriers to remain in effect for specified time periods. In 2008, a tariff on the importation of corn to Mexico will expire, and U.S. farmers will be able to export directly to the Mexican market. The Mexican people are the largest consumers of corn in the world. Sixty percent of all the arable land in Mexico is given over to producing corn and eight percent of Mexico’s population (about 3 million) are engaged in the production of corn.

On average, it takes 1.2 labor hours for a U.S. farmer to produce one ton of corn. While large modernized farms in Mexico equal that rate, the majority of farms are small agricultural plots requiring 17.8 labor days for the production of one ton of corn. Because 80% of Mexican farms are not irrigated, average production of corn is pegged at 1.7 tons per hectare compared with the U.S. average of 7 tons per hectare.

While biofuel initiatives have given an initial boost to the price of corn, production rates in the U.S. have soared and now threaten to bring corn prices lower. As corn enters the Mexican market, it is feared that additional Mexican farmers will be displaced and add to the already burgeoning number of Mexicans seeking to leave the country in search of a livelihood.

Illegal immigration from Mexico to the U.S. has surged under NAFTA. Ironically, the same U.S. voices that supported the adoption of NAFTA are those that now most loudly decry the out-of-control migration across the border into the United States. Displaced from farms and land by large U.S. agricultural businesses, along with the absence of social programs for Mexican citizens, the choice between starvation and illegally entering the U.S. is obvious. The hopelessness in stopping such waves of illegal immigrants is also obvious when one considers the alternatives left to Mexico’s displaced workers.

The original goal of NAFTA was establishment of a fully integrated continent on North America. In 2002, Mexican President Vicente Fox said, “Our long-range objective is to establish with the United States... an ensemble of connections and institutions similar to those created by the European Union, with the goal of attending to future themes as important as... the freedom of movement of capital, goods, services and persons”. This same dream of integrating Mexico, Canada, and the USA into one large-scale union is shared by people within all of the countries. However, while European countries generally experience the same standard of living amongst their peers, the disparity of wealth between the U.S. and its southern neighbor make such assimilation far more challenging.

What remains clear is that what NAFTA ultimately brings to the three countries of North America still remains to be seen. However, it is apparent that warnings given by critics who attempted to halt the treaty have been more than justified. Not only have American workers been displaced from high paying jobs and suffered the loss of employment security; the treaty has also impacted Canadian and Mexican citizens unfavorably.

The angst being experienced by ordinary citizens has grown in the past few years with tensions being felt on all sides of the borders. Mexicans and Canadians tend to blame the U.S. for the problems imposed by NAFTA and U.S. citizens continue to express outrage at the unwillingness or inability of Congress to act against the rising tide of illegal immigration. Residing in the background of this North American dispute is a new emergence of socialism in Latin and South America, which may prove to be the only alternative to Mexico’s poor - if the border between them and the U.S. is actually sealed.

While the NAFTA treaty may have seemed like the right thing to do to the power structure in Washington, not enough thought seems to have gone into the long term consequences and repercussions that the treaty might have to the citizens of each country. Once again, the U.S. seems to have been placed between a rock and a hard place where the poor and middle-class have paid - and will continue to pay - a high price for free trade.

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