NAFTA: A BAD AGREEMENT

PCDForum Column #48,    Release Date April 15, 1993

by Jorge G. Castañeda and Carlos Heredia

Mexicans, Americans, and Canadians have all been told by their governments that the recently negotiated North American free-trade agreement will benefit all. But what these governments have claimed is wrong. The negotiated agreement ignores the profound implications that flows of trade, capital, and investment bring with them. The argument is presented that as a commercial accord, NAFTA may disregard the considerably more complex and substantive social and political issues involved.

We are presented false choices for NAFTA: either this agreement or autarchy. Actually the choice is between the "bad" agreement already negotiated, a right-wing agreement of a neo-liberal Republican cast, and a "good" agreement, such as the social-democratic agreement on which Europe's economic integration is based. As the European's have recognized, a good agreement must encompass social issues and the relation between the state and the market.

The "bad" agreement lacks a regulatory framework, choosing to leave free trade exclusively to the free market. It deliberately avoids addressing other areas that will be affected by the commercial agreement: social, political, environmental and cultural. It fundamentally opposes the idea of planning, of choosing what each country will produce, of establishing how goals will be met, and of clarifying how certain sectors will be protected or exposed in order to reach long-term objectives.

The Mexican government asserted that Mexico did not need longer time spans for removal of restrictions or protection for its products, because the country was becoming part of the First World, competitive and modern. So there is no recognition of the disparities between Mexico and the United States.

A good agreement would recognize fundamental issues such as the costs of adjustment. Compensatory financing would ease the painful adjustments of integration, which will not be evenly distributed. Mexico's per capita income is eight to ten times less than that of the United States, its distribution of income is much more skewed, and levels of wages, productivity, efficiency and technology are clearly inferior. Other trade agreements, like the EC, have sought to redress such disparities by funding infrastructure, worker training, and technology transfer to bring less favored areas up to standard.

A good agreement would include a trilateral industrial policy, creating an alliance between the private sector and the three states to capture markets, develop technologies, and achieve dynamic competitiveness. An economic commission would be created to plan and monitor a regulatory framework.

Those who negotiated NAFTA almost completely ignored Mexico's main export: people. NAFTA currently says little about worker mobility. The governments are opening borders to goods and capital flows, while barring labor from entry. Mexico should have insisted on the gradual and selective liberalization of migration. A population flow that cannot be stopped or controlled has to be legalized; it is not possible to have an enormous undocumented population concentrated in 10 or 15 cities without consequential disturbances.

Beyond labor legislation is the question of upward harmonization of labor standards like collective bargaining, labor tribunals, the right to strike, health and safety standards, and wider union freedom. Workers should be allowed to organize and negotiate collectively at a continental level. NAFTA allows General Motors to decide what to produce in North America and where, but does not create conditions so that workers in Michigan and Coahuila can act jointly to influence industrial policy and wages in their areas. Including a social charter is the best way of starting to minimize differences between productivity and wages. In the auto industry, a Mexican worker with equal productivity will earn a wage between 20 and 25 times less than that of the U.S. worker.

The current accord glaringly fails to defend environment and consumer concerns. A good agreement would establish an environmental and consumer protection charter. One of the biggest incentives for U.S. companies to move to Mexico is to evade environmental regulation.

Finally, a good agreement would provide a supra-national and autonomous dispute resolution mechanism. This mechanism would have the power to investigate violation reports, make rulings, and determine sanctions.

It is still possible to negotiate a new, progressive social compact. NAFTA need not divorce the free-trade agreement from labor, emigration, environmental, or human rights provisions on the ground that it is only a "commercial agreement." Indeed, economic integration cannot be expected to produce beneficial results if it is separated from questions of political and social integration. The architects of European integration have long recognized this. So must the architects of NAFTA.

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Jorge G. Castañeda is visiting professor of public and international affairs at Princeton University. Carlos Heredia is a member of the Mexican Action Network on Free Trade and is currently associated with the Development Gap. This column was prepared and distributed by the People-Centered Development Forum based on their article "Another NAFTA" in World Policy Journal, Fall/Winter 1992.

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