NAFTA: Saint or Sinner ?

The North American Free Trade Agreement among the U.S., Canada, and Mexico is nearly a decade old, long enough for its record to be examined by those who see it as a harbinger of what the much larger Free Trade Area of the Americas might bring. Predictably there is wide disagreement as to its legacy.

In May 2002, the White House issued a statement extolling NAFTA's accomplishments. "As we look back over the eight years since NAFTA entered into force, we are pleased with its unconditional success," crowed the Bush administration. "The agreement has brought economic growth and rising standards of living for people in all three countries." Two top Mexican bureaucrats -- NAFTA senior negotiator Jaime Serra and presidential economic advisor J. Enrique Espinosa -- bolstered the White House's claims in a September 2002 article in the journal Foreign Policy. Foreign investment flowing into Mexico, they wrote, went from an annual average of $3.5 billion before NAFTA to $13 billion afterward, along with a 50 percent growth in production, as well as a substantial increase in labor productivity.

But John Cavanagh and Sarah Anderson of the Institute for Policy Studies, writing in the same issue of Foreign Policy, contended that NAFTA promised a broad range of social and environmental advances, not just industrial growth, which has not benefited the citizens of Mexico. "Workers, communities, and the environment in all three countries have suffered from the agreement's flaws," they wrote, pointing to reports showing that Mexican manufacturing wages were no higher in 2000 than in 1994, NAFTA's first year. In fact wages in 2000 were calculated to be lower than in 1981.

"Why have increased trade and investment failed to reduce poverty or raise wages?" asked Cavanagh and Anderson. "Part of the answer is that in a globalized marketplace, highly mobile employers have even more power to suppress workers who fight for their fair share of the benefits. And these firms often find allies among governments desperate for foreign investment." That, of course, cuts both ways. U.S. companies have threatened to move operations to Mexico if union labor demands are disagreeable. And that is the thrust of the complaint against the FTAA among labor activists -- that governments of developing countries will cede too much control to foreign companies, allowing them to become as powerful as they will be unaccountable.

One of the most contentious issues of NAFTA is a section called Chapter 11, which provides foreign companies and investors the right to sue governments for policies that investors believe interfere with their right to earn profits under NAFTA. The cases are heard in special tribunals, outside the purview of the host country's legal system, ostensibly to eliminate bias and ensure objectivity. Chapter 11 was meant to keep governments from seizing property under the banner of nationalization, but the effect has been to grant investors the same rights as a government, and more rights than its citizens.

The advocacy group Public Citizen compiled a list of some of the more egregious Chapter 11 cases: a Canadian company challenging California's authority to phase out the gasoline additive MTBE, which was leaching into drinking-water supplies; a U.S. company's successful challenge of a Mexican municipality's refusal to grant a building permit for a toxic-waste site.

Even the White House's celebratory statement about NAFTA conceded that Chapter 11 was imperfect. "We reviewed the operation of Chapter 11 of the NAFTA and directed experts to continue their work examining the implementation and operation ... and developing recommendations as appropriate." $


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