CHAPTER 9

1. CHAPTER 9 THE AMERICAS & NAFTA

2. The Americas PRISMs • Do regional “free” trade agreements discriminate against nations outside the region? • Should the economic growth of developing nations hinge on opening their borders to “Godzilla” nations? • Should the U.S. evaluate NAFTA strictly on the basis of what it does for America?

3. Should U.S. immigration laws be strictly enforced? • Do Mexican immigrants contribute more to the USA than they receive from America? • Who should be responsible for the unintended negative impacts of free trade agreements on companies & workers?

4. THE PURPOSE OF NAFTA:To eliminate all tariffs between Canada, Mexico, & the USA

5. What’s better than a large slice of pie (economic growth)?(A slice from a larger pie)

6. ¿Cómo le compara NAFTA con el EU? (How do NAFTA & the EU compare?) NAFTA is much more modest in scope than the EU, since NAFTA does not seek political unity

7. FTAs = SHUFFLING CARDS Free trade agreements reshuffle nations’ economies: some old jobs are lost, or receive higher pay, or lower pay; some new jobs are created. Some companies go bankrupt; some new companies are created Some cities boom; others erode. FTA’s are Social Darwinism (survival-of-the-fittest) in action.

8. Does NAFTA really stand for Not AFree Trade Agreement? (Because only 3 nations benefit--the rest of the world still has to pay tariffs to export into the NAFTA zone)

9. THE ABC's OF NAFTA

10. LAS ABCS DE LAS TARIFAS “A” category goods: Zero tariffs immediately in 1994 “B” category tariffs: Lower tariffs 20% for 5 years (1999) “C” category tariffs: Lower tariffs 10% annually for 10 years (2007)

11. A category: Mostly U.S. exports: high tech products, pharmaceuticals, aerospace B category: Low tech manufacturing: clothing, construction supplies, etc. C category: Agriculture, service industries

12. NAFTA's SENSITIVE SECTORS

13. Each NAFTA nation is allowed to designate one industry (the nation’s “sensitive sector”) thatdoes not have to comply with NAFTA regulations

14. El sector sensible (sensitive) de México: OIL

15. ¿Por qué es la agricultura el sector sensible de los los Estados Unidos?

16. Because the U.S. government doesn’t want to cut farm subsidies (required by NAFTA) for fear of causing American farm instability.

17. El sector sensible de Canadá Canada wants to protect its small companies run by indigenous non-Anglo-Saxon peoples from fierce competition from the U.S.

18. NAFTA TENSIONS

19. When nations make major economic changes, such as a FTA, there are both intended & unintended outcomes. The unintended outcomes, both good and bad, must be considered in evaluating the success of any major economic change.

20. UNANTICIPATED OUTCOMES OF NAFTA • Asian & European companies built factories in Mexico in order to export goods to the U.S. without tariffs • Many Mexican companies closed because they were no longer protected by tariffs • China began to siphon off jobs & FDI from Mexico

21. Mexico’s infrastructure for doing NAFTA business is not nearly big enough

22. NAFTA requires all manufacturers to purchase a sizable % of their parts from “CanAmerIco” (local sourcing requirement)

23. Canadians are worried that NAFTA will undermine Canadian competitiveness, eventually cutting into their socialist comforts (high minimum wage, free health care, etc.) • Due to the backing of large farming subsidies, American farmers are a major threat to most small MX farms • Overall, NAFTA has not compensated for MX’s innumerable social & economic problems: corruption, over-population, poor education, crumbling infrastructure, puny tax base, lack of credit, etc.

24. NAFTA HEAD-BUTTING • Current legal action: Mexico imposed a 20% tariff on U.S. soft drinks sweetened with fructose corn syrup. • Mexico has charged the U.S. with anti-dumping tariffs over American beef exports

25. A coalition of environmental & labor groups have subjected Mexico to unfair trading practices in restricting access (only 20 miles across the border) of MX trucks to U.S. highways.

26. THE POSITIVE IMPACTS OF NAFTA

27. MX’s trade with the USA has doubled since NAFTA went into effect; exports to Canada have increased 40%. • 88% of MX’s trade is with the USA; 11% of USA trade is with MX. • Between 1994-2000, MX received a record $74B in FDI • 20M new jobs have been created in the USA & overall wages increased in the first decade of NAFTA.

28. Doubling of USA-MX trade CanAmerIco received record FDI Boom for MX fruit/veg Two-party MX govt.

29. INCREASE IN MEXICO’S POST-NAFTA EXPORTS TO THE U.S. 1981-1986: 6% increase 1987-1993: 12 % increase 1994-2000: 19.3% increase 2001-2005: 5% increase MX’s exports to Canada increased at a 14% average annual rate..

30. MEXICO’S MARKET SHARE INCREASES IN THE NAFTA ZONE, 1985 vs. 2000 Simple manufactured products: 4.5% of NAFTA zone vs. 9.5% Natural resources mfg: 3.1% vs. 3.7& Non-natural resources mfg: 2.9% vs. 10.6%

31. NAFTA’S CRITICAL MASS PROCESSHow “CanAmerIco” benefits from greater trade cooperation: • Stimulates trade & economic growth • Creates resource synergy • Attracts FDI • Expands the size of the economic pie

32. NAFTA caused a “critical mass” process of economic development in “CANIMERICO” due to drawing in larger FDI to the region, enhancing business infrastructure, & removing tariff protection from weak companies/industries in all 3 NAFTA nations. • Critical mass occurs when change produces more change & opportunity produces more opportunity.

33. Many attribute the emergence of Mexico’s second political party (for the first time since 1929) in 2000 was directly tied to structural political changes stimulated by NAFTA. • The number of Mexican illegal immigrants into the U.S. has been tempered by new jobs generated in Mexico by NAFTA. The current immigrant problem would likely be far worse without the free trade agreement.

34. Overall FDI for all 3 NAFTA members has increased • The Mexican fresh fruit & vegetable business has tripled • NAFTA export activity through Texas has created 250,000 new jobs in the state.

35. IMPACT ON THE USA 1. A net increase of 914,000 new manufacturing jobs minus a decrease of 766,000 jobs wiped out by increased imports from MX = a net gain of approx. 200,000 jobs 2. Since the U.S. economy is 10X larger than Mexico’s, the overall impact of NAFTA on the USA has been limited

36. Los nuevos servicios vienen con nuevo projectos de negocio (New services come with new business projects)

37. Pero el ganador más grande de NAFTA es…(But the biggest winner of NAFTA is… TEXAS)

38. 18 cents of each dollar stay in the Texas economy in the form of insurance, trucking, warehouses, etc.)

39. The poorest counties in Texas (light shaded) stand to benefit most from NAFTA by their close proximity of the border.

40. THE NEGATIVE IMPACTS OF NAFTA

41. IMPACT ON MX MXag hit by US subsidies No net increase in MXmfging jobs Non-oil exports have quadrupled Wiped out the job infrastructure of lowest paid MX workers

42. 5. About 30% of maquiladora jobs were siphoned off by NAFTA-created jobs in the interior of MX 6. MX agriculture has suffered a net loss in jobs & revenue due to U.S. agricultural subsidies 7. No increase in net manufacturing jobs in MX due to its concentration in component parts that are exported to the USA for product assembly 8. Since 1994, MX’s non-oil exports have increased 400% & foreign direct investment by 14 fold.

43. In the decade before NAFTA, Mexico’s average annual per capita GDP grew at 0.1%, compared to 1.8% in the decade after NAFTA. However, post-NAFTA economic structural changes forced on Mexico by the IMF (for huge loans made to Mexico after its major currency crisis in the mid-1980s) “wiped out whole swathes of Mexican industry that had been painstakingly built up” in previous years. “The result was a slowdown in economic growth, lost jobs, and falling wages.” In effect, the IMF’s mandatory structural changes in Mexico’s economy more than wiped out the gains of NAFTA.

44. IMPACT ON USA Eliminated 1M jobs (by 2006), mostly in mfging Cumulative $1.2T in trade deficits with MX & Can. A major factor in steadily eroding blue collar wages in both U.S. & Can.

45. NAFTA WORRIES Foreign companies exporting to US via MX Lack of tariff protection killed many MX corps No big dent in MX social problems or income gap between N & S MX

46. 4.After 15 years of the “NAFTA effect” in Latin America, only Chile had higher per capita output in 2000 than in 1980. “A few other Latin economies had grown slightly, but they were no better off or worse off” (during the period of NAFTA). 5. The large inflows of foreign capital into Mexico and Latin America sometimes destabilized banks and national economies (due primarily to lower foreign interest rates) and fueled inflation (due to temporary excesses of capital in affected economies).

47. THE BOTTOM LINE ON NAFTA

48. “The NAFTA regime and transformation of state policies has so far been a success. It has not only produced anticipated and desirable policy outcomes, but has led to anticipated future positive outcomes and rewards.” • But the playing filed for the 3 partners has not been entirely leveled due to subsidies & “overzealous” use of sensitive sector products. • NAFTA has not yet brought about progress in the economic gaps between north and south Mexico. • NAFTA has not caused any deterioration in Canada’s welfare state as of yet.

49. The increased FDI & business activity associated with NAFTA has not yielded more net jobs, but it has affected the pattern of jobs, boosting employment in some industries, but wiping out jobs in others.

50. “NAFTA has shown that FTAs shift the composition of some jobs, with some winners & some losers, but cannot be expected to create a net job gain in economies that are at full-employment, such as the USA & Canada. In developing economies, such as MX, the NAFTA experience demonstrates that FTAs can’t be counted on to produce much employment gain.”