TOPICS > Economy

20 years on, debating whether NAFTA is success story or damaging policy

February 20, 2014 at 6:40 PM EST
A one-day summit in Mexico between President Obama and his North American counterparts marked the 20th anniversary of NAFTA, a trade agreement designed to eliminate cross-border duties and other barriers. What’s the legacy, effect and the future of NAFTA? Jeffrey Brown gets debate from former U.S. Trade Representative Carla Hills and Lori Wallach of the Public Citizen's Global Trade Watch.
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JUDY WOODRUFF: The prospect of reaching new cross-border trade deals was very much on the mind of President Obama during his trip to Mexico this week. But a trade agreement that’s now two decades old and still the subject of strong debate is casting a long shadow over the president’s plans.

Jeffrey Brown has the story.

PRESIDENT BARACK OBAMA: Canada and Mexico are two of our largest trading partners, with trade that supports millions of American jobs.

JEFFREY BROWN: President Obama’s one-day summit with his Mexican and Canadian counterparts marked 20 years of the North American Free Trade Agreement, or NAFTA.

PRESIDENT BARACK OBAMA: American exports to Canada and Mexico continue to grow faster than our exports to the rest of the world. Together, our countries have strength to give North America a tremendous competitive advantage, the skills of our workers, manufacturing that’s growing, and new sources of energy.

JEFFREY BROWN: NAFTA was originally spearheaded by the first President Bush, in a bid to eliminate cross-border trade duties and other barriers. It got the backing and was eventually signed into law by President Clinton.

Supporters argued it would spur growth. But in a CNN debate with Vice President Gore, billionaire businessman Ross Perot famously argued it would send thousands of jobs to lower-paying, less-regulated Mexico.

ROSS PEROT: When you have got a 7-1 wage differential between the United States and Mexico, you will hear the giant sucking sound.

ROSS PEROT: There’s a political lesson. There’s a business lesson.

FORMER VICE PRESIDENT AL GORE: This has been a good deal for both Canada and the United States. Both have gained jobs. Both have gained trade flows. Both have become more competitive in the world marketplace as a result.

ROSS PEROT: And there is a Tooth Fairy, and there is an Easter Bunny.

JEFFREY BROWN: Many years later, the debate over its effects goes on, even as President Obama pushes for new trade agreements, one with the European Union and another, the Trans-Pacific Partnership with Asian nations.

PRESIDENT BARACK OBAMA: So what I have said to President Pena Nieto and Prime Minister Harper is, we will get this passed if it’s a good agreement.

JEFFREY BROWN: Still, the proposed new agreements face opposition from both Republicans and Democrats, and it’s unclear when or even if they might move forward.

So, these years, what has NAFTA brought and how should it influence future trade decisions?

For that, we turn back to two people who joined us for this debate from its beginnings. Carla Hills served as U.S. trade representative from 1989 through 1993 under the first President Bush and helped negotiate NAFTA. Today, she heads her own global trade and investment consulting firm. And Lori Wallach is director of the Global Trade Watch policy group at Public Citizen, a nonpartisan advocacy organization.

And welcome back to both of you.

You were smiling as you saw the video of yourself involved in those negotiations.

CARLA HILLS, Former U.S. Trade Representative, 1989-93: Just the other day.

(LAUGHTER)

JEFFREY BROWN: So, 20 years later, Carla Hills, what go NAFTA do? What did it accomplish?

CARLA HILLS: NAFTA was a first rate trade agreement in 1994 when it went into effect

It eliminated industrial tariffs. It opened up the agricultural market, which we haven’t been able to do in any other agreement. It had a first-rate intellectual property protection. It provided openings for our service providers. It required national treatment, protection for our investors. And, as a result, our trade with Mexico and Canada has soared 400 percent, and our investment is up fivefold.

JEFFREY BROWN: A success story?

CARLA HILLS: I believe it’s a success story.

JEFFREY BROWN: Lori Wallach, I know you saw it differently back then. Twenty years later, how do you see it?

LORI WALLACH, Public Citizen’s Global Trade Watch: Well, we really underpredicted what the damage would be.

So there has been a large increase in trade. But a lot of it has been a flood of new NAFTA imports. NAFTA did include investor protections. Those incentivized offshoring of U.S. investments and jobs. So, while we have seen a flood of more trade, it’s 700 percent of that is actually the imports.

So we have had a growth in our trade deficit of almost 500 percent, 480 percent. So just the numbers, before NAFTA, we had a slight surplus with Mexico in trade. And with Canada, we have about a $30 billion deficit. The end-of-year U.S. International Trade Commission official government trade data came out last week. We have a $177 billion combined NAFTA trade deficit.

Using the administration’s old multiplier of what that means for jobs, that’s a net loss of accumulation of over a million jobs. And there’s a government database that has 845,000 specific NAFTA casualties to our manufacturing workers who have been certified for assistance.

JEFFREY BROWN: All right, let me — that’s a lot of numbers.

CARLA HILLS: Yes, that’s a lot of numbers.

JEFFREY BROWN: So, do you — so is this a different picture by the numbers, or what explains the discrepancy here?

CARLA HILLS: The fact is that I think it’s always a mistake to take a bilateral deficit.

We’re in a global circumstance. And our markets are so intertwined with Canada and Mexico that we don’t just sell things to one another. We make things together. A car that we make with Mexico and Canada will cross our northern and southern border as many as five to eight times. And all that creates these numbers.

The number you should look at is the fact that our largest export market is Canada. Our second largest export market is Mexico. All of our entrepreneurs love that fact. But the ones who really love it are small and medium-sized enterprises who sell — 14 percent of their exports go to Mexico because they are the backbone of job creation in the United States.

They create half or more of our jobs in the United States. I think the NAFTA has been a success, and I would like to build on it.

JEFFREY BROWN: OK, well, so we will get to that in a moment. Let me just give you one more shot here at…

LORI WALLACH: Well, here’s the fluky thing.

With these investment rules promoting the offshoring of the investment, our exports have actually declined as far as the growth rate. So, as our economies get bigger, export volumes increase. But just looking at the U.S. ITC data, our growth in exports in goods to the NAFTA countries is down to 62 percent of the level growth rate of what it was. For services, it’s even down actually in half.

So we have a trade agreement that’s actually been a penalty on our export growth. And the only reason I mention that is the whole premise of NAFTA, it promised 200,000 new U.S. jobs a year. Woo-hoo. But that was based on having an improved trade deficit reduction.

Instead, we have a huge new trade deficit. So we have hemorrhaged jobs. And, more importantly, the biggest effect of NAFTA is it’s fundamentally transformed the composition of jobs available, and therefore wages. But the 63 percent of Americans don’t have a college degree, those manufacturing jobs are gone. And the service sector jobs, says the Bureau of Labor Statistics, pay less by 20 percent.

JEFFREY BROWN: Well, this, of course, is a big issue.

LORI WALLACH: The income inequality issue.

JEFFREY BROWN: Right, jobs and the income inequality. Your suggestion is that much of that is due to something like NAFTA.

You just don’t see that as a factor in…

CARLA HILLS: I do not.

On the manufacturing, you know, when I was U.S. trade representative, I went on the factory floor of an auto company. There were people all around screwing in things, making things. Today, you go on the floor of an automobile factory, there’s nobody there. It’s done by computers and technology.

JEFFREY BROWN: And that has nothing to do with a trade…

CARLA HILLS: It has nothing to do with a NAFTA.

I agree with Lori Wallach that we have got to worry about the lowest two quintiles. I care about that, and I think there are things we can do. But trade is an advantage. When a multinational company like Caterpillar invests in Mexico, the Peterson Institute for International Economics has done a wonderful study to show that for a foreign — the foreign investment in an affiliate in a foreign country — I didn’t say that correctly — an American company that invests in a foreign facility actually creates jobs at home.

It creates employment at home, increase in research and development, capital equipment at home. So we shouldn’t look at this as a negative.

JEFFREY BROWN: Let me try to move it up to date now, because, as I mentioned in our setup, there are several new potential agreements.

So, Lori Wallach, you start here. When you look at something like a Trans-Pacific Partnership, what lessons specifically do you think should be learned from NAFTA in thinking about whether to proceed with something like that?

LORI WALLACH: Well, the heartbreak is that the TPP is basically NAFTA on steroids with nine more countries. So, the U.S., Mexico and Canada are in it. But then so is, for instance, 28 cents an hour minimum wage Vietnam. So is Malaysia.

And if you look at that whole bloc, all of the rules that were in NAFTA that promoted this downward pressure on wages — I mean, we lost 40,000 factories in those 20 years — it’s true there’s automation. But, in addition, we saw a whole shift in the composition of jobs and what kind of jobs are available for people in our economy.

And there’s economic consensus that actually trade is a major contributor to income inequality. We have the whole literature search of all of the studies from the Peterson Institute to across the spectrum on our Web site at TradeWatch.org. If people want to go read the studies, you can link back to all of these different think tanks.

The only debate is what percentage of income inequality is caused by trade. So, now you look at the TPP. At its heart are the same rules that were in NAFTA, the investor protections that promote offshoring, but to an even lower-wage country, Vietnam.

And so the companies are excited about this. They look at the ban and buy America procurement in there. They look at the right to import food and products that don’t meet our standards, the right to offshore to Vietnam. And you can see why they’re interested.

But the public opinion polling shows Democrats, Republicans, independents are against anything that even smells like a NAFTA expansion.

JEFFREY BROWN: All right, but this is what the president is running up against, right, Carla Hills? He’s getting a lot of opposition across the board actually, to these kinds of expanded trade agreements.

CARLA HILLS: Yes, politically, it’s difficult.

And I ask think tanks, universities, the media to explain to people the benefits of trade. I wish to respond to the suggestion that the NAFTA has depressed wages. In fact, just last year, there was a study by Yale and our own Fed which said that the wages were increased as a result of NAFTA, increased as a result of NAFTA, not hugely, but adjusted for inflation, definitely, there was an increase in wages in the United States, Canada, and Mexico. As for the…

JEFFREY BROWN: We only have about 30 seconds, I just have to say, because we’re at the end of the program.

So go ahead.

CARLA HILLS: Well, on the Trans-Pacific Partnership, I would like to see us build on the NAFTA platform. I would like to work and create market openings in Vietnam, in Brunei, in Japan that provide the North American economies working as a partnership to do more abroad, because we are the most competitive platform you can find in the world.

JEFFREY BROWN: All right, we will have to leave it there.

But thank you once again for sharing all that, Carla Hills, Lori Wallach. Thank you.