Impact of NAFTA on the U.S. Economy
NAFTA's Failure at 41 Months
NAFTA's corporate and political proponents promised specific benefits from NAFTA: 200,000 new NAFTA jobs per year, higher wages, economic improvements in Mexico increasing middle class consumer demand, increasing U.S. trade surplus with Mexico, greater economic and social stability in Mexico, improved environmental and health conditions at the border industrial zone, thorough border inspection as trade volumes increased inhibiting shipments of unsafe food or contraband such as illegal drugs, and better relations with Mexico on issues from immigration to region promotion of democratic elections.
Now, nearly three and one half years into NAFTA, there is real life evidence to show NAFTA's promised benefits are not materializing. Indeed, in many areas for which benefits were promised, NAFTA does not pass a break even test, meaning that conditions are worse in these areas now than before NAFTA went into effect on January 1, 1994.
A fair, full report by the ITC about NAFTA's actual outcomes would serve the nation well. Such an accounting would make clear that the NAFTA model is not the one we should use for trade and investment in the hemisphere or with the APEC countries. Indeed, an objective assessment of NAFTA's actual effects would suggest the NAFTA itself should be replaced by new regional trade rules. NAFTA is simply one version of how to arrange trade and investment terms between countries. The NAFTA experiment has not worked. For example:
1. Net U.S. NAFTA Job Loss
Plugging the actual (versus projected) trade data in the formula used in 1993 to promise creation of 200,000 new NAFTA jobs per year, the U.S. has lost about 500,000 jobs to NAFTA trade. But, we no longer need to rely just on projections and formulas concerning NAFTA's U.S. job effects. There is real life evidence about both the number of jobs and the quality of the jobs (ie. wages.)
The number of specific, identified U.S. jobs certified lost because of NAFTA under just one narrow U.S. Labor Department program reached 126,000 representing 800 firms in 48 states, while only a few thousand specific NAFTA-created jobs have been identified.
Public Citizen has documented the lack of NAFTA job creation in the NAFTA Jobs Report submitted, attached, for the record. In this report, we interviewed specific companies that has projected job gains in 1993 because of NAFTA to learn about their actual performance. Fully 89% of the companies we interviewed were not on track to meet their NAFTA job creation promises.
Meanwhile, the 126,000 NAFTA casualties tracked by this one program, called NAFTA TAA, are only the tip of the NAFTA job loss iceberg. Only workers who know about and choose to apply for the new program are even considered, and only certain types of workers in certain types of companies can qualify. Many unions are telling workers who lose their jobs to NAFTA to apply for other assistance programs that are more generous and less administratively complicated. Thus, for instance, with over 100 Florida tomato processing and packing plants closed under NAFTA according to the Florida Department of Agriculture, only Regency Packing Company with 1334 job lost in Naples appears on NAFTA TAA. Similarly, the clothing company Guess moved over 1000 jobs out of Los Angeles, mostly to Mexico, in December 1996 and those jobs simply do not appear -- even as have been rejected assistance -- on NAFTA TAA.
Indeed, many of NAFTA's top corporate boosters who promised to create specific jobs because of NAFTA have not only failed to do so, but in fact have been certified as laying off thousands of U.S. workers to relocate to Mexico. Allied Signal, General Electric, Johnson and Johnson, Kimberly-Clark (formerly Scott Paper), Lucent Technologies (formerly AT&T), Mattel, Proctor and Gamble, Siemens, Whirlpool, Xerox and Zenith all made specific promises to create or maintain jobs, and all have laid off workers because of NAFTA as certified by the U.S. Department of Labor s NAFTA TAA program. Indeed, Allied Signal has 1172 certified NAFTA job losses in eight states and General Electric has 900 certified job losses due to NAFTA in six states. Many U.S. companies certified as having cut U.S. workers because of NAFTA have laid off over 1000 workers total. A sample of these companies shows the diversity in economic sector and geographic location of these large NAFTA job casualties.
2. Real Wages Declined
Real wages in all three NAFTA countries have declined during NAFTA. NAFTA is causing a degradation in the quality of U.S. jobs and downward pressure on wages as NAFTA's Chapter 11 investment rules provide new, no-cost guarantees for U.S. investors to move jobs to the other two NAFTA countries.
In direct contradiction to the promises of NAFTA's boosters, it has been high-wage, high-tech jobs that have led U.S. NAFTA job losses. Almost all of the NAFTA trade deficit with Mexico in 1996 was in autos, auto parts and engines ($15.057 billion.) Similarly, those high wage employment categories accounted for $11.6 billion of the 1995 trade deficit with Mexico. U.S. data shows a majority of U.S. workers losing high-wage manufacturing jobs find new employment in lowering-paying jobs without benefits in the service sector. The U.S. Labor Department predicts that the top four categories of jobs for growth over the next decade are in order: cashiers, janitors, retail sales clerks, and waiters and waitresses.
Wage data in the United States show the purchasing power of weekly wages falling back over NAFTA's first three years to levels of the 1990-1991 recession. In fact, 1996's annual average is lower than any annual average on record going back to the late 1950's. In NAFTA's first year, U.S. workers saw the sharpest one year drop on record of real hourly wages. The 77 million U.S. production workers saw the buying power of each hour they worked drop 3% in 1994. Wages continued to decline in 1995.
In fact, a report commissioned by the U.S. Labor Department from Cornell University concluded that under NAFTA, companies are significantly more likely to threaten workers trying to organize a union to close the U.S. plant and move to Mexico. The study, which tracked actual cases nationwide, also found that such threats were being followed through on at a greater rate under NAFTA. The Labor Department suppressed the October 1996 study, which was featured in the January 27, 1997 BusinessWeek and ultimately released by Cornell Professor Kate Bronfenbrenner.
Meanwhile, instead of the promised bigger paycheck, one year after NAFTA U.S. workers received a multi-billion dollar bill for taxpayer funded loans to bailout Wall Street investors in Mexico. According to the Los Angeles Times, the majority of this taxpayer bailout never left New York but was mainly paid to Wall Street investment firms. In January 1997, as the Mexican economic crisis continues, the Mexican government transferred much of this debt to the German government and the bailout was called a "success" as Mexico's total foreign debt spiraled.
3. The Massive New NAFTA Trade Deficit
The U.S. trade surplus with Mexico of $1.7 billion in 1993 prior to NAFTA has crashed into a major new deficit.
Monthly trade deficits with Mexico started in October 1994, months before the initial peso devaluation ( of December 26, 1994) and the latest Mexican economic crisis. NAFTA has made the impact of Mexico's economic crisis on the United States worse than past Mexican economic shocks prior to NAFTA. For instance, the worst U.S. trade deficit with Mexico during the last Mexican economic crisis in 1982 was $8 billion for one year with trade flows back in balance in three years. Under NAFTA the U.S. had a 1995 trade deficit with Mexico of over $15 billion and in 1996 of over $16 billion, which is the projected deficit for 1997.
Meanwhile, Mexico's other major trade partners who also had trade surpluses with Mexico in 1993 -- China, Japan, and the E.U. -- have maintained their surpluses throughout Mexico's current economic crisis. Only the United States, has suffered a massive and persistent new trade deficit. Why?
U.S. exports to Mexico have continued to grow at a rate similar to before NAFTA reflecting growth in the two countries' populations and economies. (With the exception of 1995, when the background rate of export growth dropped.) The lack of a significant NAFTA-specific effect on export growth rates makes the crowing about growth in exports to Mexico odd, given this rate of growth was the trend before NAFTA. However, since NAFTA, the rate of growth of imports from Mexico to the U.S. has increased dramatically. It is thus bizarre that NAFTA's diminishing league of defenders intentionally spot light the increase in the volume of U.S.-Mexico trade when that number is premised on the massive new U.S. trade deficit.
4. Mexico's Economy Is a Wreck, Not a Source of Consumer Demand for U.S. Goods
Mexico remains in its worst economic crisis in decades. Mexican real wages have dropped 45% since NAFTA. At least 28,000 small and medium-sized businesses have been wiped out since NAFTA. Mexico's foreign debt has increased by over $30 billion in the first three and one half years of NAFTA, putting in perspective the so-called peso "bailout." An additional two million Mexicans are unemployed since NAFTA, in part accounting for the increased rate of immigration from Mexico to the United States under NAFTA. An estimated 40,000,000 Mexicans lived on less than $5 per day in 1996. According to a study by Mexico's National Autonomous University, three years into NAFTA, 50% of Mexicans are considered to be "extremely poor" compared to 31% in 1993 before NAFTA.
While Mexican employment in the border maquila zone is up 50 percent as many U.S. manufactories relocate there to obtain post-devaluation $8/day total labor costs, the rest of the Mexican economy is in shambles. NAFTA's provisions have caused significant economic displacement in the Mexican rural sector. NAFTA has also led to damage to the independent Mexican retail and manufacturing sectors which has led many of Mexico's former middle class entrepreneur to abandon their support for NAFTA and to join the million-member El Barzon group that opposes NAFTA expansion and demands that NAFTA itself be replaced. Over 8 million Mexicans have slid from the middle class into poverty since NAFTA went into effect, according to El Barzon. A June, 1995 Ciemex-WEFA forecast concluded that it may take into the next century before Mexican workers again reach their pre-NAFTA 1994 wage levels in dollar terms. The already wide income disparity in Mexico has gotten significantly worse since NAFTA went into effect: The top ten percent now controls 41% of the wealth while the bottom 50% controls only 16% of the wealth.
5. Political and Social Stability in Mexico has Deteriorated with the Economy
NAFTA supporters argued that an important reason to pass the pact was to strengthen democracy and improve political and economic stability in Mexico. Just the opposite has occurred. Anticipation of NAFTA's negative effects sparked the Zapatista uprising in Chiapas on NAFTA's January 1, 1994 implementation date. The poverty-stricken Mayan Indian peasants in the region said NAFTA was their "death warrant." National protests supporting the Zapatistas ensued as the Mexican military killed and tortured Mayan prisoners as documented by Amnesty International. Incredibly, Mexican government opened consultations with the brutal and tortuous Guatemalan military on how to handle the Zapatistas, according to the Washington Post. A second major, armed insurgency force has now appeared in Mexico since NAFTA.
A series of political assassinations followed the Chiapas revolt, including the murder of PRI presidential candidate Ernesto Colosio and that of the second ranking PRI official, Jose F. Ruiz Massieu. Former Mexican president Carlos Salinas' brother was arrested for masterminding the Massieu killing. He remains in jail. Meanwhile, Mexico's former deputy attorney general and brother of the slain Massieu, was arrested in the U.S. on allegations of links to drug traffickers and the cover up of his brother's assassination. Also, the whereabouts of former Mexican President Carlos Salinas, who was continually presented to the American public and Congress as a reformer and man of integrity, is unknown after he fled Mexico in the spring of 1995. A poll conducted in 1995 found that 90% of Mexicans felt that President Salinas should be tried for treason. An August 1996 poll found that 2 out of three Mexicans believe that government corruption has increased under current Mexican President Zedillo. The Mexican federal police is increasingly out of the government's control and a growing source of fear and mayhem for the Mexican people.
6. Non-Economic Conditions: Environment, Health, Safety, Illegal Drug Flows
Public Citizen and its colleague Mexican citizen group, RMALC, has thoroughly documented the deterioration of U.S.-Mexico border environmental and health conditions under NAFTA in a 700-footnote report submitted for the record. In sum, the NAFTA-created North American Development Bank has not made a single actual loan in three and one half years of existence. It has only approved several million in loans or loan guarantees, with the most polluted towns unable to afford the Bank's market interest rates. In 1993 the Sierra Club had estimated that $20 billion would be necessary to fund essential border cleanup and infrastructure improvement. The NAFTA environmental commission has rejected all cases requesting more than a factual review.
NAFTA supporters promised NAFTA would eliminate the incentive for factories to locate in the Mexican border free trade zone where 2000 companies have crowded without toxics, residential sewage or water treatment facilities. Instead, the work force of the border sector is up 50% in NAFTA's first three and one half years. Yet, none of the public health and manufacturing and toxic waste problems that preexisted NAFTA have been remedied. Rather, conditions have deteriorated under NAFTA as documented by specific, objective measures such as water quality, incidence of environment-related disease, and toxic waste production and dumping rates.
Near Brownsville, Texas and Matamores, Mexico, scores of babies have been born with deadly anencephaly, a defect resulting in an exposed or missing brain. Several new clusters of this tragic disease have started since NAFTA, including at Eagle Pass, Texas-Piedras Negras, Mexico. The world's highest rate of Lupus occurs in the Nogales, Arizona and Nogales, Sonora border area. Here plants producing and using toxic chemicals and solvents, and unhealthy operations, such as lead smelters and glass factories that burn old tires as fuel, operate without environmental rules. Since NAFTA went into effect, instead of plants leaving the area, at least 150 new plants have opened. The lupus rate in Nogales has continued to grow since NAFTA. On both sides of the border from Texas to California, tuberculosis and hepatitis rates have continued to soar since NAFTA.
Meanwhile, NAFTA's weakening of border inspection has resulted in only one in two hundred trucks crossing the border from Mexico through Texas being inspected. This has resulted in significant health and safety problems on both sides of the border: under NAFTA, more illegal drugs are being transhipped through Mexico and U.S. hand guns are being sent into Mexico, creating a new Mexican gun violence problem. Unsafe trucks are posing a threat to communities on both sides of the border. Of the one in two hundred trucks being inspected at Texas border crossings, nearly 50% are being put out of service for serious safety violations. Meanwhile, the April 1997 strawberry-hepatitis incident relating to fruit imported from Mexico raises additional public health and safety concerns as the rate of imported produce from Mexico skyrockets under NAFTA and border inspection drops under NAFTA.
It has becomes increasingly apparent that the NAFTA experiment has not worked. The specific 750 pages of rules contained in the NAFTA are not producing the positive results we were promised. Indeed, the version of U.S.-Mexico-Canada trade constructed under this set of NAFTA rules is causing damage.
NAFTA's real life failures is why there is strong opposition to expanding NAFTA. Indeed, there is a growing demand that the NAFTA itself be replaced by a different type of agreement that truly safeguards the jobs, wages, health, environment, and the democratic rights of the people of North America.
A fair, full report by the ITC about NAFTA's actual outcomes would serve the nation well. Until we are willing to face up to the flop of the NAFTA experiment, we will cling to the failed status of trade policy that NAFTA represents. In clinging to this past, we miss the opportunity to create a forward-looking trade policy for the 21st Century that might actually deliver on the failed promises of NAFTA.
Testimony of Lori Wallach (Public Citizen's Global Trade Watch) Before the International Trade Commission, May 15, 1997