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Problems And Prospects: Secret Aspects Of NAFTA

The Secret Aspects of NAFTA

This is another in a series of essays on the problems and prospects of NAFTA.

Specifically related to NAFTA and such associated issues as free trade, immigration, drug trafficking and economic security, are the security concerns of the trade pact's members. Also important to note in an increasingly globalized world, security threats are not just posed by military personnel and weapons, but include economic security issues as well. To uncover the relationship between NAFTA and security, it is important to know how the trade pact was first intended to deal with such matters. NAFTA was heralded by politicians, economists and, to the American public, as a grand equalizer. It was the first area agreement between developed and developing nations designed to provide economic growth opportunities for both.

There have existed many expectations concerning NAFTA's ability to meet its lofty objectives. It is important to note the economic expectations surrounding NAFTA, and the arguments currently being used to discuss the trade pact, as it centers on its actual performance. First, due to its trade liberalization trend, NAFTA was intended to enhance the export markets of both the United States and Mexico. Prior to its implementation in 1994, centrist economists Hufbauer and Schott, based at the Institute for International Economics, wrote, "over time, the NAFTA should impel industrial reorganization along regional lines, with firms taking best advantage of each country's ability to produce components and assembled products and thus enhancing competitiveness in the global marketplace" (Hufbauer and Schott 4). Greater market efficiency would occur, allowing for a more prudent allocation of resources.

Loyal Naftists like Hufbauer and Schott were determined to squelch the fear of many Americans over the prospect of an aggregate loss of American jobs, by stressing that this will be prevented by the fact that "foreign investment by U.S. firms creates U.S. jobs, both in the short run, by boosting U.S. exports of capital goods, and in the long run, by establishing channels for the export of U.S. intermediate components, replacement parts, and associated goods and services" (Hufbauer and Schott). In spite of the apparent simple economic expectations of NAFTA, it created for many Americans well justified concerns about their own job security.

NAFTA and Mexico

Regarding the U.S., pro-NAFTA experts, working on lucrative consultancies paid for by U.S., Mexico and Canadian public and private business bodies, predicted that the trade pact would alleviate many immigration concerns for Americans. Even though the agreement itself does not outline a plan for immigration, the implications of its supposed economic benefits were directly related to seeing immigration in a positive light.

It was believed that NAFTA, over time, would raise Mexico's GDP and offer Mexicans a more prosperous lifestyle within their country. Once Mexico's economy improved, a significant percentage of its population would no longer immigrate to the north. According to Hufbauer and Schott, "Each 1 percent increase in the Mexican capital stock reduces the level of permanent migration from Mexico to the United States by about 44,000 workers... an increment of $31 billion to $53 billion owing to the NAFTA...would in turn...reduce permanent immigration by at least 260,000 workers from the levels that would otherwise be reached" (Hufbauer and Schott 20). It was ebulliently predicted by these incorrigible NAFTA optimists that by approximately 2024, Mexican GDP per capita would be half that of the United States' and through trade liberalization policies, immigration would no longer occur in such high volumes as to create concerns.

Even though drug trafficking has had very important economic impacts on the relationship between the United States and Mexico, it was totally omitted from the language of the NAFTA. During the negotiation process, there was a sense that drugs should be discussed; however, as cited by John MacArthur in study book "The Selling of Free Trade," Michael Wessel, who was then Congressman Gephardt's chief of staff, commented on the drug trade:

"Drugs are a commodity just like any other, [albeit] an illegal commodity. But with the freer flow of goods, you have to have an infrastructure that deals with that issue. And we didn't press hard enough on it because we thought we had other venues to do it and that because of their illicit nature, they may not be appropriate to deal with as part of a trade negotiation" (Wessel in MacArthur 134-135).

As drug trafficking carries economic, social, and political implications, the complex relationship between Mexico and the United States is not as purely economic as NAFTA enthusiasts would suggest. NAFTA is an expression of the relationship among the three nations (including Canada); however, it fails to address the fact that nations relate with one another far more than just economically, as is revealed by the multifaceted drug trade.

How Effective Was NAFTA In Dealing With These Security Issues?

Compared with initial expectations, current data as to NAFTA's demonstrated performance explains the ways in which the pact has impacted its members' security concerns. There exists much contradictory evidence as to NAFTA's performance over the last 13 years. Some argue that NAFTA has been a compelling success, while others maintain that the agreement was a misguided attempt mainly designed to benefit the titans of free enterprise. In fact, it never was the win-win and sure thing that it was marketed as being by its champions. In a publication entitled "Lessons from NAFTA" published by the World Bank, the up-beat conclusion reached "regarding NAFTA is that the treaty has helped Mexico get closer to the levels of development of its NAFTA partners... Mexico's global exports would have been about 25% lower without NAFTA, and foreign direct investment (FDI) would have been about 40% less without NAFTA" (Lederman). Overall, according to these hardly neutral sources, NAFTA has fulfilled its promises to improve the economies of its partners, but which of them and at what cost? The United States Trade Representative published a fact sheet regarding NAFTA's professed successes and touts the growth of their partners'economies as follows (as a percentage of GDP improvement): United States 48%, Mexico 40%, and Canada 49%. The preponderant American point of view is that NAFTA unquestionably has lived up to its expectations. The Mexican perspective perceives the trade pact somewhat differently. Juan Carlos Moreno Brid, Research Coordinator/Senior Economic Affairs Officer at the Economic Commission for Latin America and the Caribbean notes that NAFTA has not lived up to the expectations of creating for Mexico a strong export-oriented economy: "exports have not constituted a sufficiently powerful engine of growth for the manufacturing sector," and that "in the Mexican economy as a whole, the relation between trade performance and economic growth has been deteriorating" (Moreno Brid). It is perfectly clear that NAFTA has not had the positive economic impact for Mexico that has been touted by its advocates, led by then President Carlos Salinas de Gotari, who later was the subject of an ethics investigation and now lives in exile.

NAFTA's Impact on Mexico

In a report entitled "Global Views 2004: Mexico y el Mundo," 78% of the Mexican public felt that NAFTA most benefited the U.S. economy while most adversely affected Mexico's standard of living, its environment, and its agrarian sector (Gonzalez). Mexican perception is that NAFTA helps the United States while it hurts many sectors of Mexican society and economy. In reviewing data from a number of disparate sources, there exists a common analysis that although NAFTA has had some positive impact on the economic progress of the partner nations, they have not enjoyed the degree of progress that was expected. Most importantly for Mexico is that the supposed transformative increase in living standards brought about by NAFTA has not yet been witnessed.

For the United States, it is not clear whether NAFTA has brought with it laudable economic dividends for the American worker. As always, there has been job loss and creation, but no evidence exists to empirically suggest that NAFTA has had a strong negative effect on employment, or in fact, has done much for job creation:

"in spite of popular perception, there is little ground for concerns that NAFTA...[is] likely to have a detrimental effect on the availability and/or quality of jobs. Consistent with the region-wide evidence, there is little indication of higher unemployment, increased volatility of the labor market, or increased informalization associated with trade liberalization" (Lederman).

While much evidence suggests that the American economy has somewhat benefited from the creation of NAFTA, as opposed to economic development without it, an active school of thought does exist that NAFTA has grievously harmed a number of Mexico's economic sectors.

NAFTA Hasn't Staved Off Immigration

In line with initial expectations, NAFTA was supposed to have slowed down immigration by bringing jobs to Mexico rather than Mexicans to foreign jobs. There are more illegal immigrants pouring into the United States than ever. In 2004, open unemployment in Mexico reached an all-time high, and the informal sector had, per force, to vastly expand. In addition, as part of the picture of falling earnings, a widening wage gap is occurring between the qualified and the unqualified segments of the labor force (Moreno Brid). Immigration continues to be of major concern when it comes to security matters. This phenomenon is directly related to NAFTA's lagging economic benefits for Mexico. At its inception, it had been understood that NAFTA would bring prosperity to Mexicans; however there still exists great economic disparity among the NAFTA nations, continuing the necessity for immigration, at least from the Mexican point of view (Ackleson). Another rational explanation for continued immigration is that Mexican immigrants fulfill "a certain economic need of the United States...There is an economic need for some people to do certain tasks that Americans do not want to do, or are not sufficient to do" (Jauregui). There are even debates taking place as to the effect of such illegal immigration on the United States economy; it could actually be a necessary evil. In conclusion, given many external factors and the relatively slow progress of NAFTA, it is not surprising that illegal immigration has continued despite the original hopes of NAFTA's advocates that the trade pact would be a countervailing force against it, or at least because of the inaccuracy of their advice to decision-makers, or the meretricious nature of their analyses.

As previously stated, drug trafficking may operate outside of the context of NAFTA, but it has brought serious economic and security implications to it. Research suggests that "a reasonable conclusion is that NAFTA might lead to a modest increase in cross-border transshipment...but that it will not have a large-scale impact" (Bosworth 146). The remedies for the drug trade therefore lie outside the policy realm of NAFTA. However, the opened lines of communication for the two nations ensure that NAFTA may provide a way for the United States to "increase effective pressure on Mexican authorities to comply with U.S. demands for antidrug measures" (Bosworth 146), just as it will make it physically easier for the drugs to be illegally dispatched across the borders.

Unfortunately, any progress that may have been made on drug trafficking control since NAFTA's advent has been retarded by the post 9/11 reallocation of border security resources, with little improvement likely to take place in the foreseeable future except more restrictive hardware and software devices and procedures.

This analysis was prepared by Research Associate Jessica Wayne
April 8th, 2008
Word Count: 2300

The Council on Hemispheric Affairs, founded in 1975, is an independent, non-profit, non-partisan, tax-exempt research and information organization. It has been described on the Senate floor as being “one of the nation’s most respected bodies of scholars and policy makers.” For more information, please see our web page at www.coha.org

ENDS

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