A decade later, a tempered vision of NAFTA
On its anniversary, backers of the landmark trade deal cite more Mexican prosperity, but critics see loss of US jobs.
WASHINGTON — A funny thing is popping up in Mexico's NAFTA boom cities of Tijuana, León, Nogales, and Ciudad Juárez: vacancies.
Industrial space that was once hotter than a jalapeño pepper is cooling as companies that flocked to Mexico in the 1990s are looking to China, Honduras, Sri Lanka, and elsewhere for lower wages and better all-around conditions. Overall, the number of jobs in Mexico's so-called maquiladora assembly plants, while still well above what they were when the revolutionary free-trade agreement took effect in January 1994, are down more than 20 percent from their peak three years ago.
It's hardly a cheery gift on NAFTA's 10th birthday. And this mixed picture in Mexico is just one factor souring the image of free trade in the presidential election year.
On the US side of the border, many textile plants are gasping their last breath - an issue that the Democratic presidential candidates, particularly Dick Gephardt, are latching onto. Another concern: Software writers and other high-tech workers who found well-paid positions in the '90s boom years are now learning the barista trade as their jobs migrate to India.
Still, the United States' free-trade accord with Chile takes effect Jan. 1, and the Bush administration is preparing to lobby Congress for approval of a recently concluded trade agreement with four Central American countries.
Putting all these elements together, proponents and critics of free trade and the broader globalization process are sparring over what NAFTA has delivered and what new agreements will produce. "There is no great enthusiasm for free trade in the US these days, and NAFTA's failure to meet the high claims and expectations that were laid out at its passage has certainly contributed to that souring," says Peter Hakim, director of the Inter-American Dialogue, a Washington-based policy center drawing on experts across the Americas.
NAFTA was supposed to build a division of labor that produced jobs on both sides of the border, while delivering a prosperity to Mexico that would weaken the factors that have fed Mexican emigration to the US for decades. That was a tall order that no single agreement could make good on, analysts say, especially in the complex environment of expanding globalization.
Yet plenty of pro-trade experts say Americans need to look beyond the overly grandiose expectations for NAFTA to see what expanded trade over the past decade has meant for the hemisphere.
Advocates say poverty is down in Mexico and Chile - which have gone quite far in embracing trade liberalization - while it has hung on stubbornly or in some cases expanded dramatically in countries slower to liberalize, such as Argentina. At the same time, they say wider access to the world's products has made the region's consumers better off. "There are plenty of studies out there, starting with the World Bank's, that demonstrate again and again that the countries that have done well are those that have opened up to the world economy," says Sidney Weintraub, director of the Americas Program at the Center for Strategic and International Studies in Washington.
In addition, they point to a recent World Bank report that, while crediting NAFTA for improved living conditions, also faults Mexico for not capitalizing on the NAFTA revolution. The report asserts that by completing reforms in sectors like taxation, energy, and banking, Mexico would have stayed more competitive.
"Even with some recent setbacks for reforms in Mexico and for trade liberalization globally," adds Mr. Weintraub, "you're still hard pressed to find many true believers in the efficacy of protectionism to advance economies."
Among other challenges in recent months:
•World Trade Organization talks designed to further open up global-services markets collapsed in Cancún, Mexico, this fall over developed countries' refusal to ease farm subsidies.
•Ministerial negotiations in Miami in November among 34 Western Hemisphere countries resulted in a bare-bones interim agreement that has some observers predicting only a "lite" accord when the countries get around to the final pact for the Free Trade Area of the Americas (FTAA).
•After balking at proposed reforms and opening to foreign investment in the energy sector, Mexico's Congress this month said no to President Vicente Fox's taxation overhaul. Economists said passage of such proposals was necessary for Mexico to increase revenues and provide the services of an competitive country.
Some experts warn that Mexico will soon start losing the better-paying jobs it has cultivated under NAFTA if it doesn't continue to modernize and match countries like China. "Mexico could really be trounced if it doesn't get going," says the Dialogue's Mr. Hakim.
Yet even if "protectionism" retains a bad name, what has caught on is the concept of "fair" trade: Critics of globalization argue that many aspects of trade agreements are unfair, especially to workers.
After studying NAFTA's impact and the probable effects of a Central America Free Trade Agreement (CAFTA), "What you can see is a pretty clear list of winners and losers, and working people and small farmers are consistently on the losing end of the equation," says Gabrielle Kruks-Wisner, an economic specialist at the Washington Office on Latin America (WOLA). Noting that many small farmers have left the land in Mexico since NAFTA took effect, Ms. Kruks-Wisner adds, "It's too simple to say NAFTA caused that. But we can say that after two decades of trade liberalization that resulted in producer prices dropping as much as 60 percent, the result is more than 1 million farmers forced to do something else."
Trade-liberalization advocates argue that some of those farmers ended up in new factory jobs with better wages and living conditions for their families. The larger effect, they add, pointing to the recent World Bank study on NAFTA's impact in Mexico, is that Mexicans by and large are more prosperous, largely because exports and foreign investment is much higher.
Organizations like WOLA, while not denying that such overall claims may be true, insist that they hide growing regional discrepancies and rich-poor income gaps. "The benefits of free trade have not been distributed equitably," says Kruks-Wisner.
That argument, especially as it gains ground in the US, looks to spell trouble for unratified trade deals, such as Central America's. "CAFTA's impact [on the US economy] may be minor, but symbolically it presses the hot issues in an election year," says Hakim. "So I'd be surprised if the administration presses to bring this to a vote this year."