After 20 Years, It's Clear NAFTA Has Failed To Deliver Promised Benefits; So Why Trust TPP, TTIP Will Be Better?

from the learning-from-the-past dept

Both TPP and TAFTA/TTIP are based on the premise that by boosting trade and investment, general prosperity will increase too. And yet, despite the huge scale of the plans, and their major potential knock-on effects on the lives of billions of people, precious little evidence has been offered to justify that basic assumption. To its credit, the European Commission has at least produced a report (pdf) on thegains. But as I've analyzed elsewhere , the most optimistic outcome is only tangentially about increased trade, and requires a harmonization of two fundamentally incompatible regulatory systems through massive deregulation on both sides of the Atlantic. In any case, the much-quoted figures are simply the output of econometric models, which may or may not be valid, and require extrapolation to the rather distant 2027, by which time the world could be a very different place.

Given the difficulty of saying anything definite about the future, it makes sense to look back at how past trade agreements have actually worked out for those involved. One of the most important, the North American Free Trade Agreement (NAFTA), has been operational for 20 years, and so offers us a wealth of hard facts. Public Citizen has just released an excellent analysis of what happened (pdf). As it points out: NAFTA was fundamentally different than past trade agreements in that it was only partially about trade. Indeed, it shattered the boundaries of past U.S. trade pacts, which had focused narrowly on cutting tariffs and easing quotas. In contrast, NAFTA created new privileges and protections for foreign investors that incentivized the offshoring of investment and jobs by eliminating many of the risks normally associated with moving production to low-wage countries. NAFTA allowed foreign investors to directly challenge before foreign tribunals domestic policies and actions, demanding government compensation for policies that they claimed undermined their expected future profits. NAFTA also contained chapters that required the three countries to limit regulation of services, such as trucking and banking; extend medicine patent monopolies; limit food and product safety standards and border inspection; and waive domestic procurement preferences, such as Buy American. This makes NAFTA the clear model for TPP and TAFTA, both of which hand enormous power to corporates, at the expense of the public and governments. In 1993, NAFTA was sold to the U.S. public with grand promises. NAFTA would create hundreds of thousands of good jobs here -- 170,000 per year according the Peterson Institute for International Economics. U.S. farmers would export their way to wealth. NAFTA would bring Mexico to a first-world level of economic prosperity and stability, providing new economic opportunities there that would reduce immigration to the United States. Environmental standards would improve. Techdirt has already discussed how NAFTA has proved disastrous for the US in basic financial terms; here we'll look at some of the other effects, not just in the US, but for Mexico too. NAFTA has contributed to downward pressure on U.S. wages and growing income inequality. According to the U.S. Bureau of Labor Statistics, two out of every three displaced manufacturing workers who were rehired in 2012 experienced a wage reduction, most of them taking a pay cut of greater than 20 percent.



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Despite a 188 percent rise in food imports from Canada and Mexico under NAFTA, the average nominal price of food in the United States has jumped 65 percent since the deal went into effect.



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The reductions in consumer goods prices that have materialized have not been sufficient to offset the losses to wages under NAFTA. U.S. workers without college degrees (63 percent of the workforce) have likely lost an amount equal to 12.2 percent of their wages under NAFTA-style trade even after accounting for the benefits of cheaper goods. Taken together, these facts represent the reality for much of the US public: wages have fallen, the cost of food has risen, and even though consumer good prices have dropped, overall US workers are worse off than they were before NAFTA came into force. People have lost out in non-monetary ways, too: Scores of NAFTA countries' environmental and health laws have been challenged in foreign tribunals through the controversial investor-state system. More than $360 million in compensation to investors has been extracted from NAFTA governments via "investor-state" tribunal challenges against toxics bans, land-use rules, water and forestry policies and more. More than $12.4 billion are currently pending in such claims. NAFTA has been the test-bed for corporations to use investor-state dispute settlement (ISDS) to resist or even undo improvements in health and environmental laws that reduce their profits. Even the European Commission, a big fan of corporate sovereignty, has been forced to recognize that ISDS is a danger to the public for this reason. In many ways, Mexico has fared even worse than the US under NAFTA: The export of subsidized U.S. corn did increase under NAFTA, destroying the livelihoods of more than one million Mexican campesino farmers and about 1.4 million additional Mexican workers whose livelihoods depended on agriculture.



The desperate migration of those displaced from Mexico's rural economy pushed down wages in Mexico's border maquiladora factory zone and contributed to a doubling of Mexican immigration to the United States following NAFTA's implementation. That last point is important: one of the selling points of NAFTA was that it would help stem the flood of Mexican migrants into the US. As the Public Citizen document reports: Then-Mexican President Carlos Salinas de Gortari claimed NAFTA would reduce the flow of migrants from Mexico into the United States, saying: "Mexico prefers to export its products rather than its people." Salinas infamously added that the U.S. decision over NAFTA was a choice between "accepting Mexican tomatoes or Mexican migrants that will harvest them in the United States." As in the US, overall, Mexicans have lost out under NAFTA: Real wages in Mexico have fallen significantly below pre-NAFTA levels as price increases for basic consumer goods have exceeded wage increases. A minimum wage earner in Mexico today can buy 38 percent fewer consumer goods as on the day that NAFTA took effect. Public Citizen has performed an invaluable service by pulling together the figures for NAFTA in this rigorous, fully-referenced document. That's not least because the TPP negotiations are at a critical point, with President Obama desperate to obtain Fast Track trade authority that will allow him and his negotiators to push through TPP (and TAFTA/TTIP) with no real Congressional scrutiny and a simple yes/no vote at the end. As Public Citizen points out: the administration and corporate proponents of the TPP will have difficulty getting the controversial deal through Congress. Twenty years of NAFTA's damage has contributed to a groundswell of TPP opposition among the U.S. public and policymakers. In November 2013, a bipartisan group of 178 members of the U.S. House of Representatives stated their early opposition to any attempt to Fast Track the TPP through Congress, while other members expressed similar concerns about the TPP and the Fast Track trade authority scheme.



Congressional rejection of the TPP stands to intensify as the 20th anniversary of NAFTA provides a fresh reminder of the damage that such past pacts have wrought. It was the initial outcomes of NAFTA that sank previous attempts at massive NAFTA expansions, such as the Free Trade Areas of the Americas and the Asia-Pacific Economic Cooperation (APEC) FTA.



NAFTA's two-decade legacy of tumult and hardship for millions of people in North America could similarly hasten the downfall of the attempt to expand the NAFTA model via Fast Track and the TPP. If so, it would constitute a unique benefit of an otherwise damaging deal. Follow me @glynmoody on Twitter or identi.ca, and +glynmoody on Google+

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Filed Under: benefits, nafta, promises