CHAPTER 8

1. CHAPTER 8 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. 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)

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. THE ABC's OF NAFTA

8. 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)

9. 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

10. NAFTA's SENSITIVE SECTORS

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

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

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

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

15. 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.

16. THE BENEFITS OF NAFTA

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

18. NAFTA PROGRESS • 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.

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

20. 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

21. 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.

22. KEYNAFTA SOCIAL BENEFITS FOR MEXICO • 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.

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

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

25. 18 cents of each dollar stay in the Texas economy in the form of insurance, trucking, warehouses, etc.)

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

27. NAFTA's IMPACT ON "CANAMERICO"

28. IMPACT ON MEXICO 1. About 30% of maquiladora jobs were siphoned off by NAFTA-created jobs in the interior of MX 2. MX agriculture has suffered a net loss in jobs & revenue due to U.S. agricultural subsidies 3. No increase in net manufacturing jobs in MX due to its concentration in component parts that are exported to the USA for product assembly 4. Since 1994, MX’s non-oil exports have increased 400% & foreign direct investment by 14 fold.

29. 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.

30. 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

31. OVERALL CONCLUSIONS “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.”

32. OVERALL IMPACT OF NAFTA ON JOBS & EMPLOYMENT: 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.

33. 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..

34. 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%

35. NAFTA TENSIONS

36. 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.

37. 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

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

39. 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.

40. 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

41. 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.

42. THE BOTTOM LINE ON NAFTA (from Post-NAFTA North America, by Isidro Morales)

43. “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.

44. 5. NAFTA has been a “laboratory” for testing whether or not neo-liberal capitalism (with its emphasis on letting the market, rather than the state, control economic growth) is in the best interest of developing nations. “The regional regime has put pressures & tensions in state-market relationships in both Mexico & the U.S., deepening domestic cleavages between those who advocate the (exclusive) role of markets vs. those who wish to let firms stay embedded within social, political, & historical institutions. What is at stake is whether welfare policies will survive or be transformed after NAFTA’S restructuring of state capabilities.”

45. THE ECONOMICS OF IMMIGRATION

46. LETTER TO THE EDITOR Our southern border is as imaginary as the equator. Our politicians cannot see it any more than those who are crossing it illegally. Politicians wring their hands on this issue as though they are being asked to police the equator. If they cannot do the job then they should turn it over to the private sector. There are companies in America that would do an excellent job of taking care of our immigration problem on the southern border. Policymakers tell us that fences will not work. Yet the White House still has a fence around it. An estimated 12 million illegals are in our country. How is it that we can send men to the moon but we can’t send these illegals home?

47. LETTER TO THE EDITOR Years ago HMOs lowered premiums and increased benefits until they gained control of the health care system. Then they tripled and quadrupled the premiums and cut benefits. The illegals from Mexico are following the HMO playbook. They come into our country and work for a third of  the average wage. When they take over the food industry, field work, motel and hotel jobs, restaurant and landscaping, they will then go on strike, shut down mainstream America and then demand the high wages that the American people were being paid before they took their jobs away.

48. Immigrant labor (10M strong) is the largest international industry in the Southwest USA

49. THE IMPACT OF ILLEGAL IMMIGRATION ON THE U.S. ECONOMY 8.1 million: illegal immigrants $1.8 trillion: annual spending, U.S. $220.7 billion: annual spending, Texas $652 billion : annual contribution to U.S. GDP $27 billion or more: the costs of education, health care and incarceration in six states, including Texas

50. A 2007 report by the federation said the costs of education, health care and incarceration of undocumented immigrants in six states, including Texas, exceeds $27 billion annually. "We need comprehensive reform that looks at our needs and addresses those needs," said the president of the group that examined data for 500 sectors of the economy.