What the Deal is for Workers under NAFTA

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The negotiation of the free trade agreement of the Americas (FTAA) continues. And, with it, Jean Chrétien, George Bush and endless editorialists wax eloquent about the benefits of free trade and globalization. This time, they say, the poor of Latin America will be the big winners.

Although the draft text has still not been made public, we can be certain of one thing. The FTAA will not deviate much from the North American Free Trade Agreement (NAFTA), which - together with the original Free Trade Agreement (FTA) - has been in operation for the last twelve years. Since NAFTA is the template, evaluating its impact on working people should be a valid test of how people might be affected by a deal for the Americas.

Everyone agrees that trade and investment among Mexico, the U.S. and Canada has expanded rapidly. But what has happened to low- and middle-income people in the three countries? Have they benefited under NAFTA?

The evaluation in "NAFTA at Seven" (see "related items," left) shows just the opposite from what was promised. In all three countries, a common pattern has emerged: falling incomes, growing inequality, loss of stable jobs, growing insecurity.

Mexico under NAFTA:

  • The minimum wage lost 18 per cent of its purchasing power;manufacturing wages fell 21 per cent.
  • There was a sharp drop in the proportion of salaried workers - the most stable form of employment.
  • The resulting steep rise in self-employment is a clear indicator of deteriorating labour conditions.
  • Without unemployment insurance or the capacity to save, unemployment is a luxury few in Mexico can afford.
  • This means open unemployment remained low.
  • All income groups except the top 5 per cent saw incomes fall 20-25 per cent.

Job creation in Mexican manufacturing was weak, with the exception of the export processing zone, or maquiladora, along the northern Mexican border. There, employment rose from 400,000 to 1.3 million during the 1990s. Wages are deliberately suppressed in this foreign corporation-dominated enclave - roughly one-half the wage level of the domestic manufacturing sector.

Canada Under NAFTA

In the 1990s, our employment situation was grim: a more normal pattern of job creation has just returned in the last few years. Most significant was the severe deterioration in the quality of jobs. The level of casualized employment exploded, as people sought to cope a prolonged economic slump and free trade restructuring.

Work and Income

  • Four-fifths of job creation in the first nine years of free trade was in the form of self-employment and part-time employment.
  • Public transfers initially offset the loss of earnings from the massive labour market failure.
  • However, in the wake of the post-1994 social cuts, overall inequality in Canada began to rise for the first time in the post-war era.
  • Real incomes for the bottom 40 per cent of Canadian families fell 4.5 per cent in the first nine years of free trade.
  • Only the top 20 per cent saw noticeable income gains (6.6 per cent).

Manufacturing and Trade

  • Canadian manufacturing employment bore the brunt of corporate restructuring (plant closures etc.) falling 20 per cent in the early 1990s.
  • This form of employment was still 6 per cent below its 1989 level by the decade's close.
  • Export-related employment rose during the 1990s, but jobs displaced by imports rose even faster according to an Industry Canada study.
  • The result of the trade boom was the net destruction of trade-related jobs.

The U.S. Under NAFTA

  • Despite significant job creation and low unemployment in the U.S., incomes of the bottom 40 per cent fell during 1989-99 (-1.5 per cent).
  • The only significant income gains were among the top 20 per cent (7 per cent).
  • The U.S. trade deficit continued to widen and workers displaced by imports found new jobs in lower-income services sectors.

North America Under NAFTA

The net effect of NAFTA on North American workers has not been a zero-sum game of one country's job loss being another's gain, but rather the deterioration of jobs and labour conditions in all three countries.

Here's an example of how this happens:

  • The worker in a Quebec clothing factory sees her job replaced by a repressive maquila sweatshop at a fraction of her wage.
  • The Canadian worker is forced to do clothing piecework out of her home at a lower wage and longer hours.
  • The Mexican working in the domestic clothing sector also sees her job destroyed by competition from a transnational operating out of the maquiladora.
  • She is forced to survive as a street vendor.
  • The Mexican working in a maquila factory - likely a woman - had to leave her farm because of the flood of cheap U.S. corn entering Mexico.

The big beneficiary of this downward spiral is the corporate bottom line.

The dynamics of how NAFTA has contributed to this situation are complex. But its essence is clear. This deal tilts power in favour of corporations and away from workers and governments.

  • Capital has been able to move more easily to low-cost areas.
  • Companies can threaten workers who resist concessions with closure.
  • Governments have less power to regulate investment and are under more pressure to compete with other jurisdictions to lower standards and taxes and raise subsidies to attract investment.

In the NAFTA environment, economic policymakers have become obsessed with creating conditions for business competitiveness (notably wage control) to the exclusion of other national priorities. Full employment, regional development and social protection fall by the wayside. This transfer of power is driving the changes we have observed in the North American labour market.

The promise of free trade in North America was prosperity for all; "a rising tide lifts all boats." But most workers, having no boats, have been swamped by this free trade tide.

To the extent that the NAFTA model will be extended throughout the hemisphere, the experience of North American workers should serve as a cautionary tale for those who would see the FTAA as a ticket to prosperity.

For more rabble news coverage of the Quebec Summit and its aftermath, please click here.

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