In 1994, Canada, the United States, and Mexico signed the North American Free Trade Agreement. This was not the first step towards free trade and economic integration in North America, as Canada and the United States had previously signed the Free Trade Agreement in 1989. Including Mexico in the NAFTA brought to light new questions and hesitations about free trade in this region. Since the signing of this agreement, production patterns in North America have followed the model of the new international division of labour. There is much evidence to support that these labour patterns do not encourage or support social sustainability, and the NAFTA has had many negative impacts on the people of Canada and Mexico.
The term new international division of labour refers to a shift in trade and production patterns. In geographical terms, this means that while research, production, and service might once have been contained within a single country, they are increasingly likely to be dispersed across several countries, in order to take advantage of abundant low wage labour for production in one country while still utilizing the higher skilled work force in another for product development, marketing, and other capital or training intensive aspects of production (Dávila-Villers, p. 5). The new international division of labour is one that is not restricted by national borders or by the barriers to trade and production that have long been associated with them.
Free trade in North America has enabled this new division of labour by allowing capital and production mobility across the continent, largely free from tariffs and other trade barriers. While this division of labour has had a range of impacts, in general it has resulted in a rapid boom of industry in Mexico, so that “the manufacturing sector has now become Mexico’s main engine of growth” (del Castillo and Cánovas, p. 117). This growth has not resulted in an increased standard of living for the average Mexican worker. Meanwhile, there has been an ensuing hollowing out of industry in the United States and Canada. “The new international division of labour has meant lower wages and weaker unions for American workers and it has translated into even lower pay and effective deunionization for Mexican workers” (Caulfield, p. 129). While in some ways the new division of labour does suggest increased employment in some areas – technology and research based industries in Canada and manufacturing in Mexico, it is important that we keep in mind that these are limited gains, and explore the real impact of this division of labour on the majority of the people in these countries.
One way to examine the impacts of the NAFTA is in terms of sustainability, which actually was one of its goals. “The preamble of the North American Free Trade Agreement text… contains the laudable goal to ‘promote sustainable development” (Campbell, p. 1). In order to examine the degree to which the NAFTA has, in fact, promoted sustainability, we must examine some definitions of sustainable development. The United Nations Human Development Report describes sustainable development as a “process in which economic, fiscal, trade, energy, agricultural and industrial policies are all being designed to bring about development that is economically, socially and ecologically sustainable” (Campbell, p. 1). The Canadian Centre for Policy Alternatives goes on to further elaborate on this definition, saying that sustainable development is
... development that does not incur: unsustainable economic debts (that is, borrowing for consumption purposes rather than for enhancing the stock of productive capacity); unsustainable social ‘debts’ (that is, degrading the existing ‘human capital stock’ by not investing in the health and education and material well-being of the population, by increasing levels of income inequality, unemployment, and poverty); and unsustainable environmental debts (that is, depleting the stock of natural capital through environmental degradation and resource exhaustion) (Campbell, p. 1).
Although I am focusing primarily on the social
dimension of sustainability
, it is important to note that all three of these elements are very closely interrelated, and that the NAFTA is not really promoting sustainability unless it addresses all three of these elements.
Free trade does focus on reducing barriers to trade, and in many ways this focus tends to be more beneficial to the companies operating within the free trade zone than to the people who work in the region. “Free trade stimulates an international competition to lower standards and attract (or retain) capital. Wages, health insurance, worker safety standards and environmental standards can all be lowered in the name of reducing costs” (Campbell, p. 11). Under the NAFTA all companies in North America now have to compete with ones that take advantage of Mexico’s cheap labour supply, and this results in companies striving to lower costs to remain competitive, acting in ways that are directly counter to principles of social sustainability.
Employers’ credible threats to relocate plants, to outsource portions of their operations, and to purchase intermediate goods and services directly from foreign producers can have a substantial impact on workers’ bargaining positions. The use of these kinds of threats is widespread. A Wall Street Journal survey in 1992 reported that one-fourth of almost 500 American corporate executives polled admitted that they were ‘very likely’ or ‘somewhat likely’ to use NAFTA as a bargaining chip to hold down wages (Scott, Salas, and Campbell, Section 1, 18).
A trade policy that justifies companies in reducing workers’ wages and suppressing
abilities is not one that prioritizes sustainability, despite what goals it may claim. Protecting the workforce is, as discussed above, one of the most fundamental elements of social sustainability, and the NAFTA seems to do quite the opposite.
Although Canada had already signed the FTA with the United States, and did not stand to gain much from access to the Mexican market (that is, from being able to export goods to Mexico tariff free), it was none of the less imperative that Canada sign the NAFTA. “If only a bilateral free trade agreement between Mexico and the U.S. had been signed, Canadian companies would have been disadvantaged since the United States would have had access to cheap Mexican inputs, especially low cost labour” (del Castillo and Cánovas, p. 65). What is of note here is that Canada had a compelling reason to sign the NAFTA even in spite of the threats it posed to that Canadian people.
Canadian workers and businesses had several strong reservations about the NAFTA. “Almost three-fourths of Canadian firms felt that the agreement NAFTA would mean a loss of jobs, and one-half believed that there would be reduced investment in Canada” (del Castillo and Cánovas, p. 76). These were the two things Canadians feared the most – job loss and reduced investment from the United States – and both of these fears had the same cause. Prior to free trade, American companies had invested heavily in Canada, especially in Canadian industrial production, by opening up so-called branch-plant operations in Canada so that they could manufacture their products in Canada and not face tariffs in selling those products in the Canadian Market (Campbell, p. 18). Canadians feared that these plants would close and relocate in Mexico where labour was cheaper, and, for the same reasons, Canada would no longer be a target for further investment of this type – investment money would now go to Mexico.
How justified were Canadians in these fears? While there were some real gains that resulted from the NAFTA, they were neither great enough nor sufficiently widespread to counter the negative effects that this agreement had. While some jobs were created in higher paying sectors (as discussed above, research and technology based sectors), jobs created or maintained by the NAFTA have not been able to make up for the jobs lost in its wake (del Castillo and Cánovas, p. 93). As I will show, Canadians have seen rising unemployment rates, closures of many branch plants, and reduced levels of investment from the U.S., and all of these have contributed to an over-all weakening of the Canadian social net.
Unemployment in Canada after the NAFTA rose alarmingly. While Canada’s trade levels did increase, and jobs were created in export industries, many more jobs were lost. “Between 1989 and 1997, 870,700 export jobs were created, but during the same period 1,147,100 jobs were destroyed by imports. Thus, Canada’s trade boom resulted in a net destruction of 276,000 jobs” (Scott et al., Section 3, 16). This huge job loss has translated into a sustained, countrywide rise in unemployment levels. “Unemployment since the grim 1990s has lately fallen to around 7%, but this is still far above the 5.4% average unemployment rate for the entire three decades from 1950 to 1980” (Scott et al., Section 3, 19). Much of this job loss was the specific result of closures of the above-mentioned branch plant operations. Canadians have seen “the dismantling of the U.S. owned branch plant sector. For example, the Ontario Ministry of Labour documented 397 complete plant closures from 1989 to August 1992” (Campbell, p. 22). The closure of these branch plants, while contributing to Canada’s rise in unemployment, is also evidence of a reduction in U.S. investment in Canada.
As it promoted a new division of labour, free trade also encouraged the investment pattern that fuels that division. Free trade encourages investment in areas where production is cheapest, and because of this, Canada has become a much less desirable place to invest. “Canada is a high wage, high tax, high regulatory cost jurisdiction… and as such, is… a less attractive production site. There is considerable empirical evidence that this new era of capital mobility has resulted in a diversion of investment away from Canada” (Campbell, p. 21). Cheap labour in Mexico has encouraged the companies that had formerly invested in Canada to move their investments south. Mexico has become the new investment-magnet in North America.
Canada has been receiving a smaller share of total U.S. direct investment… U.S. direct investment has surged into Mexico in the last two years, exceeding the total cumulative inflow for the previous ten years. The net inflow of U.S. direct investment to Mexico in 1990 and 1991 was $US 4.7 billion, actually greater than the net U.S. direct investment flows into Canada during this period of $US 4.4 billion. This is especially striking in light of the much smaller size of the Mexican economy (Campbell, p. 22).
Investment is leaving Canada, and thousands of jobs have followed. The Canadians were justified in fearing the NAFTA, and it has not supported socially sustainable development
, but rather instead, the NAFTA has contributed to the erosion
of social security
in Canada. “Canada has become a noticeably more unequal society in the free trade era. Real incomes
have declined for the large majority of Canadians in the 1990s… Employment became more insecure and the social safety net frayed” (Scott et al., Section 3, 4). In terms of impacts on people, especially the working class
es, and of sustainability, the NAFTA has had an overwhelmingly negative effect on Canada. But with production and investment shifting south to Mexico, we must ask have the Mexicans fared any better?
Mexico, in the few years leading up to its participation in the NAFTA, has undergone a rapid period of economic liberalization. “Through rapid and extensive liberalization in the last five years, the Mexican economy has changed form being one of the most protected economies in the developing world to one of the most liberalized” (Piazze-McMahon, p. 82). Mexico’s new open economy is primarily centred on manufacturing exports, and the geographic core of this activity was an export-processing zone located in the north of Mexico, right along the U.S. border, the maquiladora sector. However, since the development in this region was focused on low skilled, low wage manufacturing of products for export to the U.S., this development did not result any real benefits for the Mexican working people.
Led by… the maquiladora sector, exports expanded more than fourfold during the period 1980-88. However, during the same period aggregate output remained at a standstill and average real wages fell precipitously. The combination of recession in the domestic market and the free market orientation of the government resulted in a drastic deterioration of the standard of living of the working population. (Campbell, p. 4)
A focus on producing low cost exports
has meant that the average Mexican worker has actually seen a sharp decrease
in their wages
during Mexico’s manufacturing and export boom. “The growth of the maquiladora
industry coincides with the Mexican workers’ falling wages
… Since 1982, real wages for Mexicans have deteriorated by sixty percent” (Caulfield, p. 128). In Mexico
, the NAFTA has clearly not translated into socially sustainable development
. On the contrary, Mexicans have seen a rise
rather than in quality of life
. “The share of Mexicans living in poverty
rose from 51 per cent in NAFTA’s first year to more than 58 per cent four years later, according to World Bank
data” (Cavanagh and Anderson, 6).
The NAFTA has reshaped trade patterns in North America so that the continent now exemplifies the new international division of labour. This is a pattern, however, that encourages investment and production patterns that are directly counter to the NAFTA’s goal of sustainable development. Although Canada and Mexico have faced different issues since the NAFTA, it is clear that the overall impact of NAFTA on the people of these two countries has been quite similar. Both countries now see a widening gap between the rich and the poor and movement away from socially sustainable development. “The remaining challenge for trade liberalization is to move into… labour and environmental policies” (Dávila-Villers, p. 10). To really support social sustainability, future free trade agreements must do what the NAFTA has not: make protecting working people a priority.
Campbell, Bruce. (1993). Moving in the Wrong Direction: Globalization, the North American Free Trade Agreement and Sustainable Development. Ottawa, Canada: The Canadian Centre for Policy Alternatives.
Caulfield, Norman. (1998). Mexican Workers and the State: From the Porfiriato to NAFTA. Fort Worth, U.S.A.: Texas University Press.
Cavanagh, John and Sarah Anderson. (2002). Nice Theories, Sad Realities. “The Journal of Foreign Policy.” Issue 132.
Dávila-Villers, David R. (Ed.). (1998). NAFTA on Second Thoughts: A plural Evaluation. Lanham, U.S.A.: University Press of America Inc.
Del Castillo, Gustavo and Gustavo Vega Cánovas. (1995). The Politics of Free Trade in North America. Ottawa, Canada: The Centre for Trade Policy and Law.
Piazze-McMahon, Ada. (Ed.). (1990). Roundtable on Canada-United States-Mexico Trade Negotiations: Proceedings. Ottawa, Canada: Canadian Cataloguing in Publication Data.
Scott, Robert E., Carlos Salas and Bruce Campbell. (2001). NAFTA at Seven: Its Impact on Workers in All Three Nations. Retrieved February 18, 2002, from http://www.epinet.org/briefingpapers/nafta01/