NAFTA Turns Ten: A look back, a look ahead

- by Todd Tavares

The New Year marked the ten-year anniversary of the North American Free Trade Agreement, and also marks one year from the date set to implement it's expansion, the Free Trade Area of the Americas, in 2005. So we can now approach greater trade liberalization with a bit of hindsight, and the decade marker is a good place to look back from and make some real evaluations. How well did NAFTA live up to it's expectations? And what unexpected changes did it make? Who is better off because of free trade?

In the run up to NAFTA the greatest debate was over the effect free trade would have upon the level of employment in the respective countries. While Ross Perot famously warned of a "giant sucking sound" of jobs leaving the United States for Mexico the proponents of NAFTA declared that it would create new jobs in all three countries. Both, in a sense, turned out to be wrong. Plenty of U.S. manufacturing did flee to the cheaper labor of Mexico - the Department of Labor admits to over 500,000 jobs lost to NAFTA although unofficial studies put the number closer to 110,000 per year - but not on the scale Mr. Perot predicted. At the same time the U.S. economy hummed along adding millions of jobs to the domestic economy. There is good reason for this: trade policy does not determine employment level. NAFTA had an impact on the types of jobs available in the U.S. (service jobs became more likely than manufacturing) but not on the unemployment level. Throughout the 1990s U.S. unemployment consistently declined to record lows because of fiscal and monetary policy directed from the Clinton White House during a bubble - not from trade policy. This is why the governance of George W. Bush, committed to free trade but also largely protectionist, the economy was able to shed 3 million manufacturing jobs. The claim that good American jobs would be lost was true in that specific jobs were lost, but these could be replaced (which is another mostly awful story) but the claim that jobs would be created was always an unrealistic expectation used to sell an unwanted trade policy to the general public.

Since even the Economist, a lover of liberal trade admits that "it was never plausible…to expect that NAFTA would be a net creator of jobs." Than what was the point of the agreement? According to the Economist the whole point was to "stimulate trade and investment," which it did very nicely, thank you. The logic behind this is found throughout all neo-liberal propaganda: trade leads to growth and growth leads to prosperity and a rising tide lifts all boats so everyone comes out a winner. Of course reality always interrupts the greatest of fantasies and so it has for Mexico. After 1994 there was a significant increase in foreign direct investment into Mexico, and every year since they have had a favorable balance of trade with the United States, the recipient of nearly 90% of Mexico's exports. Yet this is not as rosy as it sounds, as Joseph Stiglitz points out on the back page of the New York Times growth has been anemic, around 1% per capita for the past ten years, and while Mexico can now supply parts to U.S. manufactures there are still no "Mexican" producers, no home-grown domestic industry to make it independently productive. And please keep in mind that while this is being written the country that receives the most foreign direct investment, China, has grown at 7% per year and has managed that without the benefit of a free trade agreement. Mexican workers have also managed to buck the theory that links real wages to productivity as real wages have declined while productivity has increased.

Taken as a whole the case of Mexico has exacerbated the problems it was hoped it would solve. The decrease in real wages has led to a growth in the disparity of wealth between the U.S. and Mexico, and created an impetus for migration to the U.S. Another problem associated with NAFTA has been the continuation of agricultural subsidies in the U.S. (they were supposed to be dropped through NAFTA years ago) that allows U.S. farmers to effectively dump cheap corn in Mexico undercutting farmers there. The result has been, predictably, poverty and/or flight of labor to the neighbor prospering countries, namely the U.S. and Canada.

The problems witnessed were not supposed to be the results. Mexico was to prosper and grow and pull even in development to the rest of the great Western capitalist powers, but NAFTA did the opposite. The first reason for this is that anything positive was secondary to the main goal recognized as the increase in trade and investment. Trade here means something different than what we would expect, gone are the days of different nations - or even different people - trading, most of what was facilitated through NAFTA was intra-firm trading. If GM ships parts over the border to Mexico to have them assembled only to have them shipped back again to be sold this isn't trade - it's exploitation of cheap labor. But since the borders are crossed it registers as trade between the two countries. For businesses involved in globalization such practices represent a larger point, as the end of the national economy is one of the logical conclusions and goals of globalization itself. That 51 of the largest economies on earth are corporations rather than countries is a testament and a harbinger of the coming economic primacy of corporations over government (read: democratic) interests. Of course businesses want guarantees that foreign governments would just take over their new investments in "trade" or obstruct them with laws, and that is why investor protection is such an important component to free trade negotiations. NAFTA's Chapter 11 allows corporations to sue states and communities for the loss of potential profits due a law that stands as a "barrier to trade," and to overturn laws that are so ruled. Under Chapter 11, Metalclad Corp. was able to sue the Mexican government over a zoning law that prevented the firm from placing a toxic waste dump where they chose to build one. Mexico lost and had to pay Metalclad $16 million. Canada was forced to pay Ethyl Corporation $13 million because Canada's ban on gasoline additive MMT - banned because of its toxicity to humans - was determined to be a "barrier to trade." Over $13 billion in claims have been filed under this section of the agreement.

Globalization is not going to go away, nor does it have to be negative for human existence. That the argument has been cast in a for or against manner with the only choice between the two being a return to protectionist isolationism and run away free-marketeerism is as senseless as it misleading. Yet it persists. As it does so the most important aspects are over looked. One is the chance for true human freedom from the state in the form of open borders. Under free trade agreements all means of production are free to cross borders without restriction with one exception: labor. Billions of dollars in capital, factories, equipment, spare parts, and finished goods pass back and forth everyday but still humans are corralled behind borders. Does this mean all borders should be abolished immediately? No, but this should be a goal and should be advanced now since the day will come when the restrictions either become impossible to contain (unbearable disparity of wealth) or meaningless to maintain (general equality). Besides the political reasons behind such advances, and good old fashioned internationalism should remain one, free transit of people is needed to maintain high economic activity - just imagine New York City attempting to function with quotas and border restrictions on New Jersey and Connecticut.

There has also been a great myopia drafted into all trade negotiations, which sees no political involvement in global economics, only some done at the local level. It is impossible to solve trans-national problems in this manner. The greatest example, but by no means the only, is that of agricultural subsidies. These subsidies are in place to ensure that people are able to get food at reasonable prices while allowing farmers to earn a living. To remove the subsidies is to cut off one of the two benefits and invite starvation and high prices or bankrupt farmers. A more amicable solution would to be to create a multilateral, regional, or global system that gave subsidies across borders. However, such a plan is not only against the ideology that frames every draft but also cedes power from the domestic actors and necessitates a "higher federalism" of economic governance - and one that is transparent and democratic.

The only way globalization can be an effectively positive force for the people involved is with a heavy does of democracy. As the street battles and overt heavy handed state repression associated with trade talks show those responsible for drafted these agreements are terrified of anything slightly democratic seeping in to their finely crafted works of corporate dominance. Change to this structure is possible and even inside the talks there is a growing trend away from the lassiez-faire attitude espoused for the past decade. Brazil has been at forefront of the debate over agricultural subsidies and intellectual rights protection in the future FTAA. At the November meeting of FTAA in Miami the meetings closed with what is generally known as the "civil society" group, and independent meeting of intellectuals, civil and human right workers who are fighting for greater transparency and public representation inside high level trade talks. This year they were given the ears of the trade ministers expected to finalize FTAA.

This doesn't mean that fight is over; rather it has just begun to swing the way of the people. It will continue, and with what we know has been done wrong, and what we know is right, it is our chance to make the future ours.

Todd Taveres, 25, just finished up a B.A. in Political Science and Economics at Northeastern University, where he was a member of the Progressive Student Alliance. His articles have also appeared in Dollars and Sense. He can be reached here:

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