A Model for Disaster: Report details NAFTA’s impact over 20 years

NAFTA drew protests in Minnesota before its implementation (left), but debate surrounding the model for trade it established 20 years ago continues with the TPP today (right).

NAFTA drew protests in Minnesota before its implementation (left), but debate surrounding the model for trade it established 20 years ago continues today with the TPP (right).

In the early 1990s, Doug Williams was serving as president of Local 1140 of the International Union of Electrical Workers, an industrial union that has since folded into the Communications Workers. Williams and other union activists, particularly in the industrial sector, were in full campaign mode at the time, handing out fliers during shift changes, staging public rallies and demonstrating in the streets.

But it was neither an election nor a strike that had them fired up. Rather, it was a looming trade pact – the first of its kind – with Mexico and Canada. The agreement would do away with most tariffs and economic protections.

“What little we knew about the trade agreement at the time, it did not appear to be something that was going to be of benefit to folks who had to work for a living,” Williams, now on staff with the IUE-CWA, remembered. “We were doing our best to stop what appeared to be a corporate power grab.”

Unions like the IUE joined a broad coalition of environmental, family-farm and other community organizations urging Congress to stop the trade deal. They “tried to engage people around the state,” Williams said, and even worked in collaboration with allies in Mexico and Canada. “Anybody who was willing to participate, we were looking to work with.”

Despite the protests – and over warnings from economists that it would depress wages, uproot jobs and drive farmers off their land – the North American Free Trade Agreement went into effect Jan. 1, 1994.

What’s happened in the 20 years since is the subject of a report released in March by the AFL-CIO, the nation’s largest labor federation. “NAFTA at 20” finds the fears surrounding NAFTA shared by Williams and other trade unionists 20 years ago were largely warranted, and they’ve played out with disastrous implications for workers’ rights, income inequality and democracy in all three nations.

But equally damaging, according to both the AFL-CIO report and trade watchdogs based in Minnesota, is the model for expanded corporate power that NAFTA established – one the U.S. would copy and “enhance” in global trade negotiations over the next two decades. NAFTA remains the template negotiators are working off of in talks for the Trans-Pacific Partnership, the latest – and largest – attempted free-trade deal to date.

“There is no success story for workers to be found in North America 20 years after NAFTA,” AFL-CIO President Richard Trumka said. “The NAFTA model focuses on lifting corporations out of reach of democratic governance, rather than solely reducing tariffs. This report should serve as a cautionary tale to the Obama Administration and Congress as they consider negotiating and implementing new trade deals.”

Activists in Northfield protested NAFTA more than 20 years ago in this Union Advocate file photo.

Activists in Northfield protested NAFTA more than 20 years ago in this Union Advocate file photo.

Fears came true

Proponents of NAFTA 20 years ago – like those who defend the agreement today – argued that by reducing tariffs and other barriers to trade, NAFTA would increase trade among the three North American countries. Increased trade, it followed, would result in job growth throughout the free-trade zone. While lobbying Congress to approve the pact, President Bill Clinton claimed NAFTA would create 200,000 new jobs per year in the U.S. alone.

In hindsight, Clinton and other NAFTA backers were only half right.

The volume trade flowing among the U.S., Canada and Mexico surged from $291 billion in 1993, the year before NAFTA went into effect, to $1.1 trillion in 2012. Trade patterns, however, shifted dramatically and unequally, with disastrous ramifications for workers in all three countries.

Before NAFTA, the U.S. actually had a small trade surplus with Mexico – meaning it exported more goods than it imported. But that changed quickly after 1994, as the U.S. trade deficit with its NAFTA partners has ballooned to $181 billion.

According to the AFL-CIO report, NAFTA allowed companies to move labor-intensive components of their operations to locations with weak labor laws and lax enforcement of wage, environmental and other standards. Manufacturers took advantage, displacing an estimated 682,900 U.S. jobs to Mexico.

Minnesota has lost about 14,000 jobs to Mexico in the last two decades, Minnesota Fair Trade Coalition Director Josh Wise said.

“And it’s still happening,” Wise added. “A company in Mankato called Midwest Electric just moved last summer. This practice of outsourcing over the last 20 years is actually still happening at a fairly rapid pace.”

Challenge to collective bargaining

With the job losses came a new wave of challenges for unions, which saw their membership rolls decline sharply, as manufacturing has been a traditional base of strength for organized labor.

Rick Ryan, a business representative for District 77 of the International Association of Machinists, can point to several employers that have outsourced Machinists’ jobs to Mexico, including the Danish company Nilfisk, which manufactures industrial floor-cleaning equipment at a facility in Plymouth.

Machinists Local Lodge 1037 used to represent more than 500 Nilfisk workers, Ryan said. After several rounds of outsourcing, only about 80 Machinists are left working in the facility.

“We built a lot of the components for the machines there – we’d take raw sheet metal, form it, bend it, weld it and make the components,” Ryan said. “Now they’ve outsourced all that work to wherever, and they’ve taken and outsourced the assembly of all but the very biggest of these machines down to Mexico.”

The IUE, Williams said, represented workers at 21 facilities in Minnesota before NAFTA; that number is down to 16 today. “They’ve all been impacted by the trade issue,” he said.

Even when employers didn’t pick up and move, they were sure to let workers know it was an option – especially during contract negotiations.

“It has been very difficult to get anywhere near a raise that might get anywhere close to keeping up with the cost of living, and it’s because of this constant threat that if we ask for too much or get too much, they’re going to shut ‘er down and go to wherever – name your country,” Ryan said. “That has put a real hard pressure on wages for our bargaining units.

“I hear it from the members when you talk to them. They want more money, but they’re afraid – the unspoken threat is always there. It’s always in their mind.”

When unions are constantly negotiating concessions – or negotiating severance packages for workers who’ve lost their jobs to trade – it also makes organizing a tough sell, Ryan added

“’Well those union guys, they couldn’t stop the company from moving.’ That’s the kind of thing you hear,” Ryan said. “And when you try to organize, workers say, ‘If we organize they’ll shut it down, they’ll move production.’ And they’re told that by management.”

By weakening the power of unions and incentivizing low wages, NAFTA has contributed to growing income inequality in all three partner countries – despite consistent gains in worker productivity, the AFL-CIO report finds.

web.nafta-streetsCorporate power grab

While workers saw their rights attacked and wages stagnate under NAFTA, corporations saw their powers expand and their profits soar – thanks to the free-trade model established 20 years ago.

Beyond reducing tariffs, NAFTA created new privileges and protections for corporations that allow them to challenge local laws, government regulations or other “barriers to trade” that could interfere with their actual or potential profits. NAFTA established unelected international panels – “unaccountable to the public,” the AFL-CIO report points out – to hear these complaints and award monetary compensation.

It’s called investor-to-state dispute settlement, or ISDS, and according to the AFL-CIO report, it may be NAFTA’s most enduring and troubling legacy, as the practice has been included – and expanded upon – in subsequent free-trade agreements.

“NAFTA set a precedent for how corporations could gain control over writing trade laws,” Wise said. “They realized they could achieve a whole host of deregulation and other legislative victories through trade negotiations that they couldn’t achieve through Congress, and it’s really accelerated the global race to the bottom.”

ISDS empowers foreign investors – mostly multinational corporations – to challenge “buy-local” laws, living-wage provisions and regulations designed to protect consumers, patent holders and the environment.

Exxon Mobil won $60 million from the Canadian government two years ago, arguing that local regulations requiring oil companies to fund research and development in Canada’s poorest provinces constituted a barrier to trade. Mexico had to pay Cargill for laws regulating high-fructose corn syrup.

And who’s on the hook for these monetary damages? The taxpayers. In all, NAFTA governments have paid at least $340 million to “investors” since the agreement took effect.

Of course, similar protections for workers – say, the right to sue a country for establishing barriers to union organizing – are not part of the NAFTA model.

“Unlike the procedures that protect investor rights, the complaint procedures for violations of labor or environmental standards are exceedingly slow and cumbersome, and provide no reasonable possibility of sanctions being imposed for noncompliance,” the AFL-CIO report reads.

Fight for fair trade continues

Frighteningly, the ISDS language written into NAFTA seems tame in comparison to what’s in the Obama administration’s top trade priority, the Trans-Pacific Partnership. It expands ISDS protections from traditional goods and services to intellectual property and financial services.

But fair-trade activists celebrated a big victory when Congress refused to grant Obama “fast-track” authority for the TPP and other trade deals – a sign, they hope, that increased public awareness about ISDS and the damaging effects of the NAFTA model are yielding increased public outrage.

Twenty years after taking to the streets to fight NAFTA, labor unions are continuing to partner in the struggle for fair trade.

“When folks are made aware of what’s going on, they seem to be universally opposed to the idea of the TPP,” Williams said. “Labor’s challenge is to recognize it’s going to take more than labor; it requires community partners. We all need to work together to produce a framework for trade that members of the public can see themselves included in.”


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