NAFTA AT SEVEN | EPI Briefing Paper

Introduction

Each year since the implementation of the North American Free Trade Agreement (NAFTA) on January 1, 1994, officials in Canada, Mexico, and the United States have regularly declared the agreement to be an unqualified success. It has been promoted as an economic free lunch -- a “win-win-win” for all three countries that should now be extended to the rest of the hemisphere in a Free Trade Area of the Americas agreement.

For some people, NAFTA clearly has been a success. This should not be a surprise inasmuch as it was designed to bring extraordinary government protections to a specific set of interests -- investors and financiers in all three countries who search for cheaper labor and production costs. From that perspective, increased gross volumes of trade and financial flows in themselves testify to NAFTA’s achievements.

But most citizens of North America do not support themselves on their investments. They work for a living. The overwhelming majority has less than a college education, has little leverage in bargaining with employers, and requires a certain degree of job security in order to achieve a minimal, decent level of living. NAFTA, while extending protections for investors, explicitly excluded any protections for working people in the form of labor standards, worker rights, and the maintenance of social investments. This imbalance inevitably undercut the hard-won social contract in all three nations.

As the three reports in this paper indicate, from the point of view of North American working people, NAFTA has thus far largely failed.

These reports, based in part on more comprehensive labor market surveys in all three countries,[1] show that the impact on workers in each nation has been different according to their circumstances. For example, given their respective sizes, the impact of economic integration has been inevitably greater in Canada and Mexico than in the United States. But despite this, there are striking similarities in the pattern of that impact.

In the United States, as economist Robert Scott details, NAFTA has eliminated some 766,000 job opportunities -- primarily for non-college-educated workers in manufacturing. Contrary to what the American promoters of NAFTA promised U.S. workers, the agreement did not result in an increased trade surplus with Mexico, but the reverse. As manufacturing jobs disappeared, workers were downscaled to lower-paying, less-secure services jobs. Within manufacturing, the threat of employers to move production to Mexico proved a powerful weapon for undercutting workers’ bargaining power.

Was U.S. workers’ loss Mexican workers’ gain? While production jobs did move to Mexico, they primarily moved to maquiladora areas just across the border. As Carlos Salas of La Red de Investigadores y Sindicalistas Para Estudios Laborales (RISEL) reports, these export platforms -- in which wages, benefits, and workers’ rights are deliberately suppressed -- are isolated from the rest of the Mexican economy. They do not contribute much to the development of Mexican industry or its internal markets, which was the premise upon which NAFTA was sold to the Mexican people. It is therefore no surprise that compensation and working conditions for most Mexican workers have deteriorated. The share of stable, full-time jobs has shrunk, while the vast majority of new entrants to the labor market must survive in the insecure, poor-paying world of Mexico’s “informal” sector.

As Bruce Campbell of the Canadian Centre for Policy Alternatives reports, Canada’s increased market integration with the United States began in 1989 with the bilateral Free Trade Agreement, the precursor to NAFTA. While trade and investment flows increased dramatically, per capita income actually declined for the first seven years after the agreement. Moreover, as in Mexico and the United States, Canadians saw an upward redistribution of income to the richest 20% of Canadians, a decline in stable full-time employment, and the tearing of Canada’s social safety net.

This continent-wide pattern of stagnant worker incomes, increased insecurity, and rising inequality has emerged at a time when economic conditions have been most favorable for the success of greater continental integration. The negative effect of increasing trade and investment flows has been obscured by the extraordinary consumer boom in the United States, especially during the period from 1996 through the summer of 2000. The boom, driven by the expansion of domestic consumer credit and a speculative bubble in the stock market, spilled over to Canada and Mexico. Their economies have now become extremely dependent on the capacity of U.S. consumers to continue to spend in excess of their incomes. As the air seeps out of that bubble, the cost of those nations’ reliance on the U.S. consumer market is becoming apparent.

The current imbalanced structure of NAFTA is clearly inadequate for the creation of an economically sustainable and socially balanced continental economy. The experience suggests that any wider free trade agreement extended to the hemisphere that does not give as much priority to labor and social development as it gives to the protection of investors and financiers is not viable. Rather than attempting to spread a deeply flawed agreement to all of the Americas, the leaders of the nations of North America need to return to the drawing board and design a model of economic integration that works for the continent’s working people.

Jeff Faux, Economic Policy Institute

Endnote

The findings in this report grew out of work done in larger studies published in all three of the countries concerned. For more information on the U.S. labor market, see Lawrence Mishel, Jared Bernstein, and John Schmitt, State of Working America, 2000-2001, an Economic Policy Institute Book, Ithaca, N.Y.: ILR Press, an imprint of Cornell University Press, 2001.

For a detailed analysis of the Mexican labor market, see Alcalde Arturo, Graciela Bensusán, Enrique de la Garza, Enrique Hernández Laos, Teresa Rendón, and Carlos Salas, Trabajo y Trabajadores en el México Contemporáneo, México, D.F.: Miguel Ángel Porrúa, 2000.

A recent analysis of the Canadian labor market can be found in Andrew Jackson and David Robinson, Falling Behind: The State of Working Canada, 2000, Ottawa, Ontario: Canadian Centre for Policy Alternatives, 2000.

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Preferred Citation: Economic Policy Institute. 2001. "NAFTA at Seven." Washington, D.C.: Economic Policy Institute. [http://epinet.org/].

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