Book Review

Lessons from NAFTA: The High Cost of Free Trade
Edited by Kareb Hansen-Kuhn and Steve Hellinger
133 pp., 2003
Canadian Centre for Policy Alternatives
(75 Albert Street, Suite 410; Ottawa, ON, K1P 5E7, Canada)

Neo-conservatives nowadays are promoting free trade as a key component of economic development. To advance their case, they use the North American Free Trade Agreement (NAFTA) and the Canada-U.S. Free Trade Agreement (CUFTA) as supposed models of free trade.

However, according to “Lessons from NAFTA: The High Cost of Free Trade,” NAFTA and CUFTA have been economic disasters for North America. This well documented work persuasively argues that not only have they failed to meet the lofty goals of those who championed the agreements, but they have contributed to a falling standard of living.

Proponents of NAFTA argued that the agreement would lead to economic growth, more employment, greater productivity and higher wages for Mexicans, Americans and Canadians. According to Mexican researcher Alberto Picard, NAFTA has not led to a high growth economy nor development in Mexico. The huge trade surplus with the U.S., the large number of new jobs created and the economic diversification that has taken place cannot be attributed to NAFTA, as supporters of the trade deal allege. The trade surplus is largely due to increased petroleum, maquiladora exports and intra-firm trade among US companies. He also notes that Mexico has run trade surpluses in the past before NAFTA existed.

Furthermore, Mexico’s large maquiladora manufacturing sector that existed before NAFTA is an island in the Mexican economy, not much linked to the national economy. Firms import most components and raw materials, assemble them and then ship them to the United States.

The large volume of new investments that poured into the country was used mainly to buy existing businesses and enlarge the maquiladora sector. It has also led to lower levels of job creation in comparison to pre-NAFTA days, since many national suppliers went out of business after NAFTA. Real wages fell.

Moreover, Picard states that NAFTA restricts the power of democratically elected governments to determine economic policy. For instance, under NAFTA governments cannot impose performance requirements in which manufactures must use domestically produced components or favor nationally owned firms when contracts are dispensed.

Rather than enhancing food security, Mexico now imports more food than it exports. Picard notes that Mexican farmers are unable to compete with more capital intensive, heavily subsidized U.S. farmers.

As a result, 2 million jobs have been lost in agriculture leading to increased rural poverty, higher food costs and declining prices paid to producers.

Despite the fact that direct foreign investment and exports grew, the nation experienced a lower rate of economic growth in comparison to pre-NAFTA periods.

Picard also discusses free trade in a larger context. As Picard correctly states, the “Asian Tigers” in South East Asia did not develop through free trade. In fact, they rejected neo-liberal free market development and opted for state measures to protect and nurture their firms until they were able to compete on the world stage, a point that Picard fails to explore.

This was also the case with the U.S., England, France and the other developed Capitalist countries. He also states that free trade has to be seen as yet another instrument by the developed capitalist countries to ensure that the Third World adheres to neo-liberal economics.

In the U.S., according to David Ranney, NAFTA has led to massive job losses in the manufacturing sector and a shift of work towards the low paying service sector.

Canada has experienced the same insidious effects under NAFTA and CUFTA. According to Ranney, John Foster and John Dhillon, 17 percent of jobs have disappeared in the manufacturing sector under free trade and new job growth has produced many low-wage, part time jobs.

The new jobs generated were half of the number created before free trade. Wages have stagnated despite increases in productivity. Furthermore, social spending was cut because government and business leaders argued that Canadian conditions had to be harmonized to U.S. levels.

Despite claims made by proponents, free trade has not led to greater access to U.S. markets as Canada remains subject to arbitrary U.S. actions such as punitive duties on lumber and wheat exports.

The authors are especially critical of NAFTA trade tribunals in charge of resolving disputes. Not only do they have more authority than national courts and government bodies, these tribunals operate secretly, do not have to provide information to the public and their decisions cannot be appealed. They permit companies to bypass local judicial and government bodies and sue governments for actions that reduce profits.

The Mexican, U.S. and Canadian governments have failed to revise these harmful investor state provisions. More disturbing, Mexico and the U.S. have signed trade deals with other nations that have these same provisions.

“Lessons From NAFTA” is a compelling critique of free trade. The book’s one defect is the its failure to define some of the economic terms they use, but despite this, the book is accessible to the average reader.

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