NAFTA: WHY DOES NIKOLAS DANCE?

(Chapter 3 in my upcoming book, From Jubilee to the World Bank: Economic Globalization for Faith Based Activists. Your comments are appreciated.)

“Nafta is working…but I don’t think we have come to an understanding yet of what it means to be partners, or to an understanding that partnership is the key to the success of nafta. We should be concerned about one another. We should combine our resources and talents; we should work together to be competitive; we should see the future with the same vision. This is what it means to be partners.”

—Mexico’s President, Vicente Fox, September, 2002, remarks at the Institute for International Economics[i]

In late January, 2008, I was in Chiapas, Mexico, with a group of people studying the impact of globalization on farmers. Chiapas is one of the largest coffee producing states in Mexico, and also its poorest. So, along with Witness for Peace, Equal Exchange, and my own organization, Jubilee Justice, we were there looking into the connections between globalization, coffee, and, of course, greed.[ii]

It was an interesting time to be there because, as you may recall from the news, Mexico was exploding in protests and demonstrations over the fifteenth anniversary of the start of the “North American Free Trade Agreement,” or nafta. More than two hundred thousand people, mainly farmers, were demonstrating in the central square in Mexico City, called the Zocalo. On their way they had driven trucks in long caravans at five miles an hour, bringing traffic to the city to a halt. One aging truck was burned as a symbol of their anger. In Veracruz, a hundred thousand people were marching in the streets. Nearly as many were in Acapulco and Oaxaca. Thousands formed a human chain along the border at Ciudad Juárez blocking entry into El Paso, Texas, carrying a banner which read Sin maiz no hay pais (“Without corn there is no country”). Even in the smaller cities tens of thousands of protesters lined the streets shutting down traffic and commerce. What was going on?

Mexico was battling for soul of its economy. Farmers, unions, educators, and pastors, priests, and nuns had taken to the streets in an intense struggle (in vain it turns out) to convince their government to reconsider its commitment to nafta, which the vast majority of Mexicans (and large majorities in the US and Canada) saw as offering them a painful, damaging failure. On January 1, the last tariffs were removed on imported corn, beans, sugar, and milk, ending the rocky transition to a radical free market economic model governing the relations between Mexico, Canada and the US, and farmers and urban poor people were terrified as to what would happen to them next.[iii]

While this was happening, I was staying for a few days up in a small community named La Ceiba, just south of Tabasco in the home of Nikolas and Anna Chocul, who were introduced to me simply as the “old ones,” and indeed they did look old. They were about five feet tall, with wizened faces and frail on their feet. Their home had essentially two rooms, one for cooking, and one for sleeping. One light bulb in each, no floors in either, and a common latrine a few hundred yards away. Nikolas spoke haltingly in Spanish (his native language was Tzeltal, but eventually I learned that he and his wife still had to go up the mountain each day to pick the coffee cherries, in spite of their declining strength. He had four children altogether, three boys, one daughter, and an undetermined number of grandbabies. I saw the fleeting face of his daughter occasionally through the door in the cooking room, but where were the sons? El Norte, he said. They had all gone north. One was in California on a farm. One was doing some kind of construction work. The third was still trying to get in. His daughter was living with them because her husband too, had gone to El Norte. They had expected to receive substantial remittances from the sons, but so far little had been sent home.

Nikolas’ life and circumstances overwhelmed me. Coming from my nice, air conditioned, floored home, I couldn’t imagine his hard, unrelenting life. But I tried not to act like the patronizing, rich guy, and I asked him about his family. I showed him pictures of my grand children, and he smiled.

Later that evening we went to the town church for community worship, a common meal, numerous speeches and presentations, and then a party. And there at the front of the sanctuary I saw Nikolas, in front of everyone else, dancing!

I was stunned. He was halting on occasion, not always in time to the music, but there he was, along with others—in fact dozens of others—dancing, and dancing as though his life was, well, wonderful and full of joy. From my soft, North American consciousness, I couldn’t imagine how he could do such a thing. If I were in his shoes I’d be in incalculable grief. I turned to a young woman named Gladys, who was the consultant for the local co-op that Nikolas’ community sells its coffee to, and shared my amazement. She laughed at me with a sound of real merriment, but I could tell that she was wondering how I could ask such a thing. “You don’t know much about us, do you?” she said.

There’s no clear, direct, line of cause and effect between Nikolas dancing and the protests of nafta, but there does seem to be an emotional one, perhaps even a theological one. In its fifteen years of existence, the “North American Free Trade Agreement” had created some staggering winners and staggering losers. And Nikolas and his family and community were among the worst of the losers.

To understand the depth of what so many people were protesting that week we need to step back twenty years and survey again the debt-and-trade-related crises of the 1980s, and see how the pain and fear in those crises drove successive Mexican governments to accept an agreement that was ultimately destructive to its many of its poorest citizens, especially farmers. In many ways nafta was sold as a way out of the weight of external debt that has plagued Mexico (and much of the developing world) since 1982.

Background

Mexico was not always enmeshed in unpayable debts. For the first fifteen years following the Second World War, Latin America in general took in few foreign loans of any kind and most of that was from its own domestic banks. When Fidel Castro took over Cuba in 1959, the US lavished the region with loans and grants (to keep it from viewing Cuba as an attractive alternative model of development), but these were modest loans by today’s standards.

The big increase took place during the early 70s when private banks in wealthy countries (mainly the US, Europe and Japan) received billions of “petro-dollars” from OPEC countries and then loaned them out with abandon to poor and developing countries. You may remember from the chapter on debt that this was the decade when many third world countries, needing to make payments on these loans, were forced to shift from production for themselves to production for exports.

Mexico’s story, however, has a slightly different twist. For a while it was not as affected as other countries by the need to increase exports to earn money for loan payments, because in the mid-1970s it discovered significant oil reserves of its own. That gave it a temporary windfall which lasted until 1982 when it was hit by a world-wide drop in oil prices. So, there was a period of time when it could have used its windfall to develop its agricultural sector or it could have created support programs to help its farmers in the transition toward income-producing exports, but it did neither. Instead it made its loan payments out of oil revenues and continued borrowing more money from the generous banks on easy credit. In the end, therefore, its expanded oil income put off Mexico’s awareness of its dire financial reality until it was too late and when the realization finally came it was a disaster.

The balancing act lasted for about a decade until the beginning of the 1980s. At that time three things happened: the price of petroleum fell, taking with it Mexico’s debt-paying cash cow, the US entered a recession and couldn’t buy as much of Mexico’s commodities, and the interest on the loans skyrocketed. It was a painful confluence of forces, some of Mexico‘s making and some beyond its control. Mexico effectively went “bankrupt” (though as we have noted before, one of the nice things about this system for the lenders was that there was no international mechanism that allowed countries to actually declare bankruptcy).

Dozens of other developing countries had also gotten deep in debt, but Mexico was the first to fall, and it would have been the largest. In September of 1982, it declared to the world that it was immediately ceasing payments on its debt and the announcement shocked the international financial community. The potential of a melt down of such a large country with so much outstanding debt terrified markets around the world, igniting talk of a global panic and transcontinental recessions. The IMF called together a meeting of all of the countries, banks, and multilateral financial institutions and put together an $8 billion bailout package of new loans, extensions, and restructures that postponed the collapse, but Mexico had an underlying financial instability that could not be addressed by loans or tweaks. Mexico simply was not sufficiently industrialized to produce the massive exports necessary to earn enough dollars to make payments on the loans. Looking back it is hard to believe that the financial wizards involved in the bailout did not see how fragile such a package actually was. There was certainly no obvious way that the loans could ever be paid back, given the structure of the existing global economic system and given Mexico’s low-income population. But somehow, at the time, the crisis was dealt with as though it was a mere short-term balance of payments issue that could be “fixed” soon with just a few bridge loans, reschedules, and rollovers.

Unsurprisingly, within a year Mexico was signing a second, separate arrangement, this time back with commercial banks, to loan the country an additional $7 billion in credits in order to stretch out the rescue package and guarantee interest payments just a little bit further.[iv] But in reality without a comprehensive debt cancellation program, Mexico was still left saddled with loan payments as far into the future as anyone could see. Today, even after Mexico’s payments have been lowered and extended and rescheduled again and again (and some repackaged and sold as “Brady Bonds” on the secondary market), they still hover around $180 billion and will continue to be a drag on the life and health of the country for generations.

That may, in fact, have been the result that the IMF and the other financial powers were trying to achieve. According to the free market ideology behind most of the prescriptions given in crises like this, Plato’s “highest good” for humanity is no longer happiness, but a neo-liberal market system and a shrunken national government. As we noted in chapter one, Milton Friedman, the patron saint of modern free market theory believed that governments should consist of little more than the military and fire departments, and nothing can shrink a government more than unpayable debts. They force the government to sell off its basic functions to the private sector, which according to the theory, can always runs things better than a government. Many critics have accused the IMF and others of intentionally giving the governments of various countries the kind of financial advice that ultimately (and intentionally) destroys the state’s ability to govern.

In Mexico, when the debt crisis hit, its interest payments rose from 19 percent of total government expenditures in 1982 to 57 percent in 1988. At the same time capital expenditures fell from 19.3 percent down to nearly comatose 4.4 percent. This incredible shrinking government forced the slashing of things such as state credit, government-subsidized agricultural inputs, price supports, state marketing boards, and extension services.[v] The state telephone company was sold (with technical assistance for the sale coming from the World Bank), and rates rose from 16 pesos per minute to 115 pesos per minute (the World Bank prophesied that rates would eventually come down with the competition, but that has yet to happen).

All of this forced a complete rethinking of the role and size and meaning of government. No one would argue that before this time Mexico’s government was lean and efficient. It was in fact bloated and inefficient. But the cuts were so fast and so deep that they constituted a second crisis within the debt crisis. The state was in a panic and the people within the country suffered terribly.

Four years later Mexico hit yet another financial crisis and this one drove it directly into negotiations for nafta. Its initial cause was a second plunge in global oil prices that occurred in 1986. Once again Mexico announced that it would be unable to make payments on its loans. Included with the now predictable bailout package ($1.7 billion loan from the IMF, $2.3 billion loan from the World Bank, and $1.6 billion loan from the “Paris Club” [wealthy countries who loan to poor countries]),[vi] were new free market demands that would later become known as a “Structural Adjustment Program,” and a new trade deal that would later become nafta. Government employees, for example, were forced to have their wages indexed for steady increases to keep down inflation, but real inflation almost doubled, driving millions into poverty. From December 1987 to May 1994, the minimum wage increased by 136 percent, while the cost of a basic basket of consumer goods rose by 371 percent, a gap of nearly thirty percent.[vii] The package was sold as something that would not only help Mexico pay off its now painful, aging loans, but would also create wealth for the nation that was beyond its wildest imagination. Mexico was weak and fragile and in shock. How could it refuse?

The double crashes so close together in the eighties left Mexico reeling and dizzy, and at the same time perfectly poised to accept the requirements of structural adjustment bailouts and the nafta “trade” deal that were biased toward the northern countries and had inequality at their heart. Journalist, Naomi Klein has labeled this kind of intervention, “Disaster Capitalism” because it occurs most often whenever there is a disaster (natural as well as economic) and the population feels temporarily stunned, powerless, and pliable to outside suggestion. When that happens the economic doctors of the far right rush in with financial “aid” that is conditioned on the acceptance of radical free market policies like privatization of water, education, electricity, and health care—policies which drive some people into extreme poverty and some into extreme wealth. When people have experienced a major hurricane, or a revolution, or—in Mexico’s case—two successive back-to-back economic crashes, they are willing to reach for anything, even if it seems unwise in retrospect. Mexico’s acceptance of the terms of nafta appears to be a good example of “disaster capitalism” in practice. After suffering two economic shocks in three years, the populace of Mexico was hurting, not only economically, but psychically, and was ready to acquiesce to any medicine that promised to stabilize their fracturing, fragmenting country. Their eager acceptance of this economic shock therapy was also aided by two successive presidents who were in complete agreement with the harsh policies, Miguel de la Madrid (1982-1988), who began the nafta negotiations and Carlos Salinas de Gortari (1988-1994), who completed them and signed it in 1993. According to Noreena Hertz, author of The Debt Threat: How Debt is Destroying the Developing World,[viii] it didn’t hurt that both presidents were so wealthy that they knew that a failure with nafta would not hurt them. Both were willing partners in the agreement that even some of its supporters now say has been a disappointment to Mexico.[ix]

Back in 1988, as the new structural adjustment package was being signed and negotiations for nafta were beginning, I was living with a family in Cuernavaca, while taking an “immersion” Spanish course in a local “gringo” education center. One day one of our instructors, named Eduardo drove a number of us out to a party in a small neighboring town named San Miguel Tlaixpan to give us a taste of La realidad de Mexico. By that he meant cock fighting and sangrias, which he lovingly referred to as Sangria de Cristo (if you’re Catholic and know Spanish you’ll get the joke). On the way home we got totally lost and wandered aimlessly through the back roads of Mexico for about an hour (perhaps due to the sangrias?). But the good news was that we had a chance for the first time to have a good conversation and get better acquainted. Among the interesting facts I learned about Eduardo, was that he was actually a trained economist, and had once worked for the Mexican finance ministry. But following the economic crisis of 1986, he was laid off and now was back home in Cuernavaca living with his parents and teaching Spanish to gringos.

I asked him how he was making out during the difficult times. Not well, he said, but he was getting by. Of more concerned to him, however, was the future. Mexico was growing too dependent upon the US, he said, too many strings tied to the ideas and economics of the north. To describe our relationship, he used an interesting metaphor that I’ve never forgotten. He said that Mexico (and much of Latin America) relates to the US like those tiny insects that live in the hair of a huge buffalo. They live off of its scraps and organic material and waste, and they are dependent upon it for their very livelihoods. But that dependency has its downside. If the buffalo makes a mistake or gets ill the insects are hit by it three times harder. If the buffalo runs blindly into a fire, for example, the buffalo is burned, but the insects die. If the buffalo falls into the water, the insects drown.

How will all of this affect you in the future? I asked him.

I don’t know, he said. “I will be very good. When money comes back into Mexico, I will move back to the Federal District and get back my job. But,” he pointed with his thumb back over his shoulder at the town we were leaving, “I am afraid for all of the people in places like that. I am afraid that someday America will make a wrong turn and all of them will be burned up in the fire.”

So, What is Nafta?

Specifically, nafta is the acronym for the “North American Free Trade Agreement.” It is a three-country trade agreement between Canada, the US, and Mexico. It was roughly patterned after an earlier trade agreement made between the US and Canada, though in practice it is much different because of the increased number of provisions and demands and because of the great disparities between the culture and economy of Mexico and that of the US or Canada. Negotiations on the treaty began in 1986, following, as we have noted, two financial crises that had left it weakened and vulnerable, and as a result Mexico agreed to many things, some of which ultimately were not in its best interests. Negotiations began just after the second of those crises, during the US administration of Ronald Reagan, it was signed by George H.W. Bush, and finally passed through congress by President Bill Clinton in 1993. When it was initiated, in January of 1994, North America became the largest free trade zone in the world.

From the beginning there was tremendous opposition to the agreement in all three countries. Protests followed by violent reprisals broke out in Mexico as tens of thousands of farmers took to the streets in opposition. In the US, opposition to it came from worried small farmers, progressive economists, social justice organizations, churches, human rights organizations, environmental groups, and labor unions (all of whom the press referred to as “special interest groups”) and third party candidate, Ross Perot. You may recall that he famously coined the expression, “the great sucking sound” to describe the noise he prophesied would be heard when millions of US jobs were sucked down over the border into Mexico.

Many analysts believe that it would never have passed had then-candidate Bill Clinton not taken it up in his 1992 presidential campaign as a way of attracting Republican votes, and then when in office felt compelled to make it a legislative priority. Faced with enormous opposition from both Democrats and Republicans in Congress, he agreed to negotiate with his Mexican and Canadian counterparts, two additional “side agreements” one on labor rights and the other on the environment. (They were added as “side” agreements because the Bush administration had signed the treaty under the “fast track” authority, so no amendments or changes were allowed to be made to the core treaty.)

The fact that the original agreement made no reference to protecting the planet or workers says much about the philosophies of those who put it together. They evidently did not see protecting people and the planet as part of their job description. This is reminiscent of the observation made by John Williamson (author of the famous article on the “consensus” of opinions by establishment Washington economists) that he left out any reference to poverty alleviation in his list because in the eighties poverty was not something policy makers were interested in.

Side agreements

Under the two agreements added by the Clinton administration, the three countries would agree to establish a variety of commissions and sub-commissions to study and deal with labor and environmental issues. On paper, the commissions would have the power to levy fines against any of the three governments that failed to impose its own pre-existing laws. Some of these agreements have been praised in that, for the first time, the well being of humans and the environment were put into a major treaty on trade, which then has the potential of setting a precedent for future agreements. However, in practice both supporters and opponents have acknowledged that the side agreements have had little impact, partly because the commissions are poorly funded with little enforcement power, and partly because the commissioners seemed to have little interest in enforcement. For example, the side agreement on the environmental established the Commission for Environmental Cooperation (CEC) as an environmental watchdog. One of its good things was that citizens could call for investigations into allegations of a country’s failure to enforce its own environmental laws. Theoretically citizens and environmental groups could hold companies in each country accountable for obeying the law. However, in practice the CEC has seldom done that. According to a 2006 study by the Dept. of Environmental Sciences at the University of California, Riverside, the CEC never really had a chance. It was too poorly funded and too narrowly focused to achieve its goals, it lacked a leadership that wanted to push to expand its operations, and it faced a strong trade community that fought it with money and influence to keep it from achieving its goals. According to the report the CEC was reduced to minimal technical studies and actions and little real action.[x]

The side agreement on labor has fared no better. It established the North American Agreement on Labor Cooperation (NAALC) to monitor and work on labor protections, and it too has had little impact in the cases brought under it so far. On the plus side, trade unionists in Mexico, the US, and Canada have all used the provisions to spotlight and uncover labor-rights abuses. But few of those reports of abuses have ever been resolved. Ten years after it was created, an article in the Wall Street Journal, made this scathing assessment: “Not a single worker was ever reinstated, not a single employer was ever sanctioned, no union was ever recognized” by the commission.[xi] In Mexico, workers’ efforts to organize independently or to protest bad working conditions has often been blocked by a coordinated effort between businesses, the government-sanctioned Confederation of Mexican Workers (CTM), and the government itself. Labor laws often go unenforced, and sometimes overt repression is used against workers.

Lifting Trade Barriers

Although there were hundreds of provisions in the agreement, the most publicly discussed and debated were those concerning the eliminations of tariffs, quotas, and other barriers to exports and imports between the three countries. These items were to be phased out gradually and were finally eliminated on January 1, 2008 (just before the protests that I had witnessed while in Chiapas).

Before nafta, each of our three countries established tariffs to make foreign imports more expensive and subsidies to make domestic producers stronger. Both of these broad policies evolved over decades as ways of protecting local farmers and local industries. With nafta, both tariffs and subsidies were to be phased out so that producers from one country could compete with producers in another on what was called an “even playing field.” The standard trade theory behind this is that with the demise of tariff barriers, one country could flourish through its “comparative advantage” in efficiency or cost of production over another country.

One problem with the theory was that in reality, there never could be an authentic “level playing field,” when giant US corporations such as Cargill, ADM, or Monsanto were allowed compete with smaller labor intensive factories or farms in Mexico—unless, of course, the factory was US owned and operated, something that happened frequently.

Another problem was that the lowering of subsidies and tariffs was not uniform across all three countries. Perhaps, if these measures had been implemented equally across all borders, the theory that free and equal competition would foster more efficient production and greater increases in incomes would have held true, or at least would have had a better testing. But, under the provisions of nafta, each nation had a different phase-out plan for subsidies and tariffs and a different list of products that may be protected.[xii] US agriculture is one of the most subsidized agricultural sectors in the world and countries like Mexico (and others) have suffered because of it. It was a painful blow to Mexican farmers who were forced to have their subsidies cut while those in the US continued unencumbered. Exports of highly subsidized, highly mechanized, corn from the US soared in the early nafta years, growing at a rate of 9.4 percent a year, and causing, by the mid 2000s, a 45 percent decrease in the prices corn that farmers received for their crop. By 2007, agricultural exports to Mexico were at $12.7 billion, which was over 40 percent of its food needs.[xiii] Mexican farmers were literally going hungry while monopolistic processing companies in the cities kept consumer prices from barely dipping at all.

Mexican farmers were being undersold in their own local markets. Each year, small plot Mexican farmers found that they were spending more on growing their crops than what they could eventually sell them for, and then they had to borrow money to make ends meet, often then falling deep into debt poverty. It is a downward cycle that has driven tens of thousands off of their land and into the cities or over the border into the US looking for work. It’s not precise, but interesting for comparison to point out, that on average every hour Mexico imports $1.5 million worth of food from the US, and in that same one-hour period, 30 farmers emigrate to the US. For millions of people in Mexico, migration is not just a way of self improvement and of realizing the “American Dream,” it’s also a strategy for survival itself.[xiv]

A few years ago I was touring a market in San Cristóbal de las Casas, comparing prices of produce there with similar prices here in the US. I met one former farmer in his mid forties named Alberto Gonzales (no relation), who was now tending a farm stand for his uncle, with whom he was now living. We exchanged pleasantries and photos of our children and then I asked him how it was going for him as a farmer. He confessed to me that until not too long ago he had considered himself to be a successful farmer with ten acres of land where he grew tomatoes and onions and employed a dozen people. But now it was all gone. His family moved in with his uncle, and he lives off of their generosity and the small remittances sent back home to him from his oldest son who now lives in San Diego. He said that the reality of his situation was that he can now buy the same kind of produce that he once grew more cheaply in the local supermarket than he could grow them on his own land. “For those people with the big farms and the big tractors, those who know the big people, nafta has been very good. But for the rest of us, those of us who worked hard, but were not already rich, it was a war, a bloody war. And we lost it.”

Other Contributing Factors: China

Nafta was not the only factor that put a negative economic pressure on small farmers like Alberto. One is the simple growth in the number of young people looking for work. Ironically the US had funded hundreds of rural health clinics throughout Latin America in the sixties as a way of lifting their standard of living (and making Cuba look less appealing), and as a result it allowed an increase in population that by the nineties was reaching adulthood and looking for jobs. A second factor was the chronic indifference of successive Mexican governments to the plight of rural areas. One of the government’s frequent promises has been for aid to retrain, relocate, or rebuild those who have been harmed by trade policies such as those in nafta, but little has come of it. In fact, in the years since nafta was signed, the government all but terminated its rural assistance programs (possibly as a way of insuring a steady stream of poor hungry people into the cities to work in the US-owned, assembly plants). There were clauses built into nafta which, if implemented, would have safeguarded vulnerable farm products for 14 years, but they were never invoked. A third factor was yet another savage financial crisis that hit Mexico in 1994. A presidential candidate was assassinated, President Salinas devalued the peso, and nervous investors pulled their money out of stocks and securities in a crash. It was a panic eerily reminiscent of the US bank collapse in 2008. Money dried up, unemployment soared, and trade with the US plummeted. The US arranged a $20 billion loan package to Mexico (tied to ever more free market, “Washington consensus” policies) to keep it from collapsing, and to keep it from taking other countries down with it, but the country suffered terribly during the crisis.

However, the biggest non-nafta-related factor negatively affecting Mexico’s economy was (and remains) emerging Asian countries, especially China. China is the largest economy in the world, but until the late 1990s, it was relatively insulated from the rest of the world. During that decade it lobbied mightily to have the west forgive or forget its brutal, oppressive, and anti-democratic ways and allow it to become a member of the World Trade Organization (WTO), because that would give it access to lucrative trade deals in the global market. In 1999 China was finally allowed in and soon became a major international player. The country represented a whole new productive region, with ten times more poor and hungry workers than did Mexico. And, conforming to standard market logic, the entrance of China as a competitive option meant that for most US-based corporations there soon began to be less and less incentive to stay in Mexico, and more and more incentive to leave. Aside from production items that needed close proximity in shipping times (one week for Mexico vs. three weeks for China), Mexico had much less to offer than China. By the year 2003, China was exporting more to the U.S. than Mexico—$152 billion compared to $138 billion—for the first time in history.

At the same time China was fast becoming Ross Perot’s “great sucking sound” for Mexican jobs. By 2000, the line of maquiladoras, those assembly plants (mainly US-owned) that line Mexico’s border with the US, began to shut down. “Maquilas” had been in existence in small numbers for decades, but they surged after nafta. If anything related to nafta gave a veneer of success it was the huge leap in their numbers after 1994. However, by 2000 they hit their peak and were beginning to shrink. By 2002 more than a hundred had closed and 600,000 people had lost their jobs, almost entirely to competition with China. There has been a steady decline in their numbers ever since.

Most of us who watch the economies of the US and Mexico closely were concerned back in 1994 that, with the signing of nafta and Mexican salaries being one tenth of what they were in the US, companies would move rapidly and permanently to Mexico. Little did we know at the time that soon China would be doing to Mexico’s jobs what Mexico had done to ours. China’s workforce is larger, poorer, and the country has far fewer regulations on product safety, treatment of workers, or the environment, plus it has an undervalued currency making its products cheap. So, soon after it was allowed into the WTO, it opened its doors for business and the sucking sound began. From 2000 (right after joining) to 2007, manufacturing in Mexico declined by 10 percent and China rose from being our seventh largest trading partner to our second. By 2002, for the first time since the experiment began, foreign investment coming into Mexico fell: from $14 billion to $10 billion.[xv] Both of these trends have continued to the present. As economic journalist William Grieder, once put it, in globalization’s “race to the bottom,” China has become the “new bottom.”[xvi]

Once again, Mexico’s own government could have done a number of things to help its workers meet the Chinese competition. It could have built a stronger infrastructure, for example, or it could have built more ports and highways to facilitate trade. It could have passed laws protecting workers, or creating severance pay for times that they were out of work, or created training for new work when old jobs died out,—but it chose to do none of these. It chose instead to follow a “Chicago School” hands off, laissez-faire, free market ideology, and the poorest sectors of its society are still suffering because of it today.

The movement of industry from Mexico to China is not directly related to nafta, but it is directly related to the philosophical center of free market theology: that the central purpose of human existence is not the pursuit of happiness or to serve others, but for economic transaction and profit. The central goal of the market system, as we have said, is not to cause harm to anyone (as liberals often seem to suggest) but simply to make a profit. It is constantly on the prowl for people who can work at lower and lower wages, because labor is the largest piece in the production chain. If it can find them by moving from the northern US industrial belt to the “New South,” it will do it. If it can find them by dipping over the border to Mexico in the maquiladora zones, it will do it. If it can find them by moving to China’s central textile producing region, it will do that. And moreover, if it can find cheap, desperate-for-work employees in Indonesia, Thailand, or the Philippines, with few environmental, health, or safety regulations, it would leave China in a heart beat and move there.

The market, as we noted in chapter one, is the shark in the movie “Jaws.” It is a feeding machine that just does what it does, with no conscience and no reflection. Insofar as the market has a conscience at all it is because people of faith and conscience lobbied, cajoled, and pushed it to acquire one. We can push hard, for example, for our national leaders to only sign a “free trade” agreement with Colombia when it improves its dismal human rights record (against teachers, unions, community organizers, and pastors). And we can push them to push Mexico to live up to the side agreements on labor and the environment that were critical to the passage of nafta. The shark will always be with us. It isn’t possible to take it out of the water. But it is possible for responsible citizens and responsible governments to direct it and position it in ways that are more humane and less damaging. Governments will always claim that that is what they are doing (when was the last time a politician said that it was supporting a free trade agreement so that it could destroy family farms in poor countries?), but it is up to people of faith and conscience to make sure that when they say that they are telling the truth.[xvii]

Investor Protection Provisions

But trade is not the only part of nafta that has come under scrutiny. In fact, its critics sometimes put the words “free trade” in quotes, or question the use of the words “free trade” at all, because the concepts of “freedom” or “trade” constitute a relatively minor portion of the agreement. Of the over 900-pages of rules and provisions, the majority concern the changing of, or potentially overriding of, domestic laws within each of the three countries. According to Nobel Economics prize winner, Joseph Stiglitz, these provisions give an inordinate amount of rights and privileges to business, which are in effect taken away from individuals, which he believes “potentially weakened democracy throughout North America.”[xviii]

One of the most contentious of those new rules were the Chapter 11 “Investor Protection” provisions, which allow a corporation from one country to sue one of the other countries in special tribunals if it believes that a law or judicial decision will adversely affect its potential profits. The tribunal is closed, nontransparent, and literally has the authority to override and force changes in laws passed by the legislative bodies of the three countries. If a company is successful, it will receive compensation directly from the federal government. Over the years of its enforcement, the nafta tribunal has heard suits attacking environmental, health, and safety regulations, and worker rights. By the year 2008, over $14 billion in claims had been filed. One of the things seldom noticed about the nafta tribunal system is that only companies (and their host countries) can file a complaint. That is, if a corporation feels that its future profits will be harmed by this or that labor law or environmental protection regulation, the tribunal will hear them. But if my friend Nikolas and his local Tzeltal community in southern Mexico feel like they have been economically damaged because their corn crop has been unfairly undercut by subsidized US corn, they are not allowed to use the tribunal. It was a process created for businesses, not people. Because the tribunals are set up only to protect businesses, the implication is that regulations of all kinds, good and bad, will be ultimately stifled and reduced.

One of the early and most famous examples of this was between a Delaware company named Metalclad and the country of Mexico. In the early 1990s Metalclad purchased a Mexican firm, Coterin, which was attempting to build a hazardous waste landfill outside the Mexican community of Guadalcazar, in the state of San Luis Potosi. Metalclad had received the required federal construction permits, but at the last minute construction was blocked by protests over the dangers of the toxic wastes in the facility, and eventually the project was voted down by the city council of Guadalcazar. Soon after, in 1997 the governor of San Luis Potosi, issued a decree establishing a protected natural area that included the landfill site, which effectively prevented any landfills from operating there. In response, Metalclad sued the country of Mexico itself, under the Chapter 11 provision of nafta. Metalclad argued that the town made a decision which denied it an opportunity to make a profit and that the national government of Mexico was responsible because the acts of the town officials were under its governance.

Specifically, it cited Chapter 11, section 1105, which required “fair and equitable treatment” of investments, and section 1110, which prohibited a local government from “expropriating investments without due compensation.” It argued that Guadalcazar had violated these chapters by denying the company the right to build the toxic waste site. The dispute went to nafta’s three-person dispute arbitration panel, and the panel found in favor of Metalclad. The panel said that the democratically elected municipality of Guadalcazar (and by extension the government of Mexico) did not have the authority to ban construction of the waste dump that could have made a profit for the Delaware company, and that the government was required to pay Metalclad $15.6 million in future damages.

Unlike Mexico and Canada, the US has been fortunate in that most of the nafta tribunals have found in favor of the US and against foreign corporations, but even so, it still gives one pause that courts and elected legislatures can be potentially overruled by unelected panels in closed-door discussions. Here is an example. In the late 1970s, a large Canadian development firm named “Mondev International,” of Ontario, entered into an agreement with the city of Boston to build a number of shopping malls and hotels. In 1986 they completed the first project, a hotel complex called “Lafayette Place.” However, construction took several years and by the time it was ready to purchase and build on a second parcel of land owned by the city, the value of Boston real estate had gone up and the city asked for more money. Mondev refused and took the city to court. It lost the case when it went before the Massachusetts Superior Court, and then in affect lost again when the US Supreme court decided not to hear the case. Almost any other time that would have been the end of it. However, in 1999 Mondev appealed to the nafta tribunal, which according to the treaty that our two governments signed and voted on, is an even higher authority than the US Supreme Court,[xix] arguing that “failure to obtain damages through the U.S. judicial system amounts to discriminatory expropriation without compensation.[xx] As it happened, the nafta tribunal wound up siding with Massachusetts and agreed that the state did not have to lower the asking price for the parcels of land to be sold to Mondev. But it still raised concerns because this case actually had little or nothing to do with international trade. It was simply an attempt by a corporation in one country to circumvent the court system of another country. While the nafta tribunal agreed with Massachusetts, it nonetheless accepted Mondev’s logic when it agreed to hear the case. The fact that Mondev lost should not diminish the fact that an international tribunal saw itself as having final jurisdiction over democratically elected officials in the city of Boston. More than half of the cases brought to the nafta Tribunal are not over issues of trade or tariffs, but over labor and the environment. Georgetown Law professor, John D. Echeverria, has called this “the biggest threat to United States judicial independence that no one has heard of and even fewer people understand.”[xxi] At least one of the nafta panel judges has openly expressed reservations about it. Abner Mikva, a former chief judge of the federal appeals court in Washington and a former congressman, said that “'If Congress had known that there was anything like this in nafta, they would never have voted for it.”[xxii]

The Case for Changing Nafta

During the presidential primaries, candidates Barack Obama and Hilary Clinton both campaigned against nafta, as it now stands, pledging to make significant changes to it if elected. During the February 26, 2008, debate Obama told Tim Russert, “I think we should use the hammer of a potential opt-out as leverage to ensure that we actually get labor and environmental standards that are enforced.” This resonated strongly in the old industrial states like Ohio and Pennsylvania, where thousands of jobs had been lost to Mexico following nafta’s passage (and less strongly in other parts of the country where it has had a smaller effect). Then, shortly after Obama was inaugurated, several organizations of faith and conscience began campaigns to put pressure on Congress and the new administration to follow through on that pledge and almost immediately there was a push back. Some (mainly conservative and pro-business commentators and organizations) argued that opening it up again would be opening a Pandora’s Box of demands and wishes, all of which they suspected would be bad for business. (Canada would want us to quit suing them over their soft wood pricing schedule; Mexico would want us to stop dumping below-cost corn on their market, etc.). Also, a few respected progressive economists, such as Robert Reich and Paul Krugman, have written that the job loss in the US has actually been so minimal that we ought not worry about it and should instead emphasize other issues that make more difference. And finally, many progressives simply didn’t expend time on the issue because they felt powerless to do much about it. It is too huge and too complex and organizations that lobby against it are small and poorly funded. At one level, they were right. Without a major campaign with international support, most important issues of this magnitude are determined by forces beyond the influence of local citizens’ action groups. The campaign against a Free Trade Area of the Americas (FTAA) was huge a few years ago, but it finally died because South American leaders were growing tired of US meddling and IMF incompetence, and not by letter-writing campaigns in the US.

Nevertheless, a case can be made for people of faith and conscience being concerned about, and being involved in, the struggle to adapt the treaty even with these considerations. First, the argument that we should not be too concerned about it because it actually affects our jobs and wages very little is probably accurate but essentially irrelevant. It is true, because in the US and Canada over all job loss and wage suppression (where workers take pay cuts out of fear of job loss) has affected us not nearly as much as in Mexico—one to two percent for the US and ten to fifteen percent for Mexico. And the jobs we have lost to Mexico pale in comparison to jobs lost to Asia, especially China.

However, it is irrelevant if we are truly people of a global God. If we see ourselves as brothers and sisters in a global family of spirit and holiness, then the difference between the suffering of Mexican families in Oaxaca and suffering families in Detroit should not be a concern to us. Too often people who are deeply compassionate narrow the focus of their compassion to only people of their own country, ethnic group, or social class. The God that creates life and gives it meaning does not make that distinction.

Second, even if it is true, as many economists now assert, that the basic structure of free trade is so embedded in the trade and life of our three countries that we can never go back—the toothpaste can never be put back into the tube—nevertheless, re-envisioning the basic principles and practices of nafta could set an important precedent for future treaties. Even without re-writing its core chapters, a new administration could put teeth into its two side agreements on labor and the environment, it could establish a continental development fund to help build the economic infrastructure of Mexico (much like Europe did with the EU), it could correct the secretive tribunal system that presently has the authority to override laws passed by democratically elected representatives. All of these would not radically alter the integrated economies that we have created since the advent of nafta, but they could create an important and positive model for future agreements negotiated under a new progressive US president. And finally, a North American-wide, values-based conversation about re-visioning nafta would be good project to be involved with, even if it fails. The variety of flaws that are in nafta touch on many of the deeply held spiritual concerns that people of faith have given their time and efforts to for many years. The fact that the debt crisis of the 1980s drove Mexico into the brutal “bailout with strings” programs of the IMF, must touch the hearts of church people who worked so hard with Jubilee USA in canceling international debt. The fact that union organizers are often banned from maquiladoras, their leaders beaten, their cars destroyed, must pull at the hearts of the many Christians and Jews who worked so hard on Civil Rights in this country for so long. The fact that the drive toward more and unchecked, unregulated industrialization in the Maquiladora zone is destroying rives and streams and fish and animal life at an alarming rate, must enrage evangelical Christians who have recently been called to the ministry of saving our planet.

There are so many ways that so many people can see the campaign to re-envision nafta as an expression of their faith, that even if the campaign fails it could potentially raise our consciousness and be a model for the next generation(s) to follow through on.

But none of this can happen unless our faith and trust in the global spirit of God brings us to a sense of unity and oneness with other fellow strugglers in all three countries. Too often the struggle in Canada has been to keep the flattening, dumbing down, US culture out of their country. The struggle in the US has been to keep from losing jobs to Mexico. The struggle in Mexico has been against imperialism and imposition of foreign domination. But the truth is, justice and equality know no boundaries. We could have accomplished much, much more had we worked together rather than in our separate zones. This is not a call for a merging of our three countries (as the Right suspects is happening anyway) but a call to people of faith and conscience in all three countries to recognize common cause in justice. It wasn’t just the rich citizens of the US that came down hard on poor people in Mexico. Rich people in the US are no friend to the poor in the US either. And rich people in Mexico oppress poor people in Mexico. This is not a regional or ethnic issue.

A few years ago Mexican farmers held a nation-wide protest against nafta, even storming the doors of the Mexican Congress. However, dedicated opponents of nafta in the US by and large watched in silence from a far, and the protests failed. What would have happened had US and Canadian farmers, activists, progressive politicians, Christians, Jews, Muslims, environmentalists, all joined in protests and letter writing to the Mexican President and Congress in solidarity with the farmers’ struggle. History might have been made. As it was we stayed in our own countries and did not support the struggles of our brothers and sisters south of us.

Back in Chiapas, in 2008, after our dinner, presentations and dancing, I walked up the hill toward Nikolas’ small home with several others, including Gladys, the co-op consultant, and I said again how amazed I was that people in this small, desperately poor town were able to dance and play and party and sing. Nikolas had also entertained us by playing his guitar with several others for over an hour. She gave me that look again, of patience, but real merriment. “I think the difference is…” She was trying in faltering English, but she didn’t know the words. “I think what you do not understand…” And then she finished in Spanish: No bailamos para lo que ahora sabemos; bailamos para qué puede ser. “We don’t dance because of what we know now. We dance because of what can be.”

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[i] Cited in Carlos Salas, “Mexico’s Haves and Have-Nots: NAFTA Sharpens the Divide,” NACLA: Report on the Americas (Vol. XXXV, No. 4, January/February, 2002), p. 33.

[ii] For more on the problems in international coffee production, see, “Victor and Hugo: Life and Faith and the Price of Coffee.”

[iii] Interestingly, little of this was covered in the US press. In spite of the fact that both Democratic presidential candidates had just campaigned about how nafta had to be changed, the majority of US citizens want it changed, and even Prime Minister Stephen Harper of Canada said on record that there were things in it he wanted changed, the mainstream media almost totally ignored the hundreds of thousands of neighboring Mexicans protesting in support of changing it.

[iv] Carlos Marichal, “The Vicious Cycles of Mexican Debt,” NACLA Report on the Americas (Vol. XXXI, No. 3, Nov/Dec, 1997), p. 27.

[v] Walden Bello, “Manufacturing a Food Crisis,” The Nation Magazine (Vol. 286, No. 21, June 2, 2008), p. 16.

[vi] In addition to these loans, US Treasury Secretary Nicholas Brady was wiring together a scheme by which some of the larger Mexican loans would be repackaged as discounted U.S.-backed bonds, guaranteeing income for buyers and lower interest payments for Mexico. The new instruments were known (vainly) as “Brady Bonds.” Carlos Marichal, “The Vicious Cycles of Mexican Debt,” NACLA Report on the Americas (Vol. XXXI, No. 3, Nov/Dec, 1997), p. 27.

[vii] “How the International Monetary Fund and the World Bank Undermine Democracy and Erode Human Rights: Five Case Studies” (San Francisco, Global Exchange, 2001), p. 4.

[viii] Noreena Hertz, The Debt Threat: How Debt is Destroying the Developing World (New York: HarperCollins, 2004), p. 76.

[ix] See examples in Lee Hudson Teslik, “NAFTA’s Economic Impact,” Council on Foreign Relations Backgrounder, March 21, 2008 www.cfr.org/publication/15790/naftas_economic_impact.html?breadcrumb=%2Fregion%2F262%2Fnafta.

[x] NAFTA Ten Years After: The Legacy of the North American Commission for Environmental Cooperation, Roberto Sanchez- Rodriguez (Dept. of Environmental Sciences, University of California, Riverside, 2006), p. 2.

[xi] The Wall Street Journal 10/15/1997, cited in Kevin P. Gallagher, “Tracking the Economy: Paying for nafta,” Nacla: Report on the Americas (July/August, 2004), p. 47.

[xii] nafta Part Two: “Trade In Goods,” Ch. 3: “National Treatment and Market Access for Goods,” Annex 302.2 , www.nafta-sec-alena.org/DefaultSite/index_e.aspx?DetailID=103#An302.2

[xiii] David Bacon, “Displaced People: NAFTA’s Most Important Product,” NACLA: Report of the Americas, Sep 3 2008. Also see Bacon, Illegal People: How Globalization creates migration and criminalizes immigrants (Boston: Beacon Press, 2008), p. 59.

[xiv] Anne Vigna, “NAFTA hurts Mexico, too,” Agence Global (Jun. 01, 2008), http://election-news-usa.blogspot.com/2008/04/mcm-mexico-devastated-by-free-trade.html

[xv] Julie Jette, “NAFTA at Ten: Did it Work?” (Harvard Business School: Working Knowledge, archive, April 12, 2004), http://hbswk.hbs.edu/archive/4056.html.

[xvi] William Grieder, “A New Giant Sucking Sound,” The Nation (December 31, 2001)

[xvii] Noreena Hertz, in researching for her book, the Debt Threat, interviewed day traders in the midst of their work. She asked one of them if he was concerned that their cumulative decisions affect the well being of countries and people all over the world. He said no. “The thing is,” he told her, “capital has no soul.” Op. Cit., p. 77.

[xviii] “The Broken Promise of NAFTA,” New York Times, January 6, 2004.

[xix] Adam Liptak, “Review of U.S. Rulings by Nafta Tribunals Stirs Worries” The New York Times, April 18, 2004.

[xx] “Mondev vs. the City of Boston,” Nafta Chapter 11 Investor-to-State Cases: Bankrupting Democracy, Lessons for Fast Track and the Free Trade Area of the Americas (Public Citizen: 2001), p. 29.

[xxi] “Review of U.S. Rulings by Nafta Tribunals Stirs Worries,” Times.

[xxii] Ibid.