Commentary | Trade and Globalization

Investors cleaning up while workers suffer


Investors cleaning up while workers suffer

By  Robert E. Scott

It has often been said that a free trade agreement need be only one page long. NAFTA, with its 2,000-some pages, is much more akin to a new, hidden constitution for the Americas than to a simple free trade agreement. Unfortunately, it’s also one that tramples the rights of all working people.

Nowhere is this clearer than in chapter 11 of the agreement, which deals with the arcane topic of “investment.” This chapter gives private corporations the right to sue governments in other countries – in effect overruling that government’s laws – if their ability to earn a profit from a business activity has been “taken” by government regulation, no matter how mundane or ordinary.

These suits would be heard in secret by a new system of tribunals and decided by “experts.” There can be no appeals. If this sounds like Kafka, perhaps it should.

The agreement as a whole seems designed to tilt the global playing field in favor of investors and against workers. So far, that seems to be working, as recent studies by the Economic Policy Institute and others have shown.

NAFTA eliminated more than three-quarters of a million U.S. jobs between 1993 and 2000 because of the rapid growth in the trade deficit with Mexico and Canada. And that’s just the beginning. NAFTA has also contributed to rising income inequality and depressed real wages for production workers and has inspired more companies to threaten moves to Mexico and other countries to reduce wages, eliminate benefits and work rules, and thwart union organizing campaigns.

NAFTA supporters often tout the benefits of exports while remaining silent on the impacts of rapid import growth. But any fair evaluation of the impact of trade on the domestic economy must include the effects of both imports and exports. It matters tremendously to U.S. workers and jobs whether the United States exports 1,000 cars to Mexico – or imports 1,000 cars from Mexico rather than building them domestically.

Counting only exports and ignoring imports is like trying to balance a checkbook by counting only deposits, but not withdrawals. For nearly three decades, the United States has suffered steadily growing global trade deficits, and these deficits have accelerated rapidly since January 1994, when NAFTA took effect.

Although gross U.S. exports to its NAFTA partners have increased dramatically – with real growth of 147 percent to Mexico and 66 percent to Canada – these increases have been dwarfed by the growth in imports, which have risen by 248 percent from Mexico and 79 percent from Canada. The combined U.S. net export deficit with these countries jumped 378 percent – from $16.6 billion in 1993 to $62.8 billion in inflation-adjusted dollars by 2000. As a result, NAFTA has led to job losses in all 50 states and the District of Columbia since 1993.

The growing U.S. trade deficit has been further compounded by substantial currency devaluations in Mexico and Canada, which have made both countries’ exports to the United States cheaper while raising prices on U.S. goods in th ose markets. These devalued currencies have also encouraged investors in Canada and Mexico to build new and expanded production facilities so they can export even more goods to the U.S. market.

NAFTA has also been bad for Mexican workers, whose real wages have fallen by 25 percent after the 1993-94 peso crisis. There has also been a tremendous increase in the number of people who are working at low-wage and non-paying “family” work jobs, subsistence-level employment for desperate workers.

Canada’s workers have not fared much better, but for their own reasons. The structure of Canada’s social welfare system has been frayed to the breaking point as state and national government tried to compete with the United States for jobs and business investments by a decade of steady and massive cuts in taxes and public services.

In the last analysis, NAFTA has served the interests of only one group: investors in the United States, Canada and Mexico. It is time to rebalance the scales by addressing some of the social problems left behind by NAFTA. Each country has developed huge unmet social needs for education, child care, training and other work supports. Also needed are bills of worker rights and environmental standards that have teeth.

We must see NAFTA’s failures and correct them. It cannot be undone. Our only choice is to start a new page.

Robert Scott is an economist at the Economic Policy Institute.


See related work on NAFTA | Trade and Globalization

See more work by Robert E. Scott