New York Times, November 19, 2003
REPORT FINDS FEW BENEFITS FOR MEXICO IN NAFTA
By Celia W. Dugger
As the North American Free Trade Agreement nears its 10th anniversary, a study from the Carnegie Endowment for International Peace concludes that the pact failed to generate substantial job growth in Mexico, hurt hundreds of thousands of subsistence farmers there and had "minuscule" net effects on jobs in the United States.
The Carnegie Endowment, an independent, Washington-based research institute, issued its report on Tuesday to coincide with new trade negotiations aimed at the adoption of a Nafta-like pact for the entire Western Hemisphere. Trade ministers from 34 countries in the Americas are gathering now in Miami.
The report seeks to debunk both the fears of American labor that Nafta would lure large numbers of jobs to low-wage Mexico, as well as the hopes of the trade deal's proponents that it would lead to rising wages, as well as declines in income inequality and illegal immigration.
Though sorting out the exact causes is complicated, trends are clear. Real wages in Mexico are lower now than they were when the agreement was adopted despite higher productivity, income inequality is greater there and immigration has continued to soar.
"On balance, Nafta's been rough for rural Mexicans," said John J. Audley, who edited the report. "For the country, it's probably a wash. It takes more than just trade liberalization to improve the quality of life for poor people around the world."
The Carnegie findings strike a much more pessimistic note than those of a World Bank team that concluded in a draft report this year that the trade accord "has brought significant economic and social benefits to the Mexican economy."
The bank's economists argue that Mexico would have been worse off without the agreement as the country struggled to recover from a deep financial crisis in the mid-1990's and that the income gap between Mexico and the United States is smaller than it would have been otherwise.
Luis Serven, research manager for Latin America at the bank, said in an interview that he disagreed with the Carnegie report's contention that the trade agreement had hurt small subsistence farmers. He also said that the higher productivity Mexico had achieved in the Nafta years was ultimately the only route to higher wages there.
The intensity of the debate about the agreement's consequences is likely to grow with the approach of the pact's 10th anniversary in January as pro- and antiglobalization forces marshal arguments to influence negotiations for a Free Trade Area of the Americas and for a new bilateral trade deal between the United States and Central America.
Carnegie's policy experts stop short of contending that Mexico would have been better off without the agreement. "Mexico would have been better off with a better Nafta," said Sandra Polaski, a senior associate at Carnegie who was director of economic research at the Nafta labor secretariat from 1996 to 1999.
The authors of the report say developing countries have much to learn from Mexico's mistakes in the Nafta deal.
Trade negotiators for Central and South American countries, they said, should bargain for more gradual tariff reductions on corn, rice and beans -- the staples of subsistence farming -- to give peasants time to adjust to tough competition from large, highly efficient and heavily subsidized American farmers.
Carnegie's researchers also say developing countries should push international donors and rich countries to finance transitional assistance for the retraining of workers and farmers displaced by global competition.
Developing countries should also seek greater leeway to promote the use of domestic suppliers in manufacturing over imported components -- a step that would increase job creation, the authors say.
The Carnegie report argues that the growth in manufacturing resulting from the trade agreement was largely offset by lost employment among rural subsistence farmers, who were adversely affected by falling prices for their crops, especially corn -- a problem intensified by the Mexican government's decision to lower tariff barriers to American-grown corn even more rapidly than the agreement required.
"This is a trade pact which opened the U.S. economy to Mexico very profoundly, including years when the United States experienced its best growth in decades," Ms. Polaski said. "Yet we can't see a clear net increase in jobs in Mexico. You'd expect strong growth. You wouldn't have expected to need a magnifying glass to find it."
The trade agreement also reinforced and magnified changes in Mexico's rural economy -- brought on by a broad array of other policies -- that are damaging the environment, according to Scott Vaughan, an economist who recently left Carnegie to head the environmental unit at the Organization of American States. For example, he contends that the agreement has accelerated the shift to large-scale, export-oriented farms that rely more heavily on water-polluting agro-chemicals and use more irrigated water compared with producers of similar crops for the Mexican market.
A Carnegie Endowment for International Peace report finds Nafta did not bring job growth to Mexico.
Avg. annual employment change by sector in Mexico
Agriculture BEFORE NAFTA (1984-1993): +2% AFTER NAFTA (1993-2002): -2%
Manufacturing BEFORE NAFTA (1984-1993): +6 AFTER NAFTA (1993-2002): +4
Services* BEFORE NAFTA (1984-1993): +6 AFTER NAFTA (1993-2002): +4
*Includes financial and social services, transportation, utilities, trade, communications
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