In the Sunday Washington Post of April 6 2003, Philippe Legrain takes Hillary Clinton and Barack Obama to task for their criticisms of the North American Free Trade Agreement (NAFTA), as well as their promises to open the treaty to renegotiation (Washington Post, Sunday April 6, “Myths About the Treaty the Democrats Want to Trade In”).
Although his critique contains some truths (for example that NAFTA is not responsible for all industrial job loss in the United States, which actually has been caused by the overall “globalization” of industrial production plus automation and other things) it is seriously misleading, because it looks at the issue of NAFTA only from the point of view of the United States and to a small extent, the point of view of the right wing governments in Canada and Mexico.
In fact, the most serious negative impact of not only NAFTA, but the whole regime of so-called free trade, has been on relatively poor countries tied to wealthy ones by such devil’s bargains.
Let us look more closely at what so called “free” trade has done to Mexico.
Mexico for many years had a protectionist or “import substitution” strategy for development. For example, the Mexican government put huge tariffs on the importation of new automobiles, while it tried to develop its own automobile industry (building Volkswagens on license, not directly with the German company, but with its Brazilian subsidiary). At the same time, the United States kept out certain Mexican products, such as fruits and vegetables, by its own tariff system.
Unfortunately for the Mexican people, by the early 1980s Mexico got into a situation in which it could no longer pay its international debts (due to a combination of mismanagement, corruption and over-ambitious debt-financed development activities, plus the oil slump), and as a condition of refinancing them bought into the neo-liberal, “free” trade approach. NAFTA was only one step in the process of moving away from import substitution to “free” trade, but for millions of Mexicans has come to symbolize the failure of that approach.
Under the terms of NAFTA, Mexico agreed to modify Article 27 of its Constitution, which had prohibited foreign private ownership of agricultural land, and the alienation of such land from farm communities. At the same time, Mexico had to begin to permit the massive importation of US grain products (maize and wheat). The United States was allowed to continue to massively subsidize these crops, while Mexico was forced to cut its subsidies drastically. So we end up with a situation in which Mexican grain farmers are subsidized by their own government to the tune of $700 per year, while the corresponding figure for US government subsidies to US grain farmers is $20,000 per year – and this is supposed to be a regime of “free trade” on a “level playing field!” But food prices ended up rising sharply in Mexico, because the government also dismantled subsidized food distribution to the urban and rural poor.
NAFTA came into force on January 1 1994, under Mexican president Carlos Salinas de Gortari. Immediately following, there were two incidents which shook investor confidence in Mexico: A rebellion of indigenous farmers in the southernmost state of Chiapas, which explicitly targeted NAFTA, and the assassination of the most popular probable presidential candidate of the ruling Revolutionary Institutional Party (PRI), Luis Donaldo Colosio. Then in December Salinas’s PRI successor, Ernesto Zedillo, created a serious financial crisis by tipping off some key big business allies to an impending devaluation of the currency, leading to a mad rush by Mexican and foreign investors to remove capital from Mexico. It looked as if the entire Mexican financial house of cards was about to collapse.
Enter US president Bill Clinton and his Treasury Secretary Bob Rubin, Wall Street’s main man in the Clinton administration. They arranged a $50 billion loan bailout for Mexico, partly with US government funds (up to the limit that did not require a vote in Congress) and partly with private and international money. This staved off disaster, but at a very high cost to the Mexican people. Implementation of NAFTA was speeded up, with very sharp cuts to the social safety net. US financial institutions were allowed to take over consumer credit in Mexico, and allowed to charge extortionate interest rates that would be illegal even in the United States.
While millions of Mexican rural people were driven off the land, urban middle income people ended up losing their shirts because they could no longer pay their debts.
The planners of NAFTA had anticipated that millions would be pushed out of grain farming in Mexico, a result they considered desirable for the Ricardian reason that they thought Mexico was not as well fitted geographically for wheat and maize cultivation as are the central plains of the USA and Canada. Indeed, the Mexican Secretary of Foreign Trade under President Salinas, Jaime Serra Puche, had gleefully predicted that up to 13 million would be driven off the land. But the expectation was that the slack would be taken up by (a) new industrial jobs which foreign companies would develop in Mexico, attracted by the pool of low-wage labor and (b) new opportunities to export Mexican specialty fruits and vegetables to the United States and Canada, once Mexico’s NAFTA partners lowered their tariffs on Mexican imports.
Part of this plan worked: It is now estimated that between 2 and 3 million Mexican farmers have been pushed off the land since NAFTA came into force. This means the displacement, also, of their families and of other people who depended on the rural economy to survive (small town storekeepers etc.). Mexico has managed to some extent to export more fruits and vegetables. But the influx of foreign investment in urban industry has not happened, partly because a downturn in the economies of Japan and the “Asian tigers” coincided with the beginnings of NAFTA, and partly because there are, after all, many countries with even lower labor costs than Mexico.
So the massive loss of livelihoods in Mexico has expressed itself in the only way available to those affected, namely a correspondingly massive increase in Mexican immigration to the United States. And since the US government does not give immigrant visas to poor farmers with third-grade educations, this immigration comes in “undocumented”. Blocked from exporting enough other things, Mexico exported its labor force.
We now find a situation in which right wing governments committed to “free” trade agreements are in power in all three NAFTA countries – the Conservitive Party Prime Minister Harper in Canada, National Action Party President Felipe Calderon in Mexico and our very own George W. Bush and his merry crew. But in all three countries there is growing discontent with NAFTA and with the religion of so-called “free” (really “rigged”) trade in general. At the grassroots, people in the USA who blame NAFTA for the loss of industrial jobs here do not always understand the whole picture, including the fact that Mexican workers and farmers have lost out fare more than US and Canadian ones have. So sometimes, anger about NAFTA taking away industrial jobs combines with resentment of Mexican immigrant workers. This feeds the anti-immigrant movement in the United States.
NAFTA and related policies have had winners and losers. Big corporations, on Wall Street and in agri-business, have done very well. WalMart has also done itself proud, by virtually taking over retail trade in Mexico, in the process destroying the livelihood of many more thousands of Mexicans. A small number of workers and farmers in all three NAFTA countries have also improved their situations. But millions are worse off. This is why the renegotiation of NAFTA is an idea whose time has come. But we must make sure that our US politicians do not portray the poor workers and farmers of Mexico as “the enemy”. NAFTA was created as a fully collaborative product of the governments of Mexico, the United States and Canada, all three of them doing the bidding of international monopoly capital. To portray NAFTA as a sort of Mexico-Canadian imperialist attack against American workers is sheer demagogy and should be denounced.
There is an interesting paragraph near the end of Legrain’s op-ed. He warns that if renegotiation of NAFTA leads to stricter labor and environmental standards it may backfire on the United States. Why? Because “Canada’s labor and environmental standards are generally higher than the United States” and “Mexican workers arguably have stronger labor rights than Americans” (both of these things are true on paper, though enforcement is another matter). So “if the United States bashes Mexican labor practices, what’s to stop Mexico from objecting to American imports produced in non-unionized factories?”.