FWD: The Progressive Response

[MDOLAN <mdolan@citizen.org>]

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  ***** NOTES from MDOLAN (MDOLAN @ CITIZEN) at 7/07/97 5:18 PM
  Cogent rebuttal follows.
  
  
  >THE PROGRESSIVE RESPONSE
  >
  >Vol. 1, No. 4
  >Tom Barry, editor
  >
  >***Issues of Debate: Assessing the Impact of NAFTA***
  >
  >Progressives who oppose NAFTA should consider reading  a report written by
  >Sidney Weintraub and published by the Center for Strategic and International
  >Studies. "NAFTA at Three: A Progress Report" is a cogent and persuasive
  >evaluation of the impact of NAFTA after three years. Weintraub argues that
  >many of the most vocal opponents and proponents of NAFTA have argued their
  >positions from the view point of "unadulterated mercantilism." NAFTA's
  >impact, he states,  is primarily measured by such narrow criteria as balance
  >of trade, GNP growth, and job losses in specific industries. Instead,
  >Weintraub argues NAFTA should be measured by such factors as the growth of
  >overall trade, increased competitiveness, expanded intra-industry trade, and
  >institutional cooperation. 
  >
  >As progressives prepare to respond to the president's report on NAFTA's
  >impact, due by the first of July, we need to consider carefully the
  >arguments and data that Weintraub calls "95 percent rubbish." If the current
  >trend toward corporate-driven economic integration is to be reshaped,
  >progressives must be prepared to counter Weintraub's assessment with one of
  >their own that is as well-reasoned. The challenge will be to leave behind
  >many of the usual measures of impact--such as job loss and trade
  >balance--and construct a new framework to evaluate globalization. It should
  >be one that is internationalist but at the same recognizes the fundamental
  >asymmetries between the United States and other economies. It should
  >encompass the goal of sustainable and equitable development but avoid the
  >ultranationalism and protectionism that frequently accompany this
  conviction. 
  >
  >Trade Balance Tactics
  >
  >Opponents of NAFTA, on both the left and the right, cite the current U.S.
  >trade deficit with Mexico as a sign that NAFTA has negatively impacted the
  >United States. It is certainly true that the U.S. now imports more goods
  >from Mexico than it exports to Mexico. In 1996 the United States suffered a
  >$16.2  billion trade deficit with Mexico, whereas in 1993 it experienced a
  >$1.7 billion surplus. Although those concerned about unemployment, poverty,
  >and low wage levels in the United States should examine the state of U.S.
  >trade in their attempt to find the causes of economic instability and job
  >losses at home, they should not adopt the dogma that a trade deficit with
  >Mexico means more unemployment in the United States. 
  >
  >When considering the U.S. trade deficit with Mexico, it should be recognized
  >that, while Mexico in 1995 and 1996 did export more to the United States
  >than it imported from this country, overall trade with Mexico has expanded
  >substantially since 1993. Despite the economic crisis in Mexico, U.S.
  >exports to Mexico have expanded by more than a third during the first three
  >years of NAFTA. It is not that the United States is exporting less to Mexico
  >than it did before, only that U.S. imports from Mexico have increased faster
  >than U.S. exports to Mexico. 
  >
  >It would be wrong to attribute the present status of U.S.-Mexico trade
  >balance primarily to NAFTA for the following reasons:
  >
  >* Overall U.S.-Mexico trade was on the increase even before NAFTA.
  >
  >* In the 1982-1991 period the U.S. experienced a persistent trade deficit
  >with Mexico.
  >
  >* U.S. export growth to Mexico is largely related to the state of the
  >Mexican economy.
  >
  >* The 1994 economic crisis in Mexico--in which consumption dropped
  >15%--helps explain why U.S. exports to Mexico did not rise as rapidly as
  >previously projected.
  >
  >* The steady GDP increase in the U.S. has created increased demand for goods
  >and supplies, boosting the level of Mexican exports to the United States.
  >
  >Given that the balance of trade between Mexico and the U.S. is closely to
  >the state of the economy in each country, it is likely that the current
  >trade status will change. Consequently, arguments in favor or against NAFTA
  >based primarily on the size of the deficit or surplus are unlikely to stand
  >the test of time. Indeed, as the Mexican economy slowly recuperates, its
  >trade surplus is falling dramatically. The latest figures from Mexico show
  >that its total imports have increased by 27 percent while exports have also
  >increased although more slowly--but still at a healthy rate of 15 percent.
  >Those NAFTA opponents in the United States who point to the 1995-96 trade
  >deficit with Mexico may be left on shaky ground in a year or two as that
  >deficit turns into a surplus.
  >
  >Similarly, more caution is needed in basing one's opposition to NAFTA on
  >reported or calculated job losses. For starters, it should be recognized
  >that the United States has experienced both relatively low unemployment and
  >economic growth since the NAFTA took effect. Opposing NAFTA on the basis of
  >the state of traditional economic indicators--GDP growth, unemployment,
  >trade balance, etc.--is a difficult argument to make, especially at this
  >time of comparatively good economic health in the United States.
  >
  >There are two approaches to the job loss discussion that should be regarded
  >with caution. The first is the facile adoption of a Commerce Department's
  >multiplier that holds that $1 billion in increased exports creates 20,000
  >new U.S. jobs. By applying this multiplier to the trade deficit (which
  >implies that all Mexican imports take U.S. jobs and that this deficit is due
  >to NAFTA), the Economic Policy Institute concluded that the increase in the
  >U.S. trade deficit since 1993 has cost the United States 251,000 jobs. As
  >noted previously, this approach fails to recognize that, while the United
  >States may be experiencing a deficit with Mexico, its exports continue to
  >increase. Weintraub calls all the manipulations using export/job multipliers
  >"primitive arithmetic," pointing out that 1) merchandise trade is only one
  >part of the balance of payments and does not include the export of U.S.
  >services, 2) imports do not automatically translate into job losses, 3)
  >decreased Mexican exports would decrease Mexico's ability to purchase U.S.
  >products, thereby adversely affecting U.S. jobs, 4) as a global trader, the
  >U.S. should expect deficits with some countries and surpluses with others,
  >and 5) a substantial part of North American trade is not in final products
  >but in components of final products. 
  >
  >It is true that during the NAFTA debate the U.S. trade surplus with Mexico
  >was cited as a sign that the United States was creating jobs in the U.S.
  >economy at the expense of Mexico, using the export/jobs multiplier as the
  >proof. This was faulty argumentation as many NAFTA opponents rightly
  >observed at the time. However, now that the trade balance has temporarily
  >shifted, NAFTA opponents have opportunistically latched on to the multiplier
  >argument as evidence that NAFTA is hurting the United States. This is
  >specious argumentation and should be rejected.
  >
  >The ostensibly more persuasive argument that NAFTA is costing the United
  >States jobs is based on figures from the Trade Adjustment Assistance (TAA)
  >program,  under which 128, 253 U.S. workers have received assistance because
  >they have lost their jobs either because of production relocation or imports
  >from Mexico. Public Citizen and the AFL-CIO argue that this figure is just
  >the tip of the iceberg, since the criteria for TAA are too strict. It is
  >certainly true that many workers have been affected adversely by production
  >shifts and changing trading patterns between Mexico and the United States.
  >This was true before NAFTA and continues to be true, and it is also true
  >that globalization of production results in a downward pressure on wage
  >scales. But this does not necessarily mean that the United States has
  >suffered a net job loss because of NAFTA. Clearly, U.S. jobs are also being
  >created as a result of more integrated North American economic relations,
  >although there is no parallel way to measure jobs created. Put another way,
  >the TAA figure clearly shows that some  U.S. workers have lost jobs as a
  >result of North American trade and investment patterns, but it's not valid
  >to use this figure to justify statements that NAFTA has resulted in a net
  >job loss for the U.S. work force when other U.S. workers have gained jobs
  >because of those same changing patterns. It may certainly be true that the
  >United States has experienced a net job loss because of U.S.-Mexico trade
  >and investment patterns, but opponents should acknowledge that jobs are also
  >being created.
  >
  >Other points that Weintraub makes to support his contention that NAFTA has
  >been good for both Mexico and the United States include:
  >
  >* Increases and decreases in trade cannot be attributed solely to NAFTA,
  >considering that even before NAFTA the trade preferences granted by the two
  >countries were not significantly different.
  >
  >* Increased Mexican exports to the U.S have helped that country to pay off
  >debts to the United States. 
  >
  >* Without NAFTA, Mexico would have likely raised its import tariffs in an
  >effort to stem the 1994 balance-of-payments crisis, which would have lowered
  >U.S. exports and slowed the growth in overall trade.
  >
  >* It is true that increased maquiladora production in Mexico has resulted in
  >localized hardships for U.S. workers who have lost their jobs, but it should
  >be remembered that 50 percent of the value of maquiladora production comes
  >from U.S.-supplied inputs and that if the opportunity to establish
  >production-sharing facilities (maquilas) in Mexico did not exist many
  >companies would likely shift all their production facilities overseas.
  >
  >In any fight against free-trade globalization, it will also be necessary to
  >respond to Weintraub's assessment of NAFTA as being good for the consumer.
  >He concludes his progress report with this observation: "One should not lose
  >sight of an elementary point that is often forgotten. An import duty is a
  >tax on the consumer. If one believes in lower taxes, NAFTA moves modestly in
  >this direction. If one believes in the importance of a competitive market,
  >NAFTA encourages this. If one believes in consumer sovereignty, NAFTA
  >stimulates this."
  >
  >There is a dangerous tendency among progressives in the United States to
  >side with U.S. producers rather than U.S. consumers and to assume an
  >ultranationalist posture. Unless one supports total national self-reliance,
  >there are self-evident benefits of trade (both intranational and
  >international). Too often progressives have lent support to industries,
  >particularly agroindustries like those that produce sugar, tomatoes, and
  >avocados, in the name of fair trade and U.S. workers. Such industries
  >operate behind costly protectionist tariffs and quotas, denying U.S.
  >consumers lower prices and foreign economies a source of foreign exchange.
  >Progressives should be cautious about protecting noncompetitive industries,
  >especially when restricting imports shifts the burden to consumers.
  >
  >A Progressive Agenda
  >
  >In making the case against the corporate agenda of free trade, progressives
  >need to steer clear of the mercantilist perspective that Weintraub outlines
  >and adopt a more internationalist approach. This does not mean that U.S.
  >workers and consumers should accept a downward harmonization of wages and
  >standards, but it does mean that any campaign for upward harmonization must
  >accept that U.S. businesses, workers, and consumers--are not the primary
  >victims of the current trends in economic globalization. Because of its
  >position in the global economy and its associated political influence in
  >international affairs, the United States more often benefits than loses in
  >the new configuration of economic relations. This is not to say that there
  >are not many negative consequences of NAFTA and other free trade accords but
  >only to acknowledge the privileged position of the United States when
  >compared, for example, with a country like 
  >Mexico. 
  >
  >If the corporate agenda of economic globalization, which NAFTA is certainly
  >a part of, is to be successfully opposed,  it will require enlightened
  >cooperation across borders. Ultranationalist positions that demand that the
  >U.S. government protect all sectors of the economy against foreign
  >competition undermine such alliances. This has become particularly clear in
  >the NAFTA evaluations that focus on documenting the "giant sucking sound"
  >while failing to look at the entire picture of U.S.-Mexico relations. 
  >
  >We must think globally. During the first three years of NAFTA, the United
  >States has enjoyed comparatively good economic health. Arguments that NAFTA
  >is hurting the United States at a time when Mexico has endured one of the
  >most severe economic crises in its entire history will not have much
  >resonance in Mexico and are not a good basis for establishing cross-border
  >citizen alliance. NAFTA opponents in the United States must take care not to
  >paint the United States as the main victim of regional economic integration.
  >It is simply not true. Pointing to the U.S. trade deficits with Mexico and
  >Canada and imputing job losses to these deficits portrays a false picture of
  >the winners and losers of free trade.
  >
  >The facts of the economic relations of the United States with Mexico must be
  >kept clearly in mind when considering the impact of NAFTA:
  >
  >* Mexico's merchandise exports to the U.S. constitute about 25% of its GDP,
  >whereas U.S. merchandise exports to Mexico are less than 1% of the U.S. GDP.
  >
  >* Mexico's GDP is less than 5% of the U.S. GDP.
  >
  >In Mexico, as in the United States, any evaluation of NAFTA should extend
  >beyond standard economic indicators to an examination of the economic models
  >on which the regional free trade accord is premised. In Mexico, the
  >country's leaders have dropped all pretense of directing economic
  >development and have instead hitched Mexico's economic welfare to the
  >vagaries of the global marketplace and in particular to U.S. capital and
  >trade. In the United States, the country's economic welfare is also
  >increasingly a function of the U.S. place in the global economy, and U.S.
  >political leaders wrongly assume that  aiding the overseas expansion of
  >corporate America is the most effective way to improve  the welfare of the
  >entire nation. 
  >
  >The ideological commitment to the benefits of the open regional marketplace
  >is much the same for the two nations. But as the world's economic
  >powerhouse, the United States stands in a much better position than Mexico
  >to shape this economic integration to the benefit of its leading economic
  >actors, namely the transnational corporations that control most regional
  trade.
  >
  >It is true that certain sectors of U.S. business have been affected
  >adversely and certain workers have seen their jobs transferred to Mexico.
  >But this does not mean that NAFTA has had an overall negative impact on
  >trade, investment, consumer prices, and job creation. Expanding NAFTA and
  >giving President Clinton fast-track authority for additional free trade
  >agreements should be opposed but without resorting to mercantilist
  >measurements of success or failure. 
  >
  >More than a trade treaty, NAFTA is, as Weintraub observes, a "framework of
  >economic relations" between the United States, Canada, and Mexico. As such,
  >it is a model for other frameworks of regional and international economic
  >relations. NAFTA should be opposed by policymakers and citizens because it
  >is a framework for economic globalization that privileges the interests of
  >large corporations and does not adequately consider the impact of these
  >economic relations on the environment and labor. It and  similar free trade
  >accords should be opposed because they  accelerate the forces of
  >corporate-driven globalization, thus making it ever more difficult for
  >countries (both those of the North and the South) to establish the basic
  >ground rules for sustainable development in this new era of globalization. 
  >
  >Before moving forward with further liberalization of trade and investment,
  >U.S. policymakers and citizens should make certain that they--and not the
  >transnational corporations--are the ones who formulate the framework of
  >economic development. The imperatives of profit-taking and market expansion
  >need to be conditioned by policies and regulations that ensure the common
  >good. Otherwise, these agreements will facilitate the downward harmonization
  >of labor, environmental, and consumer standards. 
  >
  >The framework of  economic relations that prioritizes the common good should
  >not and cannot be one that is anti-market or anti-business. But it must be
  >constructed to ensure environmentally sustainable and equitable development.
  >Specifically, this means:
  >
  >* Creation of  a context for economic relations that includes a safety net
  >for those who are marginalized by the international market, including
  >assistance and retraining for those who lose their jobs because of
  relocation.
  >
  >* Integration of labor and environmental standards into the heart of trade
  >agreements.
  >
  >* Generation of funds through taxes on cross-border commercial and financial
  >transactions that can serve to provide adjustment assistance to communities
  >adversely affected by alterations in production and trading patterns.
  >
  >* Recognition that trade agreements should not necessarily be completely
  >reciprocal, meaning that they recognize that less developed nations will
  >likely need longer tariff phase-out periods and more regulations regarding
  >foreign investment and capital flows.
  >
  >* Enforcement of guarantees that relocating companies adequately compensate
  >host communities for services, training, financing, and facilities they have
  >provided and that such companies supply fair notice and severance benefits
  >to workers.
  >
  >* Strong support and advocacy for international standards and treaties on
  >human rights, labor rights, and natural resources that will serve as a
  >counterweight to corporate pressures for downward harmonization.
  >
  >Weintraub is right that many of the arguments used as rallying calls against
  >regional economic integration are rubbish and narrowly nationalistic. But he
  >is wrong in his belief that NAFTA-style globalization is, despite local
  >hardships, good for the overall global economy and society.
  >
  >Sources for More Information:
  >
  >Center for Strategic and International Studies (CSIS)
  >Email: (202) 775-9199
  >Website: http://www.csis.org
  >
  >Sidney Weintraub
  >NAFTA at Three: A Progress Report
  >Center for Strategic and International Studies, 1997
  >
  >Economic Policy Institute
  >Email: economic@cais.com
  >Website: http://epinet.org
  >See: (Trade Deficit, Job Losses Soar since NAFTA) epinet.org/tf970219.html 
  >
  >Global Trade Watch
  >Public Citizen
  >Email: mdolan@citizen.org
  >Website: http://www.citizen.org/pctrade
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