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A Pressing Case for NAFTA Review and Renegotiation


At President Obama’s first North American Summit in August, the leaders of the three nations avoided any mention of the North American Free Trade Agreement (NAFTA) or its offshoot, the Security and Prosperity Partnership, in their joint statement. Although the trade pact was the origin of these annual meetings, the negative results of NAFTA have made it more of an embarrassment than a political asset.

 

North American leaders may wish to distance themselves from the obvious failure of NAFTA to better the lives of their citizens, but Canadian, Mexican, and U.S. citizens continue to press for a comprehensive review and renegotiation. This article explains why that task is more urgent than ever in today’s global crisis.

 

The Democratic primaries of ’06 marked the historic period when "NAFTA" officially became a dirty word. Candidates Clinton and Obama vied to out-diss the trade agreement and gain the votes of disenchanted (and often unemployed) workers in blue-collar parts of the country.

 

The candidates weren’t just pandering to swing states. Surveys showed for the first time that the scales had tipped: the majority polled nationwide expressed negative opinions of the 1994 North American Free Trade Agreement between the United States, Canada, and Mexico. NAFTA evaluations at the 10- and 15-year anniversaries increased skepticism, recording flat growth in Mexico and job loss in the United States.

 

It was quite a turn-around. The initials NAFTA first entered the American lexicon as a symbol of progress measured by rapid economic integration. Globalization of what we produce and what we consume seemed a beneficial, and in any case inevitable, fate.

 

Nowhere was the experiment of regional integration as extreme and rapid as in North America under NAFTA. It demolished trade and investment barriers such as protective tariffs and local preferences. It dismantled government support programs (except when the undisputed leader of the process, the United States, found it inconvenient, such as its own farm bill). It extended intellectual property monopolies well beyond those mandated by the World Trade Organization.

 

What NAFTA did not do is what the European Union had done. NAFTA ignored the potential immigration impact of its own measures and refused to build in compensation funds or transition strategies to account for the huge asymmetry between the national economies involved. Mexico’s economy was less than 1/15th the size of the United States and millions of families lived in extreme poverty. NAFTA provided no means of dealing with this unlevel playing field. Instead it counted on the unfettered international market to resolve all possible problems.

 

Measured solely by the degree of economic integration, the NAFTA experiment succeeded. The U.S-Mexico border has become the most highly integrated region of the world. $35 million of goods cross the border every hour. Total trade among the three NAFTA countries has more than doubled, while total merchandise trade between the United States and Mexico nearly tripled, from $81.6 billion in 1993 to $266.6 billion by 2004.

 

But rising trade figures aren’t the same as improving the quality of life for the average citizen. NAFTA-related job loss in the United States is outstripping the generation of direct jobs. Canadians protest the loss of sovereign control and the ability to do sustainable planning of natural resource use due to obligatory exports to the United States under NAFTA.

 

Mexico—the decidedly junior partner in the deal—has experienced massive displacement. Small farmers lost their livelihoods to competition from imported corn and other basic crops. Small and medium businesses producing for the domestic market went out of business. Thousands of workers were pushed out of the formal job market into informal employment; especially women, where they had no benefits, job security, or minimum wages. As a result, immigration to the United States leapt to half a million men, women, and children a year.

 

Not everyone lost out under NAFTA though. The agreement was crafted with the direct participation of transnational corporations. Liberalization of trade and investment allowed them to map regional strategies to take maximum advantage of areas where natural resources, cheap labor, government subsidies, and low regulation and operating costs make production cheapest. In terms of the narrow interests of transnational corporations, this was efficiency. But this brand of efficiency has hidden and long-term costs: it moves people around on a grand scale, interrupting lives, livelihoods, and cultures. It uses up natural resources and pollutes the planet without paying the real costs.

 

To give a single example: NAFTA’s investment clauses have created a high degree of concentration in agricultural production and marketing, led by the giant U.S. transnationals, Cargill and ADM in association with Mexican companies. During the NAFTA period, the agribusiness firm Cargill’s net income increased 660%—from $597 million in 98-99 to $3.95 billion by fiscal year 07-08. Meanwhile, millions of Mexican small farmers were displaced as it became impossible for them to compete with subsidized imports. Cargill received massive subsidies from the Mexican government as social and productive programs to small farmers were reduced or eliminated. Manipulation of prices led to the tortilla crisis—a spike in tortilla prices in January of 2006. Price-fixing that affects low-income consumers and the threat of genetic contamination due to the import of genetically modified corn has opened up a huge debate on NAFTA in the agricultural sector of Mexico and given rise to a broad-based movement in defense of corn and for renegotiation.

 

Under NAFTA, concentrated and increased inequality in Mexico has given that country the dubious distinction of claiming some of the wealthiest men on the planet as the absolute number of poor grows.

 

Crisis Hits: Rethinking NAFTA

 

Even before the recent economic crisis, organizations in all three NAFTA nations called for renegotiating or rescinding the agreement.

 

The multiple crises—economic, financial, environmental, food—that struck hard by late 2008 have intensified those calls. We are at a defining moment in history. We can either deepen the NAFTA model focused on exports, outsourcing, and capital mobility. Or we can rethink this top-down integration model and begin to build a more equitable, regulated, and bottom-up economic recovery that can be sustained over generations.

 

There is both reason to believe this is possible and reason to be pessimistic. On the plus side, the corporations that crafted NAFTA have fallen into disrepute. The argument that deregulation and a free rein to transnationals will bring prosperity to all is scarcely believable anymore.

 

Nonetheless, these corporations continue to wield disproportionate influence in global affairs. The Group of 20 wealthy nations meets every few months or so to debate regulating an irresponsible corporate sector and emerges with calls to throw government money at them, while preserving the trade system from "protectionism."

 

But many people feel the price of maintaining NAFTA and similar free-trade agreements has gotten too high. To face the crisis, the NAFTA countries need to use emergency policy tools to jumpstart recovery. These include government purchasing to support local businesses, subsidies and bailouts, support programs, and state-sponsored job generation. Most of these tools are technically prohibited under NAFTA.

 

The Obama administration has responded to the U.S. crisis with energetic measures to stimulate the national economy. It will cost almost inconceivable quantities of money. Many of the needed structural changes have not yet been dealt with, among them NAFTA.

 

Mexico can’t afford measures like this. Yet the crisis will have an even greater human cost there since so many families are already living on the edge. Mexico depends on the U.S. market to purchase a full 80% of its exports. It is by far the main source of foreign investment, and remittances from the United States are the second most important sources of foreign revenue, only after oil.

 

Projections for Mexico’s growth in 2009 are being adjusted downward on a weekly basis, now calculated at -7%. The real wage lost four percentage points to inflation between 2006 and 2008, accelerating a trend that has been overall constant in the NAFTA period. The official minimum wage is below starvation level.

 

President Obama has argued rather vaguely that national prosperity must be built on regional prosperity. Yet U.S. aid for Mexico during the economic crisis goes almost exclusively to security. The "Merida Initiative" has already allotted $1.1 billion to pay for U.S. defense equipment, information technology systems, and military and police training to fight a failed drug war. USAID development aid averages around $23 million annually and a large chunk of that goes to security and political reforms. That leaves crumbs to the people who really need help in the country. They are then forced to migrate and hundreds of millions of dollars are spent to hunt them down, arrest, imprison, and deport them.

 

There must be a better strategy.

 

Can NAFTA Be Renegotiated?

 

Over a thousand people protested outside the North American Summit. They were kept at a distance. Police cordoned off several blocks around the meeting to prevent any uncomfortable contact between the leaders and their subjects. Relegated once again to the sidelines, environmental, fair trade, and labor organizations called for renegotiation of NAFTA.

 

By law, there’s no question that NAFTA can be renegotiated. The citizen movements and unions that demand renegotiation of NAFTA aren’t asking for an end to international trade. They ask that government incentives to move production overseas be eliminated and that economic sectors that can’t compete on the international market but are vital in generating decent jobs be given a chance to survive. Now, with the crisis, citizens in all countries have increased the demand for governments to adopt more local development and social programs of the kind prohibited under the competition and privatization terms of NAFTA.

 

Each country in the NAFTA agreement has its particular interests to pursue. In the United States, President Obama as candidate echoed citizen demands when he said:

 

"We must add binding obligations to the NAFTA agreement to protect the right to collective bargaining and other core labor standards recognized by the International Labor Organization. Similarly we must add binding environmental standards so that companies from one country cannot gain an economic advantage by destroying the environment. And we should amend NAFTA to make clear that fair laws and regulations written to protect citizens in any of the three countries cannot be overridden simply at the request of foreign investors."

 

Now the problem appears to be in the details and the timing. Obama said before the summit that renegotiation would not be on the table, stating that he "has a lot on his plate right now" with healthcare, energy, and financial reforms, and the need to stabilize the economy before opening up a long debate on NAFTA renegotiation.

 

But the economic crisis and the debate reopened by the Obama presidency offer the opportunity to make some needed changes to an obsolete agreement. The Obama presidency could end up merely adopting the Democratic platform on trade, which stipulates making the labor and environment agreements part of the main text and adding the core labor standards of the International Labor Organization, as well as create an expanded U.S. jobs displacement program. Obama voted for the U.S.-Peru Free Trade Agreement that was modified along these lines.

 

It’s not at all clear that this format will have more teeth than the current NAFTA rules. The current rules have never allowed a single case to move to sanctions, no matter how blatant the violations. Grassroots citizen organizations will be a critical factor in forcing the administration to live up to its promises in reforming the trade pact.

 

On the Canadian side, civil society organizations demand the elimination of the proportionality clause that requires Canada to send oil to the United States even in times of scarcity. They also call on their government to eliminate the Ch. 11 investor-state clauses that give investors the right to sue governments. This chapter is controversial in all three countries because corporations are using it to override health and security laws that interfere with their "present or future earnings." The peculiar legal structure—outside all national judicial systems—not only allows private corporations to sue governments for a broad range of supposed grievances, but it is also clearly skewed; a recent review showed that special trade tribunals have ruled in favor of corporations in the overwhelming majority of the cases.

 

In Mexico, a broad popular movement has called for renegotiation of NAFTA’s agricultural chapter with an eye toward protecting basic food production and removing corn and beans from the agreement altogether. They demand the right to regulate the food system so both consumers and producers have access to decent work and sustenance.

 

Finally, citizen groups demand an end to the Security and Prosperity Partnership (SPP)—sometimes known as the "NAFTA Plus" agreement. There are indications that the SPP may, in fact, be at the end of its political lifespan. The ill-conceived pact between the leaders of the three governments was engineered by the Bush administration as a regional counterterrorism cooperation plan and a way of deepening NAFTA integration without congressional or public oversight. It allows the United States to police Mexico’s southern border, increase surveillance, and deepen economic integration. No members of civil society are invited to participate regularly in the many working groups, which are made up of representatives from transnational corporations and governments. Since both the right and the left in the United States repudiate it, there is talk that the SPP will be revoked or restructured soon.

 

The first step toward renegotiating NAFTA must be a comprehensive study of impact in all three countries. In the United States, Senator Sherrod Brown (D-OH) and Rep. Mike Michaud (D-ME) have authored the Trade Reform, Accountability, Development, and Employment (TRADE) Act and presented it to Congress. The TRADE Act calls for a NAFTA review and lays out fair trade principles for moving forward. This act mandates the government to include not only trade figures in the study, but also jobs and job loss, labor standards and conditions, consumer safety, and environmental impacts. The TRADE Act was re-introduced in Congress on June 24 and currently has 116 sponsors.

 

Rethinking NAFTA must include the facts on the impact and consequences of the great experiment that have so far not been reported and analyzed. The review should be independent and allow for public consultation and input. It must have carefully defined criteria of evaluation, including social, economic, political, and cultural indicators and a mechanism for receiving civil society analysis and presenting that as part of the process.

 

To break through the leaders’ denial and delay tactics to move toward a thorough assessing and revamping of NAFTA will require broad-based citizen movements. In Mexico, farmers’ movements have held major demonstrations, several with over 100,000 people in the streets, calling to remove corn and beans from the agreement to be able to manage Mexico’s most basic food supply. After the first march in January of 2003, then-President Vicente Fox asked for a renegotiation and the U.S. government said no. Fox immediately dropped the request. Current president Felipe Calderon—a strict neoliberal—opposes renegotiation.

 

In the United States, President Obama’s oft-repeated line that "NAFTA helped Wall Street and hurt Main Street" contains an understanding that the agreement is flawed because of its pro-corporate orientation and not just because it contains a few bad clauses or unforeseen consequences, but he has put the issue of renegotiation on the back burner. Citizen movements continue to push for renegotiation while competing with a number of major issues for visibility.

 

Canadians, U.S. citizens, and Mexicans need public debates to determine their own priorities and national strategies to reform policies, relieve suffering and poverty, and build alternative structures. It will be the convergence of these strategies from citizens of all three nations that enable us to join together and rollback the current NAFTA model.

 

 

Laura Carlsen (lcarlsen(a)ciponline.org) is the director of the Americas Program (www.americaspolicy.org) for the Center for International Policy in Mexico City.

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