On the eve of the North American Free Trade Agreementﾴs (NAFTA) 10th anniversary, researchers at the Carnegie Endowment for International Peace have concluded that the “pact failed to generate substantial job growth in Mexico, hurt hundreds of thousands of subsistence farmers there and had “minuscule” net effects on jobs in the United States.’ American jobs did not rush in to take advantage of Mexican labour.
The Carnegie Endowment, an independent, Washington-based research institute, found that after nearly 10 years – Nafta will be 10 in January 2004 – the agreement had failed to deliver the promised higher wages for the working classes in Mexico. The US and Canada are the other two Nafta members.
Nor could they find any evidence to suggest that Nafta had stopped the decline in income inequality or stop illegal immigration. These were supposed to be Nafta’s benefits.
Nafta Has Been Rough for Rural Mexicans
The Bahamas and its Caricom neighbours are being encouraged to join the FTAA, which is closely modeled on Nafta. Like Nafta before it, the FTAA is being heralded as the vehicle for growth and development in the region.
The promise of open borders, freedom of movement for both capital and labour, will finally put us on the path to that elusive state, economic well being for the region.
The researchers found trends but not the promised ones. John J. Audley who edited the report said that “Nafta has been rough for rural Mexicans.” He said that it “takes more than trade liberalization to improve the quality of life for poor people around the world.”
Higher Productivity But Lower Wage
The Carnegie Endowment study found that “real wages are lower today than they were ten years ago.” Nor has improved and higher productivity rates helped. Despite the fact that the real wages today are lower than they were before Nafta, the World Bank sees the glass has half full.
The World Bank, looking at Mexico’s experience has stated that Nafta “has brought significant economic and social benefits to the Mexican economy.” The Bank’s economists argue that Mexico would have been worse off without the trade agreement.
Luis Serven, the bank’s research manager for Latin America said that Mexico’s higher productivity in the Nafta years was ultimately the only route to higher wages there.
The Bank has not indicated how the trend of falling real wages in the face of rising productivity was to be reversed, particularly when higher productivity was against the backdrop of the spectacular economic growth in the US.
Nor has the bank indicated how being in Nafta will help Mexico, the weakest of the Nafta countries, to reverse income inequality or stop its citizens from crossing illegally into the US where the chances of reversing the trend of falling real wages are much more favourable than in Mexico.
Lessons From Mexico
Carnegie researchers, past and present, agree that Nafta has magnified and reinforced changes in Mexico’s rural economy, which are damaging the environment. According to Scott Vaughan, an economist who recently left Carnegie to head the environmental unit at the Organization of American States, Nafta has accelerated the shift to large-scale, export-oriented farms that rely more heavily on water-polluting agro-chemicals and use more irrigated water compared with producers of similar crops for the Mexican market.
“This is a trade pact which opened the U.S. economy to Mexico very profoundly, including years when the United States experienced its best growth in decades,” said Sandra Polaski, a senior associate at Carnegie who was director of economic research at the Nafta labor secretariat from 1996 to 1999. “Yet we can’t see a clear net increase in jobs in Mexico. You’d expect strong growth. You wouldn’t have expected to need a magnifying glass to find it. Mexico would have been better off with a better Nafta,” she said.
Negotiating A Better Deal For The Bahamas
The Bahamas and its Caribbean neighbours can learn much from the Mexican experience. Like Mexico, The Bahamas and the Caribbean are being told that the FTAA will generate jobs for the region. And also like Mexico before, the region is being asked to dismantle its customs duties and other ‘barriers’ to trade.
Mexico’s fatal mistake was that it dutifully opened its borders in the hope that the free movement of capital would boost its economy. As the study found, despite boosting productivity, Mexican workers are worse off today than they were ten years before Mexico joined Nafta.
The Carnegie Endowment researchers make a number of suggestions that could help Bahamian and Caribbean negotiators strike a better bargain for the region and mitigate if not avoid Mexico’s experience.
Protecting The Agricultural Sector
Regional negotiators should ensure that the agricultural sector has enough time to adjust to the tough competition from large, efficient and highly subsidized US farmers. The suggestion is particularly important to The Bahamas and the Region. The region has seen its attempts to protect its agriculture – sugar, cotton, bananas and vegetables – all but wiped out either by cheaper subsidized imports or high tariffs.
September 11 highlighted the fragility of food security in the region especially in The Bahamas where the bulk of the food is imported. In order to ensure that there is food to feed their populations, governments in the region will have to ensure that the Mexican experience is not repeated.
Training
The FTAA means competition. The Bahamian workforce will need training to increase its productivity and also to acquire new skills. This will cost money. If the Bahamian workforce is to avoid being relegated scrapping for semi-skill and non-skilled jobs then it must be trained.
The Carnegie researchers state that retraining the workforce should not be left up to developing countries. Negotiators should insist that international donors such the World Bank and the IMF along with the rich countries, finance transitional assistance for the retraining of workers and farmers displaced by global competition.
Manufacturing
A Bahamian businessman, speaking anonymously said that the Bahamas has to meet international standards if it is to meet the challenges of the FTAA. “There is something called the IS 9000 which is like a stamp of approval that says these products made in The Bahamas meet world standards,” he said
The Bahamian economy will have to be able to generate jobs in as many sectors as possible. The Carnegie researchers suggest regional negotiators insist that their manufacturing sectors have greater leeway to promote domestic suppliers over imported inputs for the domestic manufacturing sector. New jobs are created when domestic inputs for the domestic manufacturing sector are encouraged.
The Carnegie report argues that the lower tariff barriers may bring growth in some sectors but this growth is usually offset by lost employment in other sectors as they fall victim to falling prices for domestically produced products against cheap imports which flood the market.
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