NAFTA Gets Mixed Reviews After 10 Years

The North American Free Trade Agreement (search) celebrates its 10th birthday on Jan. 1 without having realized the optimistic predictions that preceded the binding of the United States, Canada and Mexico into a continental trade pact, several experts told

Despite the unfulfilled promises, the treaty earned mixed grades by those experts. Critics charge NAFTA has failed to live up to its economic promises.

"We definitely don’t grade it very highly from the perspective of the United States. We would say it contributed to the growing trade deficit with Canada and Mexico and the growing loss of manufacturing jobs," said Economic Policy Institute (search) economist Josh Bivens.

But others say that while the trade agreement suffered from exaggerated rhetoric and inflated expectations, the three members have realized measurable economic and political benefits.

"The biggest success has been as a foreign policy initiative. NAFTA has locked Mexico on the road to modernization and reform. It has helped create a stable and dynamic Mexican economy, and it has also helped encourage democracy and political reform," said Dan Griswold, a trade policy analyst at the Cato Institute (search).

At the time of its creation, leaders in the three countries promoted NAFTA as a new arrangement that would expand trade and create jobs. Then-President Bill Clinton said America would gain 200,000 jobs in the treaty's first two years.

But opponents warned that NAFTA would be a loser for the United States. Former presidential candidate Ross Perot (search) famously predicted that Americans would hear a "giant sucking sound" of jobs headed south.

Thea Lee, chief international economist for the AFL-CIO (search), said NAFTA has been bad for America. The treaty has allowed employers to use the leverage of threatening to move to Mexico "to bust unions, bargain for lower wages and benefits and undermine regulations on the environment.

"There have been winners and losers, but we think there have been a lot more losers than winners, especially the average worker," Lee said, adding that while NAFTA is not only bad for labor, it also represents the wrong direction for U.S. trade policy.

More damaging than NAFTA "is to take those principles and expand them throughout the world," she said.

She said that the AFL-CIO would fight NAFTA-like agreements such as the proposed Central America Free Trade Agreement (search) and the Free Trade Agreement of the Americas.

CAFTA negotiators announced Wednesday that a final agreement had been reached with four of five Central American nations involved in CAFTA to create a free-trade zone.

Indeed, NAFTA's results for the United States are not the only source of dispute. Canada and Mexico are also facing mixed progress. While NAFTA had a limited impact on Canada because Canada and the United States had already signed a free trade agreement in 1988, Mexico was profoundly changed as it tried to integrate with the much larger economies to the north.

Carlos Heredia, an economist and former member of the Mexican Legislature, said that then-Mexican President Carlos Salinas' (search) goal to improve the Mexican economy so that Mexico would export goods, not people, failed.

"We were promised that NAFTA would create jobs in Mexico so that Mexicans would not have to migrate north. The fact of the matter is migration has increased year after year," Heredia said.

Heredia added that NAFTA has wrought other consequences, including the expanded inequality in Mexico and the concentration of many benefits in the hands of large multinational companies and bureaucrats.

NAFTA winners are highly concentrated in corporate boardrooms of big companies like agribusiness giant Archer Daniels Midland (ADM), added Lori Wallach, director of Public Citizen's Global Trade Watch (search).

America has lost between 530,000 and 750,000 jobs as a result of NAFTA, said Kevin Gallagher, an economist at Tufts University's Global Development and Environment Institute (search), but they only went to Mexico temporarily. As Mexico's salaries increased — and job skills didn't — many of those lower-skilled jobs then traveled to China.

But gauging the success of NAFTA in Mexico is not so easy, Gallagher said. Mexico's economy has been transformed in the last 17 years since Mexico joined the General Agreement on Tariffs and Trade and took other steps to open up the economy.

Mexico is in a period of economic integration of which NAFTA is only one part, he said.

Bivens agreed. "It's hard to get a good read about what has happened to Mexico because of NAFTA because they had the peso crisis at the same time" NAFTA emerged.

The U.S. Office of Trade Representative (search) says NAFTA has been a winner for all members. Mexico has gained through expanded exports, higher wages for Mexican workers, more foreign investment and a stronger agricultural sector.

Added University of California San Diego economics professor Gordon Hanson, Mexico realized several benefits that cannot be put on a balance sheet.

NAFTA "enshrined liberalization of Mexico's trade and investment laws in an international treaty. It raised the stakes for counter reform," Hanson said. In that regard, "people probably underappreciated the significance of it."

Hanson acknowledged that NAFTA's benefit to the United States was overestimated. "It was definitely oversold in the United States. At the time Mexico's economy was the size of Ohio's. How could it bring huge benefits to the U.S. economy?"

But he suggested that critics consider what could have happened without it.

In the absence of NAFTA, there "would have been lots more competition from Asia without the U.S. being able to take advantage of a low-wage workforce in Mexico," he said.

The USTR's office adds that despite the critics, NAFTA is "a huge success for the U.S. and its NAFTA partners." It notes that between 1993 and 2000, U.S. employment grew by over 20 million jobs and wages rose.

Griswold said that the United States has added millions of jobs since NAFTA, and that it is virtually impossible to hold all other factors equal to determine the relatively small number of job losses attributable to NAFTA.

"Our economy is creating and destroying jobs every day. Something on the order of 7 million jobs are eliminated and created every quarter. Jobs created and destroyed by NAFTA are just a drop in the bucket," he said.

Still, with jobless numbers currently above the record lows reached in the 1990s, NAFTA may be an issue with some political traction. Almost every Democratic presidential candidate has lined up against the treaty. Rep. Dick Gephardt, D-Mo., a favorite of labor unions, has already aired a television ad in Iowa touting his past role in which he “led the fight against NAFTA."