Immigration Laws: January, 2004 - Number #09

The North American Free Trade Agreement was 10 years old on January 1, 2004. In the early 1990s, Nafta was controversial in the US, with presidential candidate Ross Perot asserting there would be a "giant sucking sound" of jobs leaving the US for Mexico. President Clinton overcame opposition from the AFL-CIO and Congressional Democrats with the promise that Nafta would increase prosperity "from the Yukon to the Yucatan."

Trade between the US and its Nafta partners increased sharply between 1993 and 2001- US exports to Canada went from $107 billion to $145 billion, and US exports to Mexico rose from $47 billion to $91 billion. US imports rose even faster: from Canada, from $129 billion to $217 billion, and from Mexico imports rose from $45 billion to $131 billion.

Nafta was expected to create jobs in Mexico, raise wages, and, eventually, decrease unauthorized Mexico-US migration. US Secretary of State Warren Christopher in November 1993 said: "As Mexico's economy prospers [under Nafta], higher wages and greater opportunity will reduce the pressure for illegal migration to the United States." Mexico's per capita economic growth was one percent a year between 1994 and 2003, compared to seven percent in China. The best estimate is that the number of unauthorized Mexicans in the US rose from two million in 1990 to 4.8 million in 2000.

Nafta got off to a promising start in Mexico, where employment rose in 1994. However, in December 1994, just before President Zedillo was inaugurated, there was an economic crisis- the peso fell sharply, and the US provided emergency funds to stabilize Mexico. Job growth resumed in 1996, and formal Mexican employment peaked in 2000, as employment in maquiladoras, which expanded under Nafta, reached 1.3 million, or 10 percent of formal sector jobs.

However, when the US went into recession in 2000-01, maquiladora employment fell, and remains below peak levels because many of the border assembly factories, especially those producing textiles and apparel, have moved to China and other countries with lower wages. Of the 700,000 new maquiladora jobs generated in Nafta's first seven years, 300,000 were eliminated between 2000 and 2003. Mexico must upgrade worker skills and productivity or risk even more assembly-type jobs leave the country. Maquiladoras produced $78 billion in exports during 2002, nearly two-thirds of that from American parts assembled in Mexico and re-exported to the United States.

Agriculture. Critics charge that Nafta devastated Mexican agriculture, which generates about five percent of Mexican GDP. About 25 percent of Mexicans live in rural areas, and 20 percent are mainly employed in agriculture.

Oxfam International charged that US farm subsidies have led to "rural misery in Mexico" by reducing Mexican corn prices by 70 percent. A third of the corn used in Mexico is imported from the US, and is usually fed to animals. Corn is planted on 50 percent of the Mexican land that is farmed, and much of this land is not irrigated. Some three million Mexicans depend at least partially on corn production, but most of the poorest corn farmers produce white corn that is used to make tortillas for their own consumption.

Protests early in 2003 prompted the Mexican government to increase support for Mexican farmers, and led US corn farmers to complain that the Mexican government subsidizes corn at a higher rate on a per acre basis than the US does. However, larger US farms mean US farmers get far more subsidy per farmer.

Rural Mexico is dominated by ejidos, the communal farms that include 103 million hectares, or 56 percent of the arable land and 70 percent of the forests. In order to ensure that peasants had land, until the early 1990's,ejido land could not be sold, which limited productivity-increasing investments. The 29,162 ejidos became synonymous with rural poverty, and in 1992 the constitution was amended to allow the sale or rental of ejido land.

Evaluations. There are many evaluations of Nafta. Ex-President Salinas in January 2004 said that recession and a lack of Mexican reforms prevented Mexico from achieving Nafta's promises. He said "The problem for Mexico lies inside, not outside." The World Bank's Daniel Lederman, co-author of "NAFTA Is Not Enough," argued that, to benefit more from Nafta, Mexico must invest more in innovation, education, telecommunications, and do more to reduce corruption- free-trade agreements are not substitutes for development strategies. The World Bank concluded that Mexico would have been worse off without Nafta. With Nafta, Mexico's per capita income was $5,900 in 2002; without Nafta, it would have been $5,600.

Nafta speeded up changes in Mexico, creating jobs in services and manufacturing, especially in the northern border states, and raising the demand for and wages of skilled workers. However, as growing competition with China for simple assembly-line manufacturing jobs attests, Mexico has relatively high labor costs for unskilled workers. Mexico's period as a subcontractor for the US proved to be short-lived, roughly from the mid-1990s to 2001. Further south, Nafta's tariff reductions combined with other Mexican policies to speed the displacement of labor from agriculture, but there was little job creation and wage growth for less skilled workers, including those leaving the farm.

Many of the evaluations of Nafta's first decade concluded that trade-led growth was not sufficient to bring prosperity to Mexico: real wages in Mexico were lower in 2001 than in 1994 despite higher productivity, income inequality is greater and Mexico-US migration rose in the 1990s. Poverty remains widespread: half of the 104 million Mexicans are considered poor, including 42 million who have less than $2 a day (the daily minimum wage is about $4 a day). One report concluded: "It takes more than just trade liberalization to improve the quality of life for poor people around the world."

The AFL-CIO made defeat of Nafta its number one priority in 1993, and AFL-CIO President John J. Sweeney said in November 2003 that: "We really feel that the record is clear after 10 years that Nafta has failed American and Mexican workers."

Labor and environmental issues were dealt with in side agreements to Nafta that have not been very effective in protecting worker rights or the environment. However, critics charge that Nafta's investor protections have worked too well, allowing foreign companies to sue for damages if federal, state, or local laws reduce the value of their investments.

Some $13 billion in investor suits have been filed under Nafta, including one filed against the US and California under Nafta's Chapter 11 by Canadian mining company Glamis Gold, which alleges that restrictions the state placed on Glamis's planned open-pit gold mine in Imperial county were "tantamount to expropriation." California in 2002 required open pit mines to backfill and flatten mine waste piles at new open-pit metal mines; Glamis says this is changing the rules on foreign investors, and sought compensation. Canada's Methanex Corp has already sued California, seeking $1 billion in compensation after the state phased out methanol, a gasoline additive, because of health concerns.

The United States, Mexico and Canada have signed bilateral free-trade agreements with more than 40 nations since Nafta took effect in 1994, and are in negotiations or informal talks with about 50 more agreements.

Celia W. Dugger, "Report Finds Few Benefits for Mexico in Nafta," New York Times, November 19, 2003. Elizabeth Becker, "Modest Goals for Meeting on Free Trade," New York Times, November 15, 2003. Oxfam International. 2003. Dumping Without Borders: How U.S. Agricultural Policies Are Destroying the Livelihoods of Mexican Corn Farmers. August.