This task force was called upon to make policy proposals concerning the future of the North American Free Trade Agreement (NAFTA), including its possible expansion to Chile and other Latin American countries. In responding to this call, we have provided a comprehensive assessment of the effects the North American Free Trade Agreement has had on its member countries up to this point, and proceed from this point to make specific policy recommendations for the future. We show that the agreement has fostered increasing continental interdependency, and that the resulting interlinkage of economic relations has also lead to other forms of shared concerns. In sum we identify four main threads of resulting interdependency, financial, labor market, environmental, and social. Each of these interdependencies is addressed here insofar as each is woven into the more general tapestry of continental interdependency. However, by pulling them apart in our actual analysis we seek to pinpoint more discretely the new opportunities as well as the challenges facing policy makers as they consider the future of North American Free Trade. Combined together, the collected analysis and proposals put forward by this task force present a new call to deepen NAFTA by strengthening the ties of interdependency, a strengthening that will ensure that the ties can in fact be sustained into the future. Only with such deepening can the social, environmental, and labor market interdependencies be justly and democratically combined with the economic interdependencies that are their origin. In other words, the task force suggests that the original promises of a grand free trade future that benefits all can only be fully realized and widened to other would be members if the knock-on effects of NAFTA on social, environmental, and labor market exchanges are more effectively managed.
"Is it a perfect agreement? No. But I don't want to make the perfect an enemy of the better.""We have to struggle to redefine a new balance between security and change in this country, because if we're not secure we won't change, and if we don't change, we'll get more insecure, because the circumstances of the world will continue to grind us down. And that is what makes this such a difficult time, because we have to rethink so many things at once."
President Bill Clinton (1)October 4, 1993
The world is becoming increasingly interdependent. Economic, social, and environmental ties have been, and continue to be, created between countries around the world. Most significantly, the focus of state's interactions have shifted from one of national security to trade related issues. Such movement has enabled economic or political success or disaster in one country to directly affect others in a similar way. This interdependency, or what some dub 'globalization' of the world, has reduced the significance of national borders and diminished national sovereignty in countries that participate in liberalization policies.
Within this context, national economies have banded together in an effort to create trade policy agreements that allow for the lowering of tariffs and non-tariff barriers to trade, and further integration through the free flow of goods, services and investment. The North American Free Trade Agreement stands as the epitome of this movement.
Following the Canadian-U.S. Free Trade Agreement (CUFTA) in 1987, and in the wake of the World Trade Organization (WTO), the governments of Canada, Mexico, and the United States embarked upon a regional trade agreement in 1993 that would united all three member economies. NAFTA's main goal was to reduce tariffs and non-tariff barriers between the U.S., Mexico, and Canada. Each member looked forward to enjoying economic growth, an increase and provision of jobs, and a rise of environmental standards in all three countries. To date NAFTA has been successful in its reaching goal to lower tariffs and trade barriers, and has provided the means for global competitiveness and increased trade among all three-member countries. The most successful results of NAFTA can be seen in the United States where today the economic bill of health has never been better. Mexico, with its newly opened economy, successfully engages in trade with the European Union and Japan, as well as its NAFTA trading partners. Canada, while undergoing adjustments in employment, is gaining economically from engaging in NAFTA and economists an increase in its economic growth in the near future. Looking even further, all three-member countries hope to further extend NAFTA to parts of Latin America under the Free Trade Agreement of the Americas. It is for this reason that both the positive and negative outcomes of NAFTA be examined. We must determine whether NAFTA can successfully continue in its current form without addressing the social obligations that have gone unmet thus far.
What was originally proposed as a trade agreement that would ensure economic growth and an increase in jobs in all three countries, has instead resulted in the downward harmonization of environmental and labor standards, and a growing insecurity and instability in financial and labor markets. All this is compounded by on going concerns about the basic human rights situation in all three-member countries, most frequently foregrounded by Mexican reports of the crisis in Chiapas. These are obviously large and sweeping claims, and the four main sections of the report deal with them by breaking them up for analysis along the lines of the four main threads of interdependency. Each section not only assesses the present problems, but also summarizes the proposals of each contributor to improving and sustaining the nature of the interlinkages into the future. Ultimately, our overall proposal is that through carefully targeted forms of deepening, the possibility of widening and the political support for widening to new members grows much brighter. These proposals will be summarized last, and to begin with, this summary now turns to describe the first main analysis of interdependency, namely the section of financial interlinkages.
Among the effects of interdependency is the creation of links between liberal trade policies and economic stability. This is also the case for NAFTA. During the 1982 debt crisis and during the 1994 peso crisis, countries around the world felt economic and financial shock waves that centered from Mexico. In an effort to protect its own economy, the U.S. along with the IMF, stepped in to aid troubled Mexico through a financial package. In chapter one Erin Hallock points out that the Mexican crisis had demonstrated that economic interdependency, without the necessary safeguards, have the ability to wreak havoc on not only the economy in crisis, but also those with whom economic transactions are engaged.
Similar safeguards are necessary for the banking system. The lack of regulatory agencies overseeing the lending activities of banks has not only created structural inefficiencies within the banking sector but has created the potential for economic crisis, like the one endured by Mexico. Nisha Thirumurthy believes that "Any event that triggers the sudden outflow of capital is detrimental to a developing country that is hungry for investment and to the other economies with which it is interdependent." She continues to argue that without institutions to oversee bank-lending activity long-term risks become an issue in creating sustainable economic development.
David Cagen centers his chapter on the winners and losers of NAFTA. Examined are the effects that NAFTA and neoliberal trade agreements have had on member countries. David argues that while member countries have benefited on a macroeconomic level, the microeconomics of member countries have been compromised. Free trade and neoliberalism have produced an increasingly large disparity in income levels in the three member countries. Inherent problems in neoliberal ideology have fostered wage disparity, which ultimately leads to instability and inequality within specific job sectors. The winners of NAFTA have been identified as the MNCs, skilled workers and large banks who take advantage of cheap labor and goods from the Mexico. The losers of NAFTA are the marginalized workers, unions, women, children, and indigenous peoples from within each member country whose government has not taken steps to ensure standards of labor and living are met.
To exacerbate this problem NAFTA's free-trade policies have created a division of labor on a grand scale, forging interdependent relationships through free trade. Mexico, for example, is the primary producer of raw materials and cheap labor while the U.S. and Canada produce industrial and high-tech products and provide jobs that require higher skills. This, David Cagen explains, "reinforces the dependence of Mexico upon the developed nations to be outlets for Mexican primary products and providers of low wage jobs". This seriously affects labor in terms of job displacement, workers rights, and wage disparities. The labor side accord has failed to achieve its promises in terms of protecting those who have been negatively affected, by leaving labor issues to the MNCs.
One way in which we can begin to search for solutions in addressing these problems is to look to other models for alternatives problem solving ideas. Incorporating a deepening strategy into multilateral trade agreements is not a new proposal. The European Union, for example, has included social standards in its multilateral agreement. Nicole Stubbs has examined the EU as a role model and takes into consideration the possibility of learning of from the EU's example of deepening in the context of globalized free trade.
There is a great dissimilarity between what NAFTA proponents foresaw in terms of job growth and what NAFTA's effect on labor has been after implementation. High wage jobs and job market growth were anticipated in 1993 at the height of NAFTA's push. What has actually happened to the labor market within and among the U.S., Mexico, and Canada has been job displacement, wage disparity, and labor migration. The worker adjustment assistance plan and the North American Agreement on Labor Cooperation (NAALC) signed as a side agreement to NAFTA, had been created to take these problems into account. However, today these designs have failed to provide a real enforcement mechanism to ensure workers rights are compensated. Job displacement, labor migration, and wage disparity remain everyday occurrences.
Molly Scott argues in her chapter that one of the reasons numerous workers have been displaced is because of the number of jobs in manufacturing sectors has severely declined. This decline has displaced numerous workers while the number of jobs that require additional amounts of education and training increase and remain unfilled. As professional occupations increase the manufacturing labor force continues to be displaced in all three-member countries. The worker adjustment assistance program falls short in its effort to provide availability and protection. Workers rights continue to be violated without any labor law enforcement to address the problems. As the division of labor increases, these problems will worsen if enforcement does not occur.
Another problem labor must face is the issue of migration. One of the main arguments made by NAFTA advocates was that free trade would enable an increase in wages and would create stability, which would serve as incentive for undocumented aliens to remain in their home countries. NAFTA proponents promised less immigration pressure on U.S. borders, arguing that democratization in Mexico would lead to stability and in turn would reduce migration pressures. In her chapter, Yasmin Azam found that "contrary to this belief, migration has increased tenfold since NAFTA was signed." Migration continues to be a serious problem and a source of friction between countries.
One reason labor migration continues, is due to the movement of Mexican farmers from farm lands to metropolitan areas, who seek higher paying sustainable jobs. Many of these farmers have been beat out by larger American companies who are more technologically advanced and can produce less expensive, higher quality produce. As mentioned above, job displacement has added to the problem of labor migration, forcing workers to look outside their borders for job opportunities. Currently there is a need for policies that address job displacement and other causes of labor migration.
There are several policy alternatives to the present problems facing labor and communities in the context of free trade. In her chapter Rebecca Stanton maintains that the side accords on both labor and the environment, have failed to be an effective policy in addressing labor and immigration issues. Reasons behind the failure of the side accords have been the serious lack of enforcement mechanisms. Without such mechanisms in place these side accords are merely seen as aesthetic touches to a trade agreement. Concerted efforts need to be made to ensure the three member governments take action when countries fail to meet standards agreed to within NAFTA. An effort to regain sovereignty is necessary for action to be taken. By encouraging nations to enforce labor standards, more suitable standards of living will increase and inequalities will decrease allowing NAFTA to be a fair as well as free trade agreement.
NAFTA had hoped to address the problems of labor through the NAALC, but this institution greatly lacks enforcement lending to social instability. Margaret Bek examines the possibilities of incorporating standards and enforcements found within the EU, with regards to basic workers rights, migration, and institutions. She draws a comparison between labor problems within NAFTA and similar problems within the EU and while the situation may not be completely identical it is possible to use the EU as a role model in reaching a deepened NAFTA agreement.
Neoliberal policy making has contributed to social instabilities within member countries in the form of free trade agreements that bring about an increasing amount of freedoms to MNCs. Most notably, it has allowed MNCs to escape government inquiry with regards to human rights violations. Within this subsection of democratic stability, Carol Hartt sets the stage for examining the number of groups, from indigenous peoples to women and children, that have been largely marginalized from the democratic process, subjugated in various ways, and/or denied suitable standards of living. It is through a shift in sovereignty, a movement away from government that has enabled social instability within member countries to occur. Governments have turned away from the responsibility they owe to their citizens in the wake of an agreement that was intended to be beneficial to all. Yet certain groups, such as women, continue to be marginalized
Stacey Stack examines the effects NAFTA has had on women with relations to socio-economic stability. Women make up a large percentage of the workforce in border-town factories, known as maquiladoras, and who suffer great inequalities and social injustice. Within this job sector many women are forced to work at low skilled jobs with extremely low wages and under poor working conditions. Due to the lack of alternative job opportunities these women find themselves tied to positions that can barely provide a sustainable living. These inequalities stem from MNCs, whose efforts are concentrated on remaining competitive by offering cheaper imports.
Thus far the NAALC promises have neither been kept nor enforced. Maquiladora companies keep employee costs to a minimum by providing low wages, refusing to offer maternity benefits, and minimizing the possibility of job advancement to women. Job training essentially remains non-existent for women in these sectors. This practice of free but unfair trade subjects women to continued sexual harassment, low wages and human rights violations. Because these jobs are competitive, women will continue to work in impossible working conditions. This social inequality that women in the workforce face is exacerbated by cuts made by member countries in social spending. Cuts in welfare, health care, public education, and housing leave families with virtually no other option for social sustainability. Governments fail to take responsibility while its citizens endure social injustices on various levels.
Vicky Vanderpol's chapter examines how these cuts in social spending have been felt most strongly by children, whose lives have been altered and have little or no democratic voice. Vicky found that within certain areas, children lacked the solid education or health care needed during the most important years of development. This is largely due to cuts in public spending. Health care, public education, housing subsidies, and direct assistance programs are reduced as member countries maintain their commitment to neoliberal reforms. This in turn eliminates or greatly reduces the nation's "safety net" which so many children are dependent on for survival.
Indigenous people's lives have been severely impacted as a direct result of NAFTA. Through neoliberal policy, governments have not only turned away for the socio-economic problems of women and children but also their indigenous peoples. In his chapter, Matt Sisk centers on the Zapatista uprising and how through the use of discourse, the Mexican government was able to manipulate national identities and agendas. In its efforts to transform itself into a first world status country, Mexico has marginalized its indigenous peoples in terms of democratic voice and equitable economic and social welfare.
Rather than working to support and provide for these marginalized groups within society, free trade has in essence encouraged its continuation. Governments of member countries continue to cut public spending in efforts to balance budgets and continue on with neoliberal reforms. Yet what governments fail to take into consideration are the long-term affects these policies will have for the future. In economic terms, as more citizens fall into poverty and social instability, they will become less likely to contribute to the market system and labor force. Continued cuts in education result in large numbers of children growing into poverty and who will be most likely to become adults who take low skilled low paying jobs.
Neoliberal policies have also contributed to the downward harmonization of the environment. These policies have not only effected the health of living generations but has damaged the environment so severe that coming generations will continue to be affected far into the future. Nicole Oliver examines the importance of integrating environmental considerations into trade liberalization agreements. In her chapter, she argues that without making this connection, the future growth spurned by free trade will result in increased environmental degradation. By recognizing the need for governments to increase funding for research and development of innovative, environmentally friendly technologies, NAFTA can successfully deal with environmental degradation.
Yet, before it is possible to suggest a deepening strategy with regards to the environment, it is necessary to investigate the handling or mishandling of externalities. Karen Fisher's chapter deeply examines NAFTA's dispute resolution mechanism within the side accord, how the North American Agreement on Environmental Cooperation (NAAEC) was created, and how effective this process is in reality. One of the main obstacles facing policy making is dealing with externalities that companies must face. Without enforcing the standards that NAFTA has already created in its side accord, the North American Agreement on Environmental Cooperation (NAAEC) will continue to have little significance in addressing the serious problem of the environment.
This examination of institutions is continued by Wendy Dodds and Virgil Mabalay, who recognize that NAFTA has made efforts to take into account the pressing problems of the environment. In comparison to other trade agreements that currently exist, they argue that NAFTA has made a serious effort at addressing environmental issues by creating institutions such as the Commission on Environmental Cooperation (CED) and NAD Bank. While these institutions do not operate to their fullest potential they do serve as important beginning from which to work.
NAFTA's effect on each of these interdependencies has greatly hindered the possibility of a mutually beneficial trade agreement. Neoliberalism has faltered in the sense that governments subscribing to its policies and ideology have not managed to provide socially for its citizens. The neoliberal analogy that "a rising tide lifts all boats" has not materialized. As argued throughout this document, it is necessary to include a deepening strategy into the NAFTA agreement in order for it to live up to what was initially proposed by government leaders. We must improve upon an agreement that is good to one that is best for all through a change in perspectives about trade. Government and businesses must change from dealing in free trade to ensuring fair trade. The difference is taking into account benefits for all areas and ensuring that winners are not confined to MNCs and large banks.
Given these findings, the course of action must be a movement towards social deepening and renegotiations of the North American Free Trade Agreement. The guarantee of free market access to foreign-based corporations in the three member countries would be contingent upon their recognizing and abiding by these standards. Carol Hartt proposes that "these standards should encompass labor rights, such as collective bargaining, and a ban on child labor; social standards such as public health care, educational and social assistance; and environmental standards such as pollution controls and export quotas on natural resources". This task force has taken the above mentioned into account and has developed the following policy proposal:
Any renegotiations of NAFTA based on a deepening strategy should contain comprehensive standards and enforcement mechanisms that would require the highest degree of cooperation from those who are involved and who are directly affected by NAFTA. Cooperation by member governments, businesses, NGOs and experts of the field must be encouraged in order to ensure that any deepening strategy that is added to NAFTA will not simply add no more than token significance.
While this document is not suggesting a call for a protectionist approach, it is suggesting that governments of each member country live up to what was promised to its member's citizens at the point of NAFTA's endorsement. Including a deepening strategy at this point would be a timely opportunity in the face of revived fast-track negotiations as well as President Clinton's visit to Chile, along with Prime Minister Jean Chretien and President Zedillo, to discuss the Free Trade Agreement of the Americas set for the year 2005. Member countries should be encouraged to step forward and set a precedent of including a deepening strategy into the trade agreement with governmental backing and support from all member nations.