Clinton, NAFTA and the Politics of U.S. Trade

Clinton has taken some small steps
to mollify trade unionists and environmentalists,
but the primary focus of his trade policy has
been to facilitate investment
by U.S. corporations overseas.
As the wars in Central America drew to a close at the end of the 1980s, U.S. foreign policy toward Latin America and the Caribbean was reori- ented toward the consolidation of neoliberal economic policies. In 1990 George Bush proposed and launched the Enterprise for the Americas initiative, with its vision of a free trade zone stretching from Anchorage to Tierra del Fuego, and in 1993, Bill Clinton began an all- out effort to liberalize national economies throughout the hemisphere. Clinton’s efforts have included a num- ber of far-reaching initiatives that have opened economies to foreign investment and trade, and locked in the structural adjustment programs first implemented in the 1980s. Of all these initiatives, the North American Free Trade Agreement (NAFTA) and the plans for its expansion provide the most vivid illustra- tion of his trade policy in Latin America. The President has taken some small steps toward the inclusion of labor and environmental issues in trade and economic policy in order to satisfy these two key Democratic Party constituencies, but his primary focus has been on facilitating investment by U.S. corpora- tions overseas. Toward this end, his administration has worked to create optimal conditions for low-cost, glob-
Karen Hansen-Kuhn works on trade and structural adjustment issues as Latin American Program Coordinator for the Development GAP in Washington, D.C.
22
alized production, and to remove all barriers to the movement of goods and capital across national borders. During much of the 1992 presidential campaign, Clinton appeared undecided as to whether or not to
actively support the NAFTA negotiated by the Bush
Administration. On the one hand, the Clinton team was
strongly influenced by both the populist appeal of Ross
Perot’s opposition to NAFTA and the broad-based labor
and environmentalist campaign against the accord. On
the other hand, his campaign was heavily financed by
large corporations and Wall Street firms. Many of the
men he later appointed to key positions, such as
Treasury Secretary Robert Rubin, Commerce Secretary
Ron Brown and Deputy National Security Advisor
Sandy Berger, came from Wall Street finance houses or
corporate law firms whose clients stood to gain enor-
mously from new protections for foreign investment
and from a liberalization of the Mexican financial sec-
tor.
There were rumors of a heated debate within the
campaign team on the issue and, in fact, it was not until
October that candidate Clinton announced his support
for NAFTA. In a speech delivered at North Carolina
State University, he insisted that problems in the agree-
ment could be addressed without renegotiating the text,
by expanding trade adjustment-assistance programs for
displaced workers, implementing a more aggressive
NACILA REPORT ON THE AMERICASREPORT ON U.S. POLICY
interpretation of existing trade remedies and establish-
ing parallel agreements to resolve environmental and
labor disputes.’
The commitments made in this speech sparked con-
siderable enthusiasm among many of the large U.S.
environmental organizations that had been active in the
debate over NAFTA, and cautious optimism among
U.S. unions and labor activists. The Bush Admin-
istration had refused to even consider negotiating envi-
ronmental or labor issues within the context of NAFTA,
so Clinton’s proposals seemed to be a step forward. But
while Clinton did propose a new approach to labor and
environmental matters, he did not question the basic
doctrine of free trade. On the contrary, he lauded the
neoliberal economic reforms of the Salinas Admin-
istration and urged the establishment of a closer rela-
tionship with a Mexico, “now under better leadership
than ever in my lifetime.”
The final NAFTA text and the accompanying side
agreements on labor and the environment were released
in August 1993 to lukewarm public support. Some
mainstream environmental organizations lauded the
inclusion of an environmental standards article in the
Agreement’s Chapter on Investment. The article deems
it “inappropriate” for countries to lower those standards
in order to attract investment-even though no penal-
ties other than “consultations” would result from such
VOL XXXI, No 2 SEPT/OCT 1997
transgressions. Environmentalists had fought for and
won a side agreement to NAFTA called the North
American Agreement on Environmental Cooperation
(NAAEC), which established a mechanism for the set-
tlement of environmental disputes and set up the North
American Development Bank (NADBank) to provide
loans for border cleanup projects. None of the environ-
mental groups that had previously opposed NAFTA,
however, changed their positions as a result of these
environmental concessions.
Meanwhile, the North American Agreement on Labor
Cooperation, the labor side agreement, divided labor-
rights violations into two categories. Noncompliance
with child-labor, minimum wage, and health and safety
standards could be subjected to a slow process that
could eventually result in sanctions. Violations of such
rights as freedom of association and collective bargain-
ing, on the other hand, were termed “industrial rela-
tions” issues and could only result in consultations
among the member governments. Like the environmen-
tal side agreements, the labor agreements require com-
pliance with national laws in each country, not interna-
tional standards. No union withdrew its opposition to
NAFTA as a result of the NAALC.
While candidate Clinton may have been tentative and
qualified in his support of NAFTA, President Clinton
waged an all-out battle for the agreement’s passage in
Congress. By the summer of 1993, a full-scale public-
relations campaign was well underway, and on
November 17, 1993, after a good deal of wheeling,
dealing and arm twisting by the Administration,
NAFTA was approved in the House by a vote of 234-
200. Approval by the Senate, and by the Canadian
Parliament and Mexican Congress, followed shortly
afterwards, and the treaty was implemented as sched-
uled on January 1, 1994.
ptimism among U.S. investors that the agree-
ment had ushered in a period of high financial
returns from Mexico was quickly shaken. In
Mexico, January 1 marked not only the implementation
of NAFTA, but the armed uprising of indigenous
Zapatista rebels in the southeastern state of Chiapas,
who blamed NAFFA for the deepening of the region’s
poverty. The year also saw two high-profile political
assassinations, and ended with the collapse of the peso
and the flight of billions of dollars of portfolio capital
out of the country. 2 The Clinton Administration has
asserted that the Mexican peso crisis had nothing to do
with NAFTA and that the agreement and the subsequent
bailout package saved Mexico from a deeper crisis. In
reality, the evolution of the Mexican economic crisis
illustrates the connection between NAFTA and the
neoliberal economic policies promoted by the U.S.
23REPORT ON U.S. POLICY
Treasury through the World Bank and International
Monetary Fund (IMF) since the early 1980s.
In the wake of the 1982 debt crisis, the Mexican gov-
ernment signed an agreement with the IMF that pro-
vided access to foreign currency in exchange for the
implementation of a strict stabilization and adjustment
program. A series of agreements with the IMF and the
World Bank followed over the next decade. Provisions
;n thnoP a rrPPmPntc inrhlrlPA rAuntlnno in
public expenditures, tax reform, restriction of
credit, wage “restraint,” privatization of state-
owned enterprises, and trade liberalization.
Beginning with the 1989 Extended Facility
Agreement with the IMF, the Mexican govern-
ment agreed to a thorough reform of its financial
system. This included a reduction of restrictions
on foreign investment, as well as further trade
liberalization. “This was one of the most
momentous policy decisions in Mexico’s recent
economic history,” says Mexican economist
Alejandro Nadal. “Because Mexico lacked a
long-term strategy to develop its competitive-
ness, this simply opened the door to increased
financial vulnerability.” 3
Mexico’s trade deficit skyrocketed in the
1990s as cheap imports flooded the country,
undermining local producers. This deficit was
financed by a deluge of foreign investment.
Between January 1990 and June 1994, $91.7 bil-
lion flowed into the country, 77% of which was
portfolio investment, much of which can be
shifted out of the country with the touch of a
keyboard. 4 As investors began to get nervous
during 1994 about the apparent political instabil-
ity and the overvalued exchange rate-main-
tained in large part to hold down inflation and I bolster me RIK s electoral cnances as well as
Carlos Salinas’ candidacy to head the World Trade
Organization-the Mexican government raised interest
rates and issued “Tesobonos,” short-term, dollar-
denominated bonds, in a futile attempt to forestall a
devaluation and the capital flight that would ensue.
On December 20, 1994, facing a situation of declin-
ing reserves and payments owed on the Tesobonos and
the rest of the dollar-denominated debt, the administra-
tion of Mexico’s new president, Ernesto Zedillo,
ordered a 15% devaluation of the peso. This surprise
announcement sparked panic among investors, leading
to a further drop in foreign reserves. By December 22,
the Mexican government felt it had no choice but to
allow the peso to float (or sink) to less than half of its
pre-crisis value. Fearing further economic collapse and
a possible default on its debt and bond obligations, the
Clinton Administration put together a “bailout” pack-
age. This effort was led by Clinton’s then-Under
Secretary for International Affairs at the U.S. Treasury,
former World Bank Chief Economist Lawrence
Summers, following the refusal by the U.S. Congress to
authorize new funds for this purpose.
The conditions for the $52 billion multilateral loan
package were set out in an “Economic Policy
Memorandum” that committed the Mexican govern-
ment to carry out a new stand-by arrangement with the
IME In addition to the austerity conditions contained in
that package, U.S. authorities insisted that the Mexican
government raise domestic interest rates in order to
shore up the peso. 5 The $13.5 billion from the U.S. gov-
ernment was lent at market interest rates and was guar-
anteed by Mexican oil-export receipts which flowed
into a special account at the U.S. Treasury as long as the
loans were outstanding. In its October 1996 report to
Congress on the results of the bailout package, the U.S.
Treasury disclosed that the U.S. funds lent to the
Mexican government had been used to redeem the
Tesobonos, a large portion of which were held by U.S.
investors. 6
The impact of these policies on small and medium-
scale producers and workers in Mexico has been dev-
astating. Over 28,000 Mexican businesses have gone
24 NACIA REPORT ON THE AMERICAS
CREPORT ON U.S. POLICY
bankrupt because of the high cost of their loans (most
of which carry variable interest rates), the drop in
domestic demand (caused by the austerity measures
and a 27% decline in real wages), and the influx of
cheap goods from abroad. Nearly two million Mexican
jobs have disappeared, even counting the hundreds of
thousands of new jobs
created in the foreign-
owned maquiladora
sector. In its despera-
Over 28,000
tion to attract foreign
investment, the Mex-
Mexican
businesses
ican government
has
also passed legal
have gone
reforms to relax al-
ready poorly enforced
bankrupt because environmental regula-
tions. 7
of the high cost of It is true that NAFTA
itself did not cause the
their loans, the crisis. Rather, it com-
drop in domestic pounded the profound
problems created by
demand, and the these structural adjust-
ment policies. But
influx of cheap NAFTA seriously limits
Mexico’s options. The
goods from chapter in the agree-
ment on investment, for abroad. Nearly two instance, ensures that
foreign investors are million Mexican treated no differently
jobs have than national investors, thereby prohibiting the
disappeared. Mexican government from regulating foreign
investment in any
effective way. It specif-
ically forbids perfor-
mance standards that would require a transnational cor-
poration (even one not based in a NAFTA country) to
give preference to domestic suppliers or to transfer tech-
nology to the host country.
These provisions have serious implications for Mexico
and any other country that joins NAFTA under these
terms. If countries cannot regulate foreign investment,
they will be unable to implement a coordinated industrial
or development strategy. Their only option, given the
current structure of most Latin American economies, will
be to continue to depress wages, working conditions and
environmental regulations in increasingly desperate
moves to attract mobile international capital. This, in
turn, will continue to contribute to job and wage losses
and to economic insecurity in the United States.
VOL XXXI, No 2 SEPT/OCT 1997
t is difficult to know the full impact of NAFTA on U.S. jobs and wages, but some indicators do exist.
As of May 1997, 127,000 workers had been certified
under the NAFTA Trade Adjustment Assistance
Program as having lost their jobs because of the agree-
ment. This number probably understates the true num-
ber of job losses, as many workers do not know about
the program or choose not to apply for its benefits.
These documented job losses have occurred dispropor-
tionately in rural areas and in such sectors as textiles and
electronics that tend to employ women and minorities. 8
There is also no proof that increased exports auto-
matically lead to employment creation. A study con-
ducted by economist Dave Ranney found that many
U.S. firms both increased exports to Mexico and cut
jobs at their U.S. facilities. Ranney notes that, “[i]n the
new global economy, mobile multinational corpora-
tions have no incentive or requirement to use the bene-
fits from exports to create jobs or raise wages of U.S.
workers.” 9
Perhaps even more significant than the precise fig-
ures on employment is the “blackmail” effect on
American workers, as companies use the threat of mov-
ing production to Mexico to undermine union organiz-
ing or bargaining efforts in the United States. The
depressed labor conditions and wages in Mexico, cou-
pled with NAFTA’s new protections for foreign
investors, have made these threats all the more credible.
A study conducted by Kate Bronfenbrenner for the
Labor Secretariat of the North American Commission
for Labor Cooperation found that complaints made
before the National Labor Relations Board about plants
shutting down just after a successful unionizing drive
had tripled since NAFTA’s implementation. In fully
half of all unionizing drives since NAFTA, employers
have threatened to close the plant if a union were orga-
nized. More than 10% of the union organizers inter-
viewed for the study reported that employers had made
direct threats to relocate production to Mexico if the
union campaign was successful. At the ITT Automotive
plant in Michigan, for example, the company parked 13
tractor-tailors loaded with plastic shrink-wrapped pro-
duction equipment in front of the plant during a union
organizing drive. It also brought employees from its
plant in Mexico to videotape workers at the Michigan
plant on a production line the company claimed it was
considering moving to Mexico.10
The fact that the promises made during the NAFTA
debate have not materialized has not been lost on
Congress. House Minority Leader Richard Gephardt,
for example, reporting on a trip that he and House
Minority Whip David Bonior recently took to the U.S.-
Mexico border, wrote: “Rather than improving condi-
tions, the NAFTA has validated Mexico’s system of
25REPORT ON U.S. POLICY
labor relations, wage-setting mechanisms and environ-
mental enforcement that has damaged the standard of
living, health and safety of the Mexican people.” He
concluded that he is, “unwilling to support new trade
negotiations that do not address these fundamental
flaws by including labor rights and the environment as
chapters in the core of the agreement equal in stature
and force and linked to provisions on investment and
trade.”ll
Republican leaders, on the other had, have flatly
rejected the inclusion of labor and environmental
issues in any negotiating authority granted to the
President, causing the stalemate that has existed on the
issue since 1995. There appears to have been some
softening of this position recently, with Rep. Gingrich
agreeing to consider the inclusion of labor and envi-
ronmental issues “directly related to trade.” At the
same time, however, the Administration appears to be
backing away from its previous insistence on the inclu-
sion of those issues in “fast-track” authority (where
they would not be subject to amendment or a separate
vote), offering to include negotiating objectives
instead, in an accompanying non-binding presidential
statement that would not be subject to Congressional
approval.12
The Administration has indicated that it will formally
request fast-track authority in September. Even if it
does address the labor and environmental standards in
its request, it is likely that they would be negotiated
once again as side agreements. While the NAFTA side
agreements represented an important first step in the
establishment of a formal link between trade and the
observance of labor and environmental rights, they
have proven to be inadequate. Cases brought before the
U.S. National Administrative Office under NAFTA’s
labor side agreement have resulted in public
consultations and have thus served to highlight
labor-rights abuses, but they have not resulted
in direct remedies for any of the workers
involved.
On the environmental side, the situation is
even worse. Little of the promised border
clean-up has materialized, and by May, 1997,
the NADBank, established for precisely that
purpose, had approved only four loans. In its
1996 Country Assistance Strategy for Mexico,
the World Bank mentioned that several large
World Bank loans designated for environmen-
tal cleanup along the border-loans promised
with much fanfare just weeks before the
NAFTA vote-had been canceled and the
funding reassigned to “higher priority” areas,
including financial-sector reform.
If President Clinton were to chart a new
course for U.S. trade and international eco-
nomic policy, a first step would be to open the
process up to participation by labor unions,
environmental, family-farm and other groups
directly affected by economic integration. In 1994,
Clinton told Latin
Cases brought
under NAFTA’s
labor side
agreement have
served to
highlight labor-
rights abuses, but
they have not
resulted in direct
remedies for any
of the workers
involved.
for democratic development.
Americas will depend on it. I
American and Cari-
bbean political leaders
that through a hemi-
sphere-wide free-trade
area, “we can create a
partnership for pros-
perity where freedom
and trade and eco-
nomic opportunity be-
come the common
property of the people
of the Americas.” If
that partnership is ever
to address the con-
cerns of all of the
hemisphere’s peoples,
and not just a small,
well-connected group
of investors, then U.S.
trade policy and treaties
like NAFTA must be
fundamentally reori-
ented to serve as tools
The future stability of the
Americas will depend on it.
Clinton, NAFTA and the Politics of U.S. Trade
1. “Expanding Trade and Creating American Jobs,” remarks by
Governor Bill Clinton, North Carolina State University, Raleigh,
NC, October 4, 1992.
2. For more information on the origins of the economic crisis in
Mexico, see Carlos A. Heredia and Mary E. Purcell, The
Polarization of Mexican Society: A Grassroots View of World
Bank Economic Adjustment Policies, (Washington: The
Development GAP, 1994).
3.Alejandro Nadal, “The Micro-Economic Impact of IMF Structural
Adjustment Policies in Mexico,” unpublished paper, Mexico City,
February 1997, p. 8.
4. Alberto Arroyo, “Hacia un diagn6stico de la crisis y propuestas
de condiciones minimas para enfrentarla,” unpublished paper,
Mexico City, 1995, cited in Sarah Anderson, John Cavanagh and
Dave Ranney, eds., NAFTA’s First Two Years-The Myths and the
Realities (Washington: Institute for Policy Studies, March 1996),
p. 2.
5. Nora Lustig, “Mexico in Crisis, the U.S. to the Rescue. The
Financial Assistance Packages of 1982 and 1995,” Brookings
Discussion Papers (Washington: Brookings institution, June 1996),
p. 36.
6. Monthly Report of the Secretary of the Treasury Pursuant to the
Mexican Debt Disclosure Act of 1995, October 1996, p. 3.
7. “Evaluaci6n macroecon6mica del TLCAN,” in Espejismo y
realidad: el TLCAN tres ahros despues (Mexico City: RMALC,
1997), p.51.
8. Anderson, Cavanagh and Ranney, NAFTA’s First Two Years, p. 7.
9. David C. Ranney and Robert R. Naiman, Does “Free Trade” Create
Good Jobs? A Rebuttal to the Clinton Administration’s Claims,
(Chicago: Institute for Policy Studies and the Great Cities
Institute, University of Illinois at Chicago, January 1997), p. 1.
10. Kate Bronfenbrenner, “The Effect of Plant Closing or Threat of
Plant Closing on the Right of Workers to Organize,” report sub-
mitted to the Labor Secretariat of the North American
Commission for Labor Cooperation, September 30, 1996, p. 11.
This report generated considerable controversy within the
Administration, which delayed its publication of the full report
until June 1997.
11. Letter from Richard Gephardt to Democratic Colleagues, February
26, 1997.
12. “Barchefsky Seeks Flexible Treatment of Labor, Green Issues vs.
Trade,” AmericasTrade, June 12, 1997, p. 1.