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 the possible gains. 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.

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.

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.

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

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any moose cow word says:

Re: Re: Re: Re:

Right, like how the government removed its own regulations preventing banks and investment firms from taking dangerous risk in the housing and mortgages markets. It was totally a coincidence those exact same markets had a catastrophic crash only after those same banks and investment firms, who had been inflating those markets, heavily lobbied for said deregulation.

silverscarcat (profile) says:

Re: Re: Re: Re:

Well, while you can point most of the blame to President Clinton for signing that 1999 law that repealed Glass-Steagle, you also have to point to the banks, which no longer had the regulations they did before, so they could engage in pure free markets (just with the government bailing them out if they failed) by merging their savings departments with investment banking and… What was the 3rd one? Bah! Can’t recall it.

And then you have to realize that people from previous generations (Gen X and Baby Boomers) took advantage of the fact that banks were allowing tons of loans and went out and bought houses (or more houses and whatnot). So when the later Generation (Gen Y) graduated college starting in 2005 (provided a 4 year college and they graduated from high school in 1998-1999) and got out into the world, they had jobs and were able to get a house and have kids… In 2005-2006… And we know what happened in 2008.

Well, the problem is, the whole bad loan deal, again, was being pushed by government policies set up by Bill Clinton to allow banks to freely loan money out (Byron Dorgon warned in 1999 that this was a bad thing, Ron Paul in 2003 said that the housing bubble would collapse) without having as much capital to back it up.

On TOP of that, every state in the U.S., except North Dakota, was sending the state treasury money to Wall Street, where the big banks were located, which then turned around and made risky investments, sold bad loans as AAA+ loans and some of the investments that they made were to other countries.

So, everyone was loaning money everywhere and no one was paying back.

Eventually, one bank HAD to start getting money back, so they started calling in loans. Thing is, they called in too many too fast and not everyone could keep up, thus the whole stack of cards started to fall apart.

The only state, the ONLY state in all of the U.S. that was unaffected by the collapse was North Dakota, simply by virtue of owning their own bank and keeping the state treasury money in the state.

That’s why, even with a population of less than 640,000 people, there was a 1 billion dollar budget surplus in 2008. Granted, a good chunk of that surplus had to do with Oil Money, but the economy still would have been fine in North Dakota even without the oil money simply because of the State-owned bank.

Why, yes, I’ve done some research into the 2008 crash.

All that being said, Bush could have stopped the crash had he pushed policies to mitigate the damage, as he was warned by a few members of Congress that it was going to happen, but he didn’t, so he takes the blame for allowing it to happen, but I blame Clinton for starting it.

gojomo (profile) says:

Flimsy anti-NAFTA reasoning

Um, just listing bad things since NAFTA doesn’t show causality. Some other bigger things happened to the economy, too ? the rise of competitive industries worldwide, the dotcom bust and multiple wars, the housing bust and financial crisis.

Mexico has become more economically stable and competitive in recent decades ? it’s grown a little faster than the US since the start of NAFTA ? so the in-migration and pressure on wages (from migrants or imports) could easily have been worse.

The reliability of the anti-trade Public Citizen research is revealed by goofball spin like “the average nominal price of food in the United States has jumped 65 percent”. Nominal? Only economic policy shysters will pick nominal prices over a long period to try to scare people. The rise in CPI since 1993? 63%. So in real terms, food has gone up by maybe 2%. And is it really likely NAFTA has made that worse – compared to fuel costs, 1.5B more people on the planet, 700 million moved out of poverty (more than halving the global poverty rate)? If NAFTA has led to more people and products moving over borders ? as Public Citizen fears ? it’s almost certainly made food prices (and those of lots of other goods) lower than they would have been otherwise.

Anonymous Coward says:

Re: Flimsy anti-NAFTA reasoning

“Um, just listing bad things since NAFTA doesn’t show causality. Some other bigger things happened to the economy, too ? the rise of competitive industries worldwide, the dotcom bust and multiple wars, the housing bust and financial crisis.”

Exactly my thinking, it does come across as a very weak argument, “bad things happen in the past 20 years, so it must be NAFTA”.

I am glad I am not the only person who ‘does not buy this weak argument’.

Anonymous Coward says:

Re: Re: Flimsy anti-NAFTA reasoning

I think that statements about the current trade agreements are worse.

Extrapolating figures for 20 years based on a computer model and then basing your conclusions and recommendations for policy on those figures is far more ridiculous! A lot happens in 5 years let alone 20.

They would be much better off spending the money they have used to argue these stupid treaties feeding the poor and fixing broken relationships with their neighbours.

Pragmatic says:

Re: Re:

NAFTA has nothing to do with the debt. You’re thinking of the trade deficit, in which we’re importing more than we’re exporting but consumers don’t give a damn as long as their grocery bills are low.

However, to keep the bills low (and to compete with cheap imports) wages must be kept down. How are we supposed to thrive as a consumer economy if no one can afford to buy stuff? So everybody suffers and the shops shut. Paying for the surveillance required to keep the population in check, not to mention the wars that keep other nations in check, are what’s driving up the debt. As in, nice country you have here. It’d be a shame if anything happened to it…

Anonymous Coward says:

Food prices are not related to Nafta, they are commodities with a worldwide price
The other effects, especially deregulation and suing for future profits are bang on
Posting this here won’t have any effect on future laws, if you really want to make a difference you need to make this front page news, or perhaps make it a petition and gather enough signatures that the white house has to address it (the death star was a humourous reply)

Anonymous Coward says:

So a Democrat signed NAFTA into law?

Looks like liberal policies don’t work, period. So much for being for the little guy, they cut the little guys spending power buy a large chunk. That is why when a Democrat comes running and tells me they are here to help, I don’t believe it. They may think they are helping, though I doubt it, they are only hurting. They are driving us toward the point of no return at 100 mph. Don’t get me wrong, the Republicans are heading there as well, but at 50 mph. I figure we have more time for a course correction with the Repubs than we do with the Dems.

Anonymous Coward says:

Re: So a Democrat signed NAFTA into law?

NAFTA being a liberal policy is news to me, better check this out.

Hmmmm – lets see now. What was the Congressional voting on this item? Ahhh, here we go, seems the GOP was more in favor than the Dems.

But do not let that interfere with the mindless bs.

Anonymous Coward says:

Re: Re: So a Democrat signed NAFTA into law?

Bill Clinton signed it so yes, a Dem signed NAFTA into law. Now Dems want more bad trade agreements. That along with their fast failing domestic policies will ruin this country in surprisingly little time. But hey, if you enjoy failure and lies, this is the administration for you.

Pragmatic says:

Re: Re: Re: So a Democrat signed NAFTA into law?

Can we stop falling into the partisan trap, please? And stop shilling for the party that shut down the government only to achieve

a slight tightening of income verification rules for Americans accessing new health insurance exchanges created by the Affordable Care Act.

Until the crazy brigade are finally shown the door, they are not fit to govern. As for the Dems, they’re the best of the worst. I think it’s time to consider third parties, people. If a third party gets enough votes, they can make an impact. To make sure they get enough votes, we need to recommend their candidates and encourage people to consider voting for them. It’s not hard.

Anonymous Coward says:

Re: Re: Re:2 So a Democrat signed NAFTA into law?

Funny that Dems like to blame Repubs for Obama’s shutting down open air memorials, closing privately leased and run hotels on the Blue Ridge Parkway and sending armed thugs to kick elderly people out of their leased home. Things that have never happened in prior shutdowns. Also, the Repubs offered to fund the entire government except the ACA and the Dems rejected it. So the shutdown is on them. The really funny thing, except for those subject to the ACA, is the law is so bad I bet the Dems wish they had taken the Repubs up on the offer now so they could blame them. But don’t let facts get in the way of your blind loyalty to the Dems.

any moose cow word says:

Re: Re: Re:3 So a Democrat signed NAFTA into law?

Hate to break it to you, but the shutdown was on the House republicans. The Senate already passed their resolution back to the House, it was Boehner who refused to bring that to a vote. But don’t let facts get in the way of your blind loyalty.

And no, I really can’t stand either of the parties. They’ve both played their parts in creating the mess we’re in, and neither of them truly have ANY interest in fixing it.

Clownius says:

Re: Re: So a Democrat signed NAFTA into law?

Its sad but people buy this BS all the time. If its bad its those damned liberals. Even if they opposed it at the time….

Checking things out like this could lead to educated people and we cant have that right. Better they do what Fox News tells them to…

Access to Information is important. Hence why the Internet must be controlled.

We cant let them get that control

That One Guy (profile) says:

Re: So a Democrat signed NAFTA into law?

Ah the good old ‘No, it’s his fault!’ and finger-pointing, when in reality they’re both responsible for most of this crap.

The other AC pointed out that the ones most in favor of it while voting on it were republicans, you pointed out that the one who signed it into law was a democrat, seems to me that would mean that both share the responsibility, and it wasn’t just one being the ‘good guys’, while the other played the ‘bad guys’.

But hey, don’t let me keep you from missing the forest for the trees.

any moose cow word says:

Re: So a Democrat signed NAFTA into law?

You mean Bush Sr’s trade agreement, right? He’s the one who pushed for it, and he’s the one who signed it.
He failed to “fast track” it through congress before his term expired, but Clinton happily took up the cause and got it ratified.

Here’s how the vote was split:
House: 234-200
Supporters: 132 republicans (56.7%) and 102 democrats (43.3%)

Senate: 61-38
Supporters: 34 (55.7%) republicans and 27 democrats (44.3%)

Sure, more republicans voted for it than democrats, despite the fact that democrats had majorities in House (59%) and Senate (53%), it clearly passed both with bipartisan support.

When you guys get it? Both sides have largely sold out to corporate interest a long time ago. The whole stink over partisan politics is just a distraction from the plutocratic puppet show in Washington.

Anonymous Coward says:

Re: Re: So a Democrat signed NAFTA into law?

When you guys get it?

Oh, I get it. As I said originally, both parties suck but the Dems will drive us over the cliff much sooner. Besides, it is so much fun messing with Dems, they are such easy targets. That is what makes them the maddest. It isn’t that people disagree, it is that you can’t argue with truth and it makes them mad to be painted into a corner with their own words and deeds.

any moose cow word says:

Re: Re: Re: So a Democrat signed NAFTA into law?

but the Dems will drive us over the cliff much sooner.

Then you really don’t get it. Both of them are driving us towards cliffs, it’s just not always the same cliff at the same time. So, the perceived rate of approach to a given cliff only differs based on your relative perspective. From the outside, they’re both approaching cliffs at about the same velocity.

it is that you can’t argue with truth and it makes them mad to be painted into a corner with their own words and deeds.

The same is true of republicans or any dogmatic ideologue.

John Fenderson (profile) says:

Re: So a Democrat signed NAFTA into law?

Don’t equate Democrat with liberal. Clinton signed this, and Clinton was far from being a liberal — he was more like a classic conservative. Given that he managed to get some terrible conservative legislation passed (that even the conservatives couldn’t do) — including NAFTA — I argue that he’s one of the most effective conservative Presidents of the 20th century.

jcvillar (profile) says:

Not too sure about this one. The only signatories to NAFTA are the US, Mexico, and Canada. I don’t see the relationship to jobs scurrying off to Asia. I suppose you’re setting out NAFTA as the scapegoat for all free trade agreements and there is much to be said for that. H. Ross Perot predicted the “giant sucking sound” of U.S. jobs vacuumed away to foreign lands and that has certainly come to pass. Another brilliant example of how the wisdom of the successful and experienced entrepreneur trumps the wishful thinking of academia every time.

Anonymous Coward says:

there hasn’t been one ‘Trade Deal’ that has proven to be even 0.5% as beneficial as they have all been made out to be! every single one has lined the pockets of a few people, a very few companies, but has screwed a hell of a lot of companies and people in the other countries concerned. the reasons being that
a) all these deals originate in the USA, so as to benefit it
b) they involve countries that have cheap labour
c) they involve countries that have certain natural resources that the USA wants
d) no one in the USA gives a shit what adverse effects there are on the other countries or their populations.

Anonymous Anonymous Coward says:

Lies, Damned Lies, and those other thingies

I love the way statistics can say whatever you want them to. Sometimes it is really important to look into some details to understand what is going on. Here is a look at one set of exchanges that goes on under NAFTA:

“Mexico’s three million small-scale corn farmers saw prices for their crops fall 66 percent, largely because the United States increased corn exports by 400 percent, exporting at prices 19 percent below even U.S. farmers’ costs of production. (See my earlier study.) Call it the Age of Agricultural Dumping.”

Yep, fair trade.

Now I am not saying that I agree with this article, some of it sounds anecdotal, but it sure expresses a point of view that has a whole lot more common sense than any expressed by the gob’mint, or politicians (not always the same), and certainly not lobbyists.

Anon says:

Not True

At worst, NAFTA has been pretty much irrelevant. At best, it has removed for us Canadians a lot of petty annoying tariffs and regulations and stupid stuff (marketing bnoards keeping prices high for milk, cheese, etc.) Oh, yes, and when everyone from every other country was a terrorist and had to be finger-printed and eye-scanned at USA airports, Canadians and Mexicans got a free exemption due to NAFTA.

Where NAFTA has failed is where the US government has totally ignored its obligations in order to appease a bunch of minor voting blocks. Basically the USA violateed international agreements when a group like the lumber producers in Washinton State complained. Despite repeated board decisions that any tariffs on Canadian softwood were illegal under NAFTA, the Americans blithely went ahead and collected these tariffs, which then got distributed to the producers.

Meanwhile, the USA is pulling similar tricks by requirements like full tracking of (and labelling) all beef coming into the country. As a result, they are destroying the western Canadian ranching industry, which used to have a huge cross-border trade with the USA. Slaughter houses are finding it simpler to not buy Canadian beef than meet the certification standards. Of course, this is the purpose of the rules written by the purchased politicians and their beef-producer sponsors.

The problem was not that NAFTA did not have the desired effect it was that the USA ignores it when they see fit.

Just Sayin' says:

re-writing history?

Blaming NAFTA for lower wages ignores the reality of manufacturing in the US in the last 30 years, which has been a slow and steady shift to lower wage countries. That doesn’t man a shift to Mexico or Canada as much as a shift to China, India, Thailand, and Indonesia.

Check the label on your clothes, on your home products… they don’t say “made in Mexico” they say “made in China”.

Blaming NAFTA is to ignore reality.

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