The rationale for NAFTA (North American Free Trade Agreement), which came into force Jan. 1, 1994, was Ricardian (after the Anglo-Italian classical economist David Ricardo, who thought that each country should specialize in the production that most suited its climate and other characteristics).
Much of Mexico’s rural population was engaged in maize and wheat farming, which is much more productive in the vast plains of the central United States and Canada than in Mexico’s more rugged terrain. So the idea was to push the grain farmers off the land and move them into specialized fruit and vegetable farming, and into manufacturing which was supposed to be attracted to Mexico by the cheap labor of displaced farmers.
The Mexican government predicted that some 13 million would be displaced if Mexico removed tariffs on grain and other agricultural products. The combination of the fruit and vegetable farming plus exports from the newer “maquiladora” manufacturing sector (foreign-owned assembly plants) would give Mexican producers new access to the huge U.S. and Canadian markets, and turn Mexico into a “first world” country.
A study published by the Carnegie Endowment for International Peace in December 2009 explains how this worked out in practice. (“Rethinking Trade Policy for Development: Lessons from Mexico under NAFTA“)
One comment: The Carnegie study does not give adequate attention to the impact of the Mexican financial crisis of December 1994. To save U.S. firms invested in Mexico, President Clinton and Treasury Secretary Robert Rubin organized a bailout loan of $50 billion. In exchange, the Mexican government was forced to cut back on measures to soften the impact of NAFTA. But the U.S. increased its subsidies for grain exports by U.S. agribusiness.
NAFTA added about 500,000 manufacturing jobs to the Mexican economy, but most of this growth was in the shaky maquiladora sector while Mexico’s own national industry declined. Many jobs were also created in the service industries, but most were low paid or “informal” without security or benefits.
But between 1994 and 2008, at least 2.3 million jobs in agriculture were lost, and the income of Mexico’s grain farmers was cut in half. Since each job was probably supporting at least five people, between 11 million and 12 million rural Mexicans have likely been displaced by NAFTA.Expanded fruit and vegetable cultivation has not been nearly sufficient to take up the slack. And the maquiladoras are decamping to countries with even cheaper labor.
For Mexico, NAFTA has not produced nearly enough well-paying new jobs, especially as a million new workers enter the labor market every year from population growth. The Mexican economy has stagnated and poor Mexicans are getting poorer, producing one of the highest inequality rates of the Western hemisphere.
On immigration, the Carnegie Endowment study says, “In spite of the rising militarization of the U.S. border, migration increased from about 350,000 a year before NAFTA to 500,000 per year by the early 2000s. According to some estimates, the Mexican-born population in the United States increased from 4.5 million in 1995 to 9.7 million in 2000 and 12.7 million in 2008, of which around 55 percent is undocumented”.
In 2005, only 5,000 work-related permanent resident U.S. visas were issued to poor farmers and workers. So, much of the increased migration has come in “without inspection.” The Carnegie study also points out that as the U.S. has cracked down at the border, thousands of undocumented immigrants who might otherwise have come for short stays are now staying permanently.
Other countries, notably Brazil, China and India, followed different policies, putting far more resources into improving the well being of ordinary working people, and have done much better.
Mexico has been prevented from doing this by internal and external factors. Internal factors include the right-wing anti-worker ideology of recent Mexican administrations, while the main external factor is the fact that 85 percent of Mexico’s trade is now with the United States, an octopus-like death grip from which it is hard to escape. The Mexican economy retracted more than those of any others in the hemisphere from the 2008 international financial crisis (9 percent) partly because it is so heavily affected by things that happen in the U.S.
It is unconscionable to blame and persecute Mexican and other immigrants who are forced to migrate because of trade policies that our own government has so forcefully promoted. We need comprehensive immigration reform that legalizes those already here and expands the available number of legal resident visas.
“Renegotiating NAFTA,” as some advocate, would be good if it brought the economic level of Mexican farmers and workers up to those of U.S. and Canadian farmers and workers, but it is not likely to happen soon, because both Prime Minister Harper of Canada and President Calderon of Mexico refuse to countenance it, and the Obama administration appears reluctant to push it.
But we can fight against the tendency in our political circles and corporate media to demonize and destabilize foreign leaders who are trying to create new trade mechanisms not dependent on the U.S. and different from NAFTA in that they judge their success by the improvement of the living standards of their people, not the corporate bottom line.