Twenty years ago, the North American Free Trade Agreement (NAFTA) was signed into law. At the time, advocates painted a rosy picture of booming U.S. exports creating hundreds of thousands of new jobs, and economic development in Mexico, which would bring the struggling country in line with its wealthier northern neighbors. Two decades later, those promises have failed to materialize. U.S. trade deficits with both Canada and Mexico have surged, crippling domestic industries, prompting massive job displacement and the replacement of living wage union jobs with jobs in sectors with low pay, minimal benefits and no job security. Wealth disparity among Mexico and the United States and Canada has increased. In all three countries, wages are stagnant and workers face increased attacks on their fundamental rights.
NAFTA may have failed to improve the lives of workers and their families, but it has improved the standing of multinational corporations. One of the most troubling and potentially enduring effects of NAFTA is the creation of a system that gives corporations the ability to sue national governments over laws and regulations designed to protect public welfare based on interference—or even just potential interference—with private economic gain. As government officials of 12 countries approach the conclusion of secret discussions on the Trans-Pacific Partnership (TPP), it appears the same flawed model may be replicated on a much larger scale.
As the NAFTA experience demonstrates, the theory that “free trade agreements” (FTAs) result in U.S. export growth is demonstrably false. In fact, as Public Citizen recently pointed out, U.S. export growth to FTA partners was actually slower than to non-FTA partners over the past decade. In 1993, adjusting for inflation, the United States had a $2.5 billion trade surplus with Mexico and a $29.1 billion trade deficit with Canada. By 2012, the combined NAFTA trade deficit was $181 billion. Manufacturing and service exports to Mexico and Canada in the years since NAFTA was enacted have both grown at below half the rate prior to the agreement.
The Economic Policy Institute estimates that, as of 2010, the trade deficit with Mexico alone displaced 682,900 U.S. jobs. Companies that publicly committed to hire more workers and increase exports during NAFTA negotiations broke their promises, outsourced labor and shuttered worksites. Many of the jobs lost were in industries like manufacturing that, on average, pay higher wages and have more comprehensive benefits than the average job. Those displaced often wound up in sectors like fast food and retail, with lower wages, less comprehensive benefits and minimal job security. NAFTA also hurt efforts to secure middle-class wages and benefits through organizing and collective bargaining, as companies are more likely to relocate production abroad, or threaten to do so during negotiations. NAFTA provisions also restrict the ability of state and local governments to use their purchasing power to create jobs locally by giving preference to state and U.S. suppliers. This all contributes to wage depression, which has decreased local tax bases and eroded social services.
NAFTA proponents claimed the deal would improve economic conditions in Mexico and lower the income disparity among Mexico and the United States and Canada. Instead, that disparity has increased. Mexico had the lowest per capita growth rate of any Latin American country over the past decade, and the minimum wage has lost 24% of its value in real terms since NAFTA was signed. The flood of subsidized U.S. agricultural products drove small Mexican farmers off the land: an estimated 1 million jobs were lost in corn farming alone between 1991 and 2000. The resulting waves of desperate migration from rural areas pushed down wages in the industrial sector and contributed to a doubling of Mexican immigration to the United States. NAFTA requirements that Mexico develop a U.S.-style patent system not only substantially raised the cost of prescription drugs and other products in Mexico, the market distortions it created contributed to slower growth. Increasingly, research on development has emphasized the need for flexible, localized policies, not the reckless deregulation and one-size-fits-all models championed by free trade advocates. NAFTA prohibits many of the investment, procurement and financial measures adopted in countries that have successfully developed.
One area in which NAFTA was an unqualified success is the creation of an unprecedented array of investor rights and protections, including the “investor-state” dispute settlement mechanism. This provision gives foreign investors the ability to challenge policies enacted in the public interest—everything from bans on toxic chemicals to patent laws that make medicines more affordable could be vulnerable. Under this scheme, foreign investors get to bypass domestic laws and courts, and instead use arbitral panels composed of private attorneys who are completely unaccountable to any electorate. Victorious companies get paid out of public coffers, and even if the government wins, taxpayers still have to cough up fees for the lawyers and the panelists (yes, this is a for-profit system). Investors have wrung $340 million from NAFTA governments in this way—money that could have been spent dealing with the actual needs and priorities of the public.
Despite how undemocratic the investor-state process is, the U.S. government remains supportive of it and has included it in nearly every trade agreement signed since NAFTA. The system is currently being used to challenge anti-smoking policies in Australia, and there are plans to include it in the TPP.
One positive development to come out of NAFTA is increasing unity among labor unions, environmental organizations and other civil society groups, which are coming together to change the current system. NAFTA has taught us what happens when trade policies privilege multinational corporations and investor profits over working families, communities and the environment. Tell President Barack Obama and U.S. Trade Representative Michael Froman that it’s time to learn our lesson and build trade agreements that protect workers, encourage democratic and equal participation in economic development and ensure environmental sustainability.