Subject:  NAFTA - sept 1997



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                             The Failed Experiment:
                              NAFTA at Three Years

                          ECONOMIC POLICY INSTITUTE

                               Executive Summary

 >>> The President is required to submit "a comprehensive study on the
 >>> operation and effects" of NAFTA to Congress by July 1st. In this report,
 >>> several organizations concerned with the well-being of working families
 >>> and the environment perform their own evaluation of NAFTA's track record.
 >>> Although NAFTA clearly has been good for some North Americans, the costs -
 >>> to many more North Americans - have been much heavier:

 U.S. Wages

 For nearly two decades, the real wages of American blue-collar workers have
 been declining. Imports from low-wage countries are an especially important
 cause of increasing wage inequality, and Mexico is one of America's most
 important low-wage trading partners.

   * Between 1993 and 1995, Mexican goods made up 26.7% of the increase of U.S.
     imports from non-industrialized, low-wage countries. Mexico was also
     responsible for 43.5% of the increase in U.S. deficits with these
     countries.

   * Many firms have used the threat of moving to Mexico as a weapon against
     wage increases and union organization. In a survey commissioned by the
     NAFTA Labor Secretariat, Professor Kate Bronfenbrenner of Cornell found
     that over half of the firms used threats to shut down operations to fight
     union organizing drives. When forced to bargain with a union, 15% of firms
     actually closed part or all of a plant-triple the rate found in the late
     1980s, before NAFTA.

 Trade Balances and Job Losses in the U.S.

   * In 1996, exports were 36.3% higher to Mexico and 33.4% higher to Canada
     than in 1993. Growth in U.S. imports from Mexico and Canada, however, was
     much larger-82.7% and 41.1%, respectively, over the same period . As a
     result, a U.S. surplus with Mexico of $1.7 billion in 1993 became a
     deficit of $16.2 billion in 1996. America's overall deficit with the NAFTA
     countries hit $39 billion in 1996, an increase of 332% from 1993.

   * Based on standard employment multipliers, the increase in the U.S. trade
     deficit with Mexico and Canada has cost the U.S. 420,208 jobs since 1993
     (250,710 associated with changes in the trade balance with Mexico, and
     169,498 with Canada). NAFTA was responsible for 38% of the decline in
     manufacturing employment since 1989. NAFTA and globalization generally
     have changed the composition of employment in America, stimulating the
     growth of lower paying services industries and accelerating the
     deindustrialization of our economy.

 NAFTA and the Peso Crisis

   * The 1995 peso crisis is commonly used to excuse the sharp deterioration of
     the U.S. trade balance with Mexico. However, NAFTA was the foundation for
     an aggressive export-led growth strategy in Mexico. This assumed that
     expanding Mexico's exports would create jobs for Mexico's rapidly
     expanding workforce and steadily increase living standards. The peso had
     to fall in order for this strategy to succeed. As Professor Robert Blecker
     of American University put it, " Mexico had to devalue the peso in order
     to attract the direct foreign investment and export-oriented manufacturing
     that the NAFTA agreement was designed to promote. "

   * The peso crisis is also intricately linked with the politics of NAFTA. The
     artificially high peso held down inflation in Mexico, helped to win votes
     in the U.S. Congress for passage of NAFTA in 1993, and improved the
     electoral prospects of Mexican Presidential candidate Ernesto Zedillo in
     1994.

   * The real value of the peso has been climbing steadily since late 1995 at 5
     - 7% per quarter. The Mexican government has been stimulating the economy
     in advance of next month's elections. Past experience suggests that
     Mexico's next sudden devaluation, and even deeper depression, are only a
     matter of time.

 Mexico

   * The peso collapse has devastated Mexico's economy. The number of
     unemployed workers doubled between mid-1993 and mid-1995, to nearly 1.7
     million. Additionally, there were 2.7 million workers employed in
     precarious conditions in 1996. To make ends meet, many families are forced
     to send their children-as many as 10 million-to work, violating Mexico's
     own child labor law. An estimated 28,000 small businesses in Mexico have
     been destroyed by competition with huge foreign multinationals and their
     Mexican partners. Real hourly wages in 1996 were 27% lower than in 1994
     and 37% below 1980 levels. Of the 1995 working population of 33.6 million,
     19% worked for less than the minimum wage, 66% lacked any benefits, and
     30% worked fewer than 35 hours per week. During three years of NAFTA, the
     portion of Mexican citizens who are "extremely poor" has risen from 32 to
     51%, and 8 million people have fallen from the middle class into poverty.

 Canada

   * Canada has been mired in recession since shortly after entering into the
     U.S.-Canada Free Trade Agreement in 1989. Unemployment increased from 7.5%
     in 1989 to 11.3% in 1992. Joblessness fell back to 9.4%, but has risen
     slightly in 1997, to 9.6%. Canada's policies and practices are being
     harmonized with those of the rest of North America -- downward. Between
     1989 and 1995, Canada's real interest rate was 2.9% higher than in the
     U.S. As a result, Canada is cutting government outlays sharply and
     dismantling its social safety net, while increasing its unemployment rate.

 NAFTA and Labor Rights

 Significant areas of labor rights are excluded from effective review by NAFTA
 enforcement agencies.

   * To date the North American Agreement on Labor Cooperation (NAALC) has
     completed only five public reviews of complaints of labor violations. Four
     of these five complaints have centered upon labor rights violations in
     Mexico. None of the workers involved in these complaints - more than 200
     in total - was reinstated or compensated for serious labor rights
     violations. A new section is needed in the NAFTA agreement to provide real
     remedies for labor violations.

 The Environment and Public Safety

 Three years of evidence demonstrate conclusively that the unregulated
 expansion of North American trade has made an already heavily polluted border
 region much dirtier and more dangerous; and that the institutions created by
 NAFTA to handle environmental and public safety problems are utterly
 inadequate.

   * The NAFTA clean up plan for the U.S. Mexico border has failed, generating
     only 1 percent of the promised clean-up money. Ozone levels in El Paso
     have increased steadily since NAFTA. The rate of Hepatitis-A in the border
     region rose to between 2 and 5 times the U.S. average.

   * NAFTA opened the U.S. borders to trucks that don't meet U.S. safety
     standards. Fewer than 1 percent of the 3.3 million trucks entering the
     U.S. each year are inspected. 50% of those inspected are rejected for
     major safety violations.

   * NAFTA has weakened food safety inspections. Strawberries, head lettuce,
     and carrots from Mexico have violation rates of 18.4%, 15.6% and 12.3%,
     respectively, for illegal pesticide residues.

   * The Ethyl Corporation of Virginia has filed a $250 million suit against
     Canadian government, under NAFTA rules, after Canada banned a toxic
     gasoline additive. If Ethyl wins its case, governments will have to pay
     polluters not to pollute in order to protect public health.

   * NAFTA weakened border inspections of U.S. trade. A tragic side effect was
     to increase the transshipment of illegal drugs. Transshipment of illegal
     drugs through Mexico has increased greatly. 80% of the cocaine now
     entering the U.S. comes through Mexico.

 Conclusions

 Before it can be expanded, NAFTA should be revised to include enforceable
 labor and environmental standards, effective adjustment assistance, financial
 market regulation, and protection of national safety nets for those left out
 of the benefits of trade.

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