CHAPTER 9
The Americas PRISMs
1. Do regional “free” trade
agreements discriminate against
nations outside the region?
2. Should the economic growth of
developing nations hinge on
opening their borders to “Godzilla”
nations?
3. Should the U.S. evaluate NAFTA
strictly on the basis of what it does
for America?
4. Should U.S. immigration laws be
strictly enforced?
5. Do Mexican immigrants
contribute more to the USA than
they receive from America?
6. Who should be responsible for
the unintended negative
impacts of free trade
agreements on companies &
workers?
THE PURPOSE OF
NAFTA:
To eliminate all
tariffs between
Canada, Mexico, &
the USA
Does NAFTA really stand for
Not A Free Trade
Agreement?
(Because only 3 nations
benefit--the rest of the
world still has to pay
tariffs to export into the
NAFTA zone)
¿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
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)
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
Each NAFTA nation is
allowed to designate
one industry (the
nation’s “sensitive
sector”) that
does not have to comply
with NAFTA regulations
El sector sensible
(sensitive) de México: OIL
¿Por qué es la agricultura el
sector sensible de los los
Estados Unidos?
Because the U.S.
government doesn’t
want to cut farm
subsidies
(required by NAFTA)
for fear of causing
American farm
instability.
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.
What’s better than a
large slice of pie (economic
growth)?
(A slice from a larger pie)
NAFTA PROGRESS
1. MX’s trade with the USA has doubled
since NAFTA went into effect; exports
to Canada have increased 40%.
2. 88% of MX’s trade is with the USA;
11% of USA trade is with MX.
3. Between 1994-2000, MX received a
record $74B in FDI
4. 20M new jobs have been created in
the USA & overall wages increased in
the first decade of NAFTA.
5.NAFTA export activity
through Texas has
created 250,000 new
jobs in the state.
6.Overall FDI for all 3
NAFTA members has
increased
7.The Mexican fresh fruit
& vegetable business
has tripled
NAFTA’S CRITICAL MASS PROCESS
How “CanAmerIco” benefits from
greater trade cooperation:
1. Stimulates trade &
economic growth
2. Creates resource synergy
3. Attracts FDI
4. Expands the size of the
economic pie
5. 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.
6. Critical mass occurs when change
produces more change &
opportunity produces more
opportunity.
KEY NAFTA SOCIAL BENEFITS
FOR MEXICO
1. 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.
2. 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.
Los nuevos servicios vienen con nuevo
projectos de negocio
(New services come with new
business projects)
Pero el ganador más grande
de NAFTA es…
(But the biggest winner of
NAFTA is… TEXAS)
18 cents of each dollar stay
in the Texas economy in the
form of insurance, trucking,
warehouses, etc.)
The poorest counties in Texas (light
shaded) stand to benefit most from
NAFTA by their close proximity of the
border.
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.
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.
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
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.”
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.
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..
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%
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.
UNANTICIPATED OUTCOMES OF NAFTA
1. Asian & European companies
built factories in Mexico in order
to export goods to the U.S.
without tariffs
2. Many Mexican companies closed
because they were no longer
protected by tariffs
3. China began to siphon off jobs &
FDI from Mexico
Mexico’s infrastructure for
doing NAFTA business is not
nearly big enough
1. Canadians are worried that NAFTA will
undermine Canadian competitiveness,
eventually cutting into their socialist
comforts (high minimum wage, free
health care, etc.)
2. Due to the backing of large farming
subsidies, American farmers are a major
threat to most small MX farms
3. 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.
NAFTA HEAD-BUTTING
1. Current legal action: Mexico
imposed a 20% tariff on U.S.
soft drinks sweetened with
fructose corn syrup.
2. Mexico has charged the U.S.
with anti-dumping tariffs
over American beef exports
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.
THE BOTTOM
LINE ON
NAFTA
(from Post-NAFTA North America,
by Isidro Morales)
1. “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.”
2. But the playing filed for the 3 partners has
not been entirely leveled due to subsidies
& “overzealous” use of sensitive sector
products.
3. NAFTA has not yet brought about progress
in the economic gaps between north and
south Mexico.
4. NAFTA has not caused any deterioration in
Canada’s welfare state as of yet.
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.”
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?
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.
Immigrant
labor (10M
strong) is the
largest
international
industry in the
Southwest
USA
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
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.
PROFILE OF ILLEGAL IMMIGRANTS IN THE USA
1. Estimated 9.3M illegal aliens in
2002; 50% Mexican and 23%
other Latin American; 23% in
California, 12% in Texas
(approx. 1.1M), 10% in Florida
2. 6M of the 9.3M are believed to
be employed, making up 5% of
the total U.S. labor force.
3. Growth of the illegal alien
population in America: 13M in
1994; 16M in 1997; 17.4M in
2000; 19.7M in 2003
4. Median weekly earnings of full-time
illegal immigrants in America: $489
versus $643 for legal Americans
5. Twenty thousand new H-1B visas
were approved by Congress in 2004 to
bring in skilled specialty immigrant
workers (computer programmers,
nurses) to the American economy
6. 75% of day laborers in the U.S.
(including 2/3 of all workers in
construction & agriculture) are illegal.
7. 2/3 of the 20M foreign-born workers
in the Texas workforce are noncitizens.
RECENT GLOBAL LABOR TRENDS
1. The overall % of immigrants in the European &
American workforces is rising. Immigrants
comprise approx. 15% of the American
workforce today.
2. China & developing nations have doubled the
amount of manufacturing they do for Western
nations since the early 1990s.
3. The IMF estimates that the global labor supply
has increased 4-fold since 1980.
4. In a recent study of 18 nations, the average
real pay of workers has increased 0.24%,
raising questions about how much workers
have benefited from the world’s recent growth.
ESTIMATED % OF IMMIGRANT
EMPLOYMENT IN U.S. INDUSTRIES
Agriculture: 61%
Domestic housekeeping: 36%
Drywall installers: 27%
Landscaping: 26%
Maintenance: 26%
Meat handlers: 25%
Hand packers: 22%
Cement finishers: 22%
Roofers: 21%
Animal slaughter: 20%
Cleaning: 19%
Laundry: 17%
Apparel: 16%
Hospitality: 14%
Restaurants: 11%
Construction: 10%
“Recent efforts to heavily fine U.S.
companies who employ illegal
Mexicans have already caused
serious disruptions in the
operations of many American
businesses, especially in
agriculture. Many farmers have
will produce only half of their
normal crops due to growing labor
shortages & many farmers have
chosen not to plant at all.”
SHOULD AMERICA CLOSE ITS BORDERS?
1. “Those who simply want to deport all
unauthorized immigrants might be surprised
at the economic result. I don’t think they
would be very happy. It would cause a lot of
dislocation in terms of trying to maintain
industries such as agriculture, construction,
and hospitality.”
2. “Curbing the use of immigrant labor would
cause the Central Texas building boom to fall
flat on its back.”
3. “There’s just not enough raw bodies in the
construction trades. I don’t think that
Congress recognizes the full impact of a
closed border system.”
4. There’s an absolute numerical decline of
Anglos in the labor force nationwide and in
Texas. Without people from other cultures
and origins coming here, we’d actually see a
decline in the American labor force.”
5. “The jobs immigrants take are not the jobs
Americans won’t do. Immigrants are doing
the jobs at the prices that are offered.
Roofers and cement mixers who used top
make $15 an hour aren’t going to work for
$8.”
6. “We’re not just workers. We’re not murders
or criminals. We do important work. We
work faster, for less money, and we do good
work.”
“The U.S. has 12-15M undocumented
workers employed primarily in
agriculture, construction, food services, &
tourism. With the low unemployment rate
below 5%, where do we think we can
realistically find people to fill unskilled or
semi-skilled jobs? If every illegal
immigrant was sent back to his country
of origin, America would have a worker
shortage across the board, not just in a
few industries. Prices would skyrocket
and it would take longer to get work
done—if you could find people to do the
work at all.”
“Looked at from a Christian
point of view, nationalism
is a very dangerous
principle. The Christian
understanding of who is
our neighbor is not limited
to those who look like us or
who have the same
citizenship papers.”
NATIONALISM &
PROTECTIONISM
• Tariffs (taxes on imports)
• Subsidies (domestic companies
receive financial aid from their
government)
Protectionism is seen by developed nations
as an outmoded form of nationalism that
disrupts global trading patterns.
Developing nations see it as a defense
against foreign exploitation.
Why is NAFTA not really a
free trade area?
(Because only 3 nations
benefit)
MX’S CURRENT SOCIAL/ECONOMIC PROBLEMS
1. Rapid population growth (70m to
100M in last 20 years) has outstripped
good economic growth
2. Poor public education (national
average of an 8th grade education)
3. Systemic corruption saps economic
growth from the grass roots level &
drives off investors
4. Low farm subsidies can’t compete with
high USA farm subsidies
5. Mass urban overcrowding & underemployment
6. Because MX’s average age is
one of the youngest in the
world (22), a million job
seekers enter the MX
economy each year.
7. But the MX economy creates
only 100,000 new jobs
annually, clearly showing
the need for NAFTA.
8. 19m more Mexicans in poverty than
20 years ago, despite impressive
NAFTA gains
9. Half of population unable to meet
daily needs
10. 40% of rural Mexicans earn $1.40
daily
11. Every day, 400-600 rural Mexicans
move to urban areas, adding to the
gross over-crowding & underemployment
12.China has used labor costs 75%
lower (about 50 cents daily) than
Mexico’s to pull away 300,000
manufacturing jobs (especially in
clothing) from 300 MX plants
13.Chinese workers are much better
educated than MX workers,
making it hard for MX to move up
the “value-chain” in
manufacturing
14.MX is overly dependent on
unskilled labor jobs
MEXICO’S CORN DEPENDENCE
1. MX’s corn productivity increased by
30% from 1993-1999, but wages
fell 20%.
2. MX corn farmers largely dropped
out of the market when heavily
subsidized American & Canadian
corn flooded MX.
3. Then when the U.S. & Canada hit
corn shortages in 1996, MX ran out
of corn & the fatality rate of
malnourished MX children soared.
FTAA THREAT TO MEXICO
1.If the Free Trade
Agreement of the Americas
becomes reality in some
form, Mexico will probably
face tough competition
from the labor cost
advantages of many
Central American &
Caribbean nations.
LATIN AMERICAN EXPORTS AS A
% OF 2004 NATIONAL GDP
ARGENTINA: 25%
BRAZIL: 18%
CHILE: 41%
COLOMBIA: 22%
MEXICO: 30%
PERU: 21%
VENEZUELA: 36%
LATIN AMERICAN IMPORTS AS A
% OF 2004 NATIONAL GDP
ARGENTINA: 18%
BRAZIL: 13%
CHILE: 32%
COLOMBIA: 22%
MEXICO: 32%
PERU: 18%
VENEZUELA: 20%
AVERAGE GROWTH RATE OF LATIN
AMERICAN NATION, 1990-2000
ARGENTINA: 3.2%
BRAZIL: 1.3%
CHILE: 4.9%
COLOMBIA: 0.8%
MEXICO: 1.8%
PERU: 2.1%
VENEZUELA: -0.1%
LATIN AMERICA OVERALL: 2.0
SOURCES OF FDI TO MEXICO
USA: 63% of MX FDI
EU: 26%
Canada: 3%
Japan: 2%
All other nations: 6%
LATIN AMERICA PER CAPITAL GDP
Mexico: $9803
Costa Rica: $9481
Dominican Rep: $7499
El Salvador: $5041
Guatemala: $4313
Honduras: $2876
Nicaragua: $3634
1. Economic growth in several South
American nations is spurring significant
middle class growth (in contrast to the
historical demographic profile of a
small minority of upper class rich vs. a
giant majority of lower class poor).
2. The new economic growth is based on
proliferating small family businesses in
contrast to the socialized governmentbacked state companies of the 1970s &
1980s, which fell apart in the region’s
debt crisis of the 1990s.
3. Under new government definitions of
poverty, families that can provide for
their own economic needs free of
government support are classified as
residing above the poverty level. Forty
percent of Argentina’s families have now
reached this level.
4. Economic growth projections for 2010
predict that approximately half of Latin
American families will move above the
poverty level, & 15M Mexican
households out of the 27M total by
2012.
5. In both Brazil & Mexico, the incomes of
the poorest half of the population are
growing faster than the average, & the
overall poverty rate is steadily declining.
6. Poverty has declined more in Chile than
anywhere else in Latin America due to
sustained new job growth & fewer
children in families. Chile’s income
distribution is also becoming less
unequal.
7. “Latin America is going faster towards a
middle class society than we could have
imagined 20 years ago.”
BEYOND NAFTA?
When NAFTA came into effect in 1994, 34
nations in the Americas pledged to
negotiate a regional free trade agreement,
the Free Trade Agreement of the Americas,
by 2005. The U.S. initially championed the
FTAA, hoping it would erode high Latin
tariffs against American exports. But at
the 2005 Summit of the Americans
conference, Latin American nations
declined to pursue the FTAA for the time
being, but Chile, Brazil, & Colombia
pursued bilateral free trade agreements
with the U.S.
In recent years, the Andean
Community (Bolivia, Colombia,
Ecuador, Peru, & Venezuela)
developed much closer trade ties
with the EU , eclipsing the amount of
trade Latin American now does with
the U.S. Brazil & Chile have the
largest trading relationship with the
EU overall. The EU now invests more
in CAN (Andean Community) than
the U.S. does, accounting for a
quarter of all Latin American FDI.
LATIN AMERICAN FREE TRADE PROGRESS
1. 33 nations have worked since 1998 to put
together a free trade zone in the Americas
by 2005.
2. The Andean Community recently merged
with MERCOSUR (The “Southern Common
Market” nations of Brazil, Argentina,
Paraguay & Uruguay) to form the South
American Community of Nations.
3. The U.S. currently has unilateral FTAs with
Chile, Colombia, Panama pending possible
approval by Congress.
4. Mexico has free trade
agreements with the EU, Israel,
Japan, and several South
American nations.
5. In addition to its free trade
agreement with the U.S., Chile
has also brokered free trade
deals with Canada, China, the
EU, South Korea, Mexico,
Panama, Peru, Singapore.
CAFTA
1. The Central American Free Trade
Agreement (2005) removes tariff
barriers between the USA & 6
nations: El Salvador, Nicaragua,
Honduras, Guatemala, Costa Rica,
& the Dominican Republic
2. 80% of the goods from these 6
nations were already free of tariffs
before CAFTA went into effect
3. CAFTA has only 44M people &
most are not yet middle class
consumers.
“Latin American opponents of free
trade with the USA worry that
farmers, especially of corn,
cotton, and wheat, will struggle
to compete with their heavily
subsidized counterparts in the
U.S. They also worry that
American corporations will try to
take out patents on native plants
that can be cultivated for
medicinal purposes.”
4. Central American leaders
view CAFTA as vital in order to
force the region to upgrade
competitively—especially to keep
China from siphoning off FDI and
labor-intensive jobs from the region.
5. The U.S. feels CAFTA will also
strengthen protection of American
intellectual property (trademarks,
patents, etc.) in Central America.
6. CATFA will increase the openness and
accountability of Central American
governments because their
economies will be subject to close
scrutiny.
7. CAFTA will also stimulate regional
trade, since tariffs and other
protectionist barriers will be largely
outlawed. This will be especially
important to Nicaragua, the poorest
CAFTA member, which still has no
paved roads to its Atlantic coast.
8. Economists estimate that
CAFTA will produce only a
.01% annual export gain
for the U.S. economy, but
total annual exports of the
6 CAFTA nations to the
U.S. should increase by
nearly 15% ($2.7B).
THE
CAPITALISM
SPLIT IN
SOUTH
AMERICA
Since 2005, South American nations have
diverged in capitalist ideology. Chile, Brazil,
Colombia, & Mexico want to pursue “neoliberal” (traditional non-socialist) capitalism
based on close ties to the U.S. Venezuela,
Bolivia, Ecuador, and Argentina favor a less
pure form of capitalism mixed with varying
degrees of socialism. (“21st century
socialism”). This mixed capitalism is based
on the governments running utilities,
airlines, & the oil industries as well as
forming joint ventures with large private
corporations holding a large economic stake
in Latin America.
1. The economic income gap between
rich and poor is a major reason for
growing uneasiness with capitalism.
In many South American nations,
the richest 20% own over 60% of
the total wealth, while the poorest
20% typically average only 5%.
2. Also high inflation (20%+) & the
resulting high interest rates are
commonplace throughout the
region.
3. Venezuelan President Hugo Chavez has
launched his own “Bolivarian
Revolution” (named after Simon
Bolivar, who liberated several South
American nations from colonial control
in the 19th century) designed to lessen
the region’s perceived economic
domination by the U.S. & Western global
government organizations (the
IMF/World Bank, & the World Trade
Organization) & to promote greater
trade cooperation from within the
Andean Community.
“US clout in Latin America has sunk to
perhaps the lowest point in decades. Latin
Americans now view the US as a banana
republic.” The major causes are:
1.The US financial collapse which promises
to have significant negative spill over
effects for Latin America. “US lectures to
Latin America about excess greed and
lack of accountability have long run
hollow, but today they sound even more
ridiculous.”
2. Economic austerity measures pressed on
Latin America by the US over the past
decade.
3. The re-emergence of anti-American
leftist leaders in several LA nations.
4. A significant decline of US
investment in LA from 30% to
20% over the past decade.
5. Rapid trade growth with LA by
both China & the EU.
6. Russian provision of arms &
military equipment to
Venezuela.
7. Increasing trade of technology
between LA & France. “Similar
deals could have been made
with the US had it been willing
to share its technology.”