NAFTA 2: The Razor’s Edge

Clearly, a free trade agreement between Mexico, Canada, and the United States has the potential to benefit the citizens of the three countries. Overall, however, NAFTA’s impact on them over the past two decades has been essentially a failure. In building a replacement, several important factors must be considered in order to translate NAFTA into a success.

(Preston Whitt, Council on Hemispheric Affairs)

Whitt’s brief article on “New Nafta” (something I don’t think exists outside the rarified world of think tanks) mentions the two largest drawbacks for Mexico in the “old NAFTA” were that “Foreign Direct Investments (FDIs) for the most part really didn’t create any new businesses or jobs in significant number — they merely meant more foreign ownership.  New capital did create some new jobs, but over half the new jobs did NOT provide even the basic benefits package standard in Mexico, and in no way made up for the millions of  jobs lost in the agricultural sector.

As to the damage to Mexican agriculture –  just in time for the Independence Bicentennial – the CNC (Confederacíon Nacional Campesina or National Farmers Conference) issued a statement reading in part:

NAFTA has done in 16 years what it took the Spanish Empire nearly five centuries to do, as the transnational firms that operate in Mexico likewise control production, marketing, fertilizers and transportation of food in the country.”

On manufacturing, Eduardo Galleano once wrote (Upside Down):

Maximum production, minimum cost, open markets, high profits – the rest is unimportant.  Many U.S. companies set up shop on the Mexican side of the border long before the two countries signed a free-trade agreement.  They turned the border zone into a vast industrial pigpen.  All the treaty did was make it easier to take advantage of Mexico’s abysmal wages and the freedom to poison its water, land, and air.  To put it in the language of capitalist realism, the treaty maximized opportunities to make use of the resources of comparative advantage…

Galleano is speaking of environmental degradation, and I have no doubt that Mexican owned businesses would be just as dirty– and do everything they could to hold down wages and benefits, but whether they would have been so “successful” (if that’s the right word) in polluting and labor-stiffing in the absence of the FDIs is doubtful.

While obviously NAFTA created more access to goods and service, what is less clear is that opening Mexican markets to foreign goods and services improved anyone’s quality of life in a substantial way.

I went shopping yesterday with a recent foreign arrival who — never having learned to use anything other than an electric shaver, and having lost his in transit — needed so shopping assistance.  The NAFTA brand electric shavers we found seemed ridiculously high-priced to him, even in the Mexican department stores.  What we managed to find — at a reasonable price — was your generic electric shaver … though not NAFTA, but “Made in China”.  Which, I realize has even more abysmal wages (and even stinkier “industrial pigpens”) than here.

And Mexican wage earners would have a hard time paying for that Chinese shaver.  The Chinese worker had better learn to shave with a straight razor.    It’s not an item I even thought about  one way or the other… and expect it is unobtainable in a provincial department store in a “third world country” like China, and perhaps a luxury item in a middle income country like Mexico, where one would expect to pay a premium. I don’t know if that’s changed because of NAFTA, or just that abysmally-paid Chinese electric razor assemblers are attracting the FDIs that allow them to undercut Mexican prices.

Whitt writes:

Primarily, a New NAFTA (or NNAFTA) must allow individual governments to enact policies to address the inevitable and usually severe effects of economic liberalizations like free trade agreements, in order to ameliorate the trade agreement’s impact. Any large-scale trade treaty will cause an equally large-scale domestic economic restructuring, and domestic governments must have some power to influence this restructuring.

… which – translated from “think tank” into plain English seems to mean countries should set their own priorities… like the did pre-NAFTA. When I first moved to Mexico there was a big “don’t buy Chinese” push. The word disleal regularly appeared in business columns and on financial news reports in regard to Chinese imports. Pre-NAFTA, Mexico had encouraged product substitution – there might not be a dozen brands of tomato soup on your market shelf, but there would be tomato soup… a Mexican brand or two. Imported items that Mexico didn’t produce were available … for a price, or on the black market. I don’t know where, in a provincial Mexican backwater, one would have found a black-market electric shaver, and I’m glad the guy’s quality of life issue was resolvable without too much pain (and at a reasonable price).

But are Mexican freer, happier, and better-off as a people, because they can chose from a dozen brands of tomato soup, or four or five differently priced electric razors? I doubt it.