CHAPTER 9 The Americas PRISMs 1 Do regional

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 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 $74 B in FDI 4. 20 M 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 “Can. Amer. Ico” 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-1980 s) “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 10 X 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 (10 M 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. 3 M illegal aliens in 2002; 50% Mexican and 23% other Latin American; 23% in California, 12% in Texas (approx. 1. 1 M), 10% in Florida 2. 6 M of the 9. 3 M are believed to be employed, making up 5% of the total U. S. labor force. 3. Growth of the illegal alien population in America: 13 M in 1994; 16 M in 1997; 17. 4 M in 2000; 19. 7 M in 2003

4. Median weekly earnings of full-time illegal immigrants in America: $489 versus $643 for legal Americans 5. Twenty thousand new H-1 B 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 20 M foreign-born workers in the Texas workforce are non-citizens.

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 1990 s. 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 -15 M 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)

MEXICO’S SOCIAL & ECONOMIC STRUGGLES

MX’S CURRENT SOCIAL/ECONOMIC PROBLEMS 1. Rapid population growth (70 m to 100 M in last 20 years) has outstripped good economic growth 2. Poor public education (national average of an 8 th 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 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. 19 m 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 & under-employment

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.

OVERVIEW OF LATIN AMERICA

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%

MIDDLE CLASS GROWTH IN LATIN AMERICA

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 1970 s & 1980 s, which fell apart in the region’s debt crisis of the 1990 s.

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, & 15 M Mexican households out of the 27 M 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 44 M 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. 7 B).

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. (“ 21 st 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 19 th 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. ”