nafta: poverty and free trade in mexico

8/7/2019 NAFTA: Poverty and Free Trade in Mexico

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NAFTAPoverty and

Free Trade in Mexico

Belinda Coote


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A l b I I /A

and Free Tradein Mexico

Belinda Coote

Oxfam Publications


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Oxfam (UK and Ireland) 1995A catalogue record for this book is available from the British Library

ISBN 085598 302 7

Published by Oxfam (UK and Ireland)274 Banbury Road, Oxford OX2 7DZ, UK(registered as a charity, no. 202918)Available in Ireland from Oxfam in Ireland, 19 Clanwilliam Terrace,Dublin 2; tel. 01 661 8544.Available in Canada and the USA from Westview P ress, 5500 CentralAv enue, Boulder, Colorado 80301, USA; tel . (303) 444 3541; fax (303) 4493356.Co-published in Australia by Community Aid Abroad, and availablefrom them at 156 George Street, Fitzroy, Victoria 3065, Australia; tel. +613 289 9444; fax +61 3 419 5318/5895.

Designed and typeset by Oxfam Design Dep artment OX 1550/PK/94Printed by Oxfam Print Uniton environment-friendly pap erSet in 10/12.5 point Pa latino w ith Franklin Gothic Book and Demi

This book converted to digital file in 2010


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ContentsIntroduction 1The Chiapas uprising 2Opening up the Mexican economy 4The North American Free Trade Agreement 8Opposition to the NAFTA 10The democratic deficit 15Rural poverty and the NAFTA 17Urban poverty and unemployment 23Labour and labour rights 25NAFTA and the environment 3 1Free trade increased protectionism 35Impact on the economy 39NAFTA and global economic integration 40Towards sustainable economic development 44Notes 47Further reading 50


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NAFTA: Poverty an d Free Trade in Me xico


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Introduction

In January 1994 the North American Free Trade Agreement(NAFTA) came into effect, linking Mexico, the United States, andCanada in a pact to increase trade and investment. Theagreement is of special significance, because it is the first of itskind to link countries from the 'developed' and 'developing'worlds.For Mexico the NAFTA represents another step do w n the road ofeconomic liberalisation which its governm ent has been pursuin gfor more than a decade. For the United States, it is the first stage inits wider policy objective of creating a hemispheric free-tradezone stretching from the Port of Anchorage in the far north toTierra del Fuego in the extreme south. There is no shortage ofcandidates for mem bership, with governments from all over theregion qu euing up to join. The NAFTA thus has implications forcountries far beyond its three initial signatories.The purpose of this report is to look at the impact of the Mexicangovernment's economic liberalisation policies, and the NAFTA,on the peop le of Mexico. It is hoped that the lessons learned fromtheir experiences will inform those in other countries wheresimilar policies are being pursued, and help to achieve policychanges in favour of the poor.


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The Chiapas uprising

On 1 January 1994 guerrilla forces in Mexico's southern state ofCh iapas declared w ar on the Mexican governm ent. The guerrillaarmy , consisting of indigenous peasan ts, announced themselvesas the Zapatista National Liberation Army, after EmilianoZapata, the Indian leader of the 1910 Mexican revolution. Ondeclaring war, they delivered a statement to news media,threatening to march on Mexico City unless the governmen t mettheir demands for equal treatment for peasants. The statementdeclared:For [the government] it does not matter that we possess nothing,absolutely nothing, not a home, not land, not work, not education. We willnot halt our combat until the needs of our people are satisfied. The dictatorshave been leading a war ofgenocide against native peoples for years.1Few people in Mexico were surprised by this development, forChiapas is one of Mexico's poorest and most troubled states,desp ite its rich oil reserves. The 3.2 million peop le who live there(approximately 4 per cent of Mexico's total population 2) aremainly indigenous Indians of Mayan descent. But Chiapas is alsohome to many thousands of Guatemalan refugees. To escapefrom war, poverty, and m altreatmen t in their own coun try, theyhave been living in camps along the state's border withGuatemala since the late 1970s.The basic services provided in Chiapas are insufficient to meetthe needs of its own po pulation , let alone those of the refugees,and infrastructural developm ent is minim al. The state has one ofthe highest rates of illiteracy in Mexico, reflecting both theinadequate provision of schools in the region and thegovernment's failure to provide an education systemappropriate to the needs of a multi-ethnic and multi-lingualsociety. Health-care facilities are lim ited, there are few roads, andcomm unications are poor.


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The Chiapas uprisingMexico's sweeping land-reform programmes of the 1930s hadlittle impac t on Chiapas. The best land in the region has remainedconcentrated in the han ds of a few w ealthy landow ners, m ostlyengaged in large-scale coffee production and raising cattle forexport. Most of the population scratch a living from tiny plots ofmarginal land, growing basic food and cash crops such as coffee,maize, and beans. Disputes over land between the landlords andpeasants have been num erous and often violent. The status quo isma intained by the region's corrup t political and judicial systems,which a re fashioned to protect the interests of the landowners. Asa result, the peasants have no recourse to social or economicjustice through dem ocratic means. Poverty in the region has beenintensified by the collapse in international com modity prices inthe 1980s, which hit peasant producers of coffee and basic foodstaples hard. Such conditions made fertile breeding ground forthe discontent w hich led to the up rising in January 1994.The Zapatista National Liberation Army timed their declarationof war on the Mexican government to coincide with the officiallaunching of the North American Free Trade Agreement, theNAFTA. It was a symbolic gesture to protest against the lateststep down the road of an economic development strategy fromwhich the vast majority of Mexico's population , but in particularits indigenous comm unities, are excluded. The Zapatista rebels,with their eloquently articulated demands for justice,democracy, and measures to alleviate acute poverty aspreconditions for peace, have frustrated the governm ent's effortsto project an image of Mexico as a peaceful, democratic countrywhich recently joined the 'First World' club of the Organisationfor Economic Co-operation and Development (OECD).


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Opening up the Mexican economyThe NAFTA, which came into effect on 1 January 1994, is anagreement between the governments of Mexico, the UnitedStates, and Can ada to phase out restrictions on the m ovem ent ofgoods, services, and capital between the three countries over aperiod of ten to fifteen years. For Mexico it locks into place thefree-market reforms that its gov ernm ent has been pu rsu ing since1982 policies which won it praise from the US InternationalTrade Commission in 1990 for having made the transition from'one of the wo rld's most protected economies into one of the m ostope n system s in just a few years'.3

The protectionist yearsUntil 1982, successive Mexican governments pursued policiesof state-led industrialisation through import substitution.Manufacturing industry was built up with the help of statesubsidies and protective tariffs. Similar policies were used toprom ote self-sufficiency in food th rou gh gov ernm ent sup po rt tosmall-scale producers, and through agrarian reform. Moneysaved on imports was pumped back into the economy to createnew industries, and thus a new class of waged workers able tofoster a n expansion of the domestic market. In only a few decad esMexico had evolved from a mainly rural, agricultural nation to anindustrialising a nd increasingly urba n society. Between 1940 and1970 it enjoyed annual economic growth of more than six percent, which earned it praise as a model for state-ledindustrialisation in the developin g world.4These are often referred to as the 'miracle years' of Mexico'seconomic development, even though, by the mid-1960s, crackswere beginning to appear in its economic armou ry. Decades ofdependence on government su pport had m ade Mexican industryinefficient and uncompetitive, and increasingly reliant onimports. At the same time there was a decline in the country's


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Opening up the Mexican economyability to feed itself. W hile, in the past, governm ent su ppo rt hadsuccessfully promoted small-scale production of basic grains,even more government resources had been pumped into theexport-oriented capitalist sector, which benefited from state-financed irrigation projects and technical assistance. Vegetableand fruit exports to the USA boomed, and the extension of thecountry's livestock industry displaced crops for homeconsumption. As per capita food production fell, agriculturalimp orts began to rise, contributing to a widening bu dge t deficit.These developm ents coincided w ith a dw indling in Mexico's oilreserves. No longer sufficient to meet requirements, these had tobe supplemented by imports just as international oil priceswere booming.

An oil-fuelled spending spree ...By 1976 Mexico faced an economic crisis of hu ge proportions . Thegovernm ent embarked on an austerity prog ram m e in connectionwith a loan from the IMF. But in 1977 the country struck it richwith the discovery of new oil reserves. Renewed confidence inMexico's economic future meant that foreign banks, flush withpetro-do llars (recycled oil profits, mainly from the M iddle East),lined u p to lend it virtually unlimited am oun ts. The g overnm entwent on a spending spree. The budget deficit widened andinflation soared. The private sector lost confidence in theeconomy, and the result was a massive flight of capital to morestable economies elsewhere. The governm ent soon found that itwas unable to cover its budget and could not meet the annualpaym ents on its external debt, which w as now one of the largestin the developing w orld.

... paid for by borrowingBy 1982 Mexico was on the brink of economic collapse. Oil priceswere sinking and high interest rates on its foreign debt (nowstanding at $86 billion u p from $6 billion in 1970) meant tha t itfaced huge debt-servicing requirements. At the same time itsforeign-exchange reserves had been drained through privatecapital flight. The government had no choice but to appeal for


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NAFTA: Poverty and Free Trade in Mexicohelp to the World Bank, the IMF, and the USA. The aid thatflowed in throughout the 1980s was not without a price. Theinternational financial community, led by Washington,demanded that Mexico restructure its economy along free-market lines. This would req uire a com plete reversal of its formerprotectionist policies, to open up its economy to the forces ofinternational competition. Waiting in the wings to direct thisrestructuring was a new generation of Mexican politicians andbureaucrats. They were from the ruling InstitutionalRevolutionary Party (PRI), but educated in the USA, andproponents of market liberalisation.Deeper and deeper into debtFor the first few years, un de r the admin istration of PRI presidentMiguel de la M adrid, Mexico was a m odel debtor. It managed toimpose the recommended financial adjustments and austeritymeasures, while keeping its debt repayments on track. But thedebt crisis did not go away, and by 1985 the government was,once again, asking for emergency loans. To secure a new creditdeal with Washington in 1986, Mexico agreed to a majorrestruc turing of its economic policies, designed to accelerate theliberalisation of trade. The resulting reductions in tariffs andother restrictions on trade, and the liberalisation of foreigninvestment, were intended to create a business climate thatwould attract foreign investors, reverse capital flight, and openup new export opportunities. The government also broughtMexico into the General Ag reement on Tariffs an d Trade (GATT)in time for it to participate in the new U rugu ay R ound of trad enegotiations launched that year. It saw the adoption of GATTtrading guidelines as an impo rtant step towa rds building a newand vigorous export-oriented economy.By 1988 the economy had begun to stabilise. Non-petroleumexports began to rise, mainly as a result of increased assembly-line production in the factories situated along the Mexico/USborder. The results were trade surpluses and per capita grow th forthe first tim e since 1981. New ly elected P resident Salinas deGo rtari pu rsued the neo-liberal reforms v igorously, throw ing the


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Opening up the Mexican economycountry open to foreign trade and investment. Ho we ver, none ofthis could disguise the essentially weak state of the Mexicaneconomy; nor could it deal with the huge backlog ofunde remployed or unem ployed wo rkers left witho ut decent jobsby the economic crisis of the 1980s. While exports continued torise, imports w ere rising twice as fast, and very soon Mexico onceagain started to experience a negative trad e balance. Nor did thecountry's m assive debt burd en go away. By late 1991 the countryowed at least $16 billion mo re than it had done in 1982, wh en thecrisis exploded .The fear of isolationAs the decade drew to a close, the Salinas adm inistration began toconsider the advantages of integration w ith its closest and mostimp ortant trading p artner, the USA which accounts for nearly70 per cent of Mexican trade. There was also increasedregionalism to consider. As Europe moved tow ards an integratedmarket and as Canada and the USA moved closer to signing afree-trade accord, Mexico became w orried that it might be left o utin the cold. Entering a regional trading bloc with its northernneighbour w ould e nsure that the US market would stay open toMexico-based expo rters at a time of rising protectionist sentimentin the USA, and make Mexico an even more attractive investmentprospect to US companies.In A ugust 1990 Presiden t Salinas formally applied to enter a free-trade deal with the United States. Six months later it wasannounced that Canada would join the negotiations for a tri-lateral trade accord. Formal negotiations for a North AmericanFree Trade Agreement beg an in June 1991 and an agreement w asannounced on 12 August 1993. The agreement w as grantedlegislative approv al by the three govern ments con cerned, in timefor it to com e into effect on 1 January 1994.


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The North American Free TradeAgreementThe NAFTA created the largest free-trade zone in the world. Itbrings together 363 million peop le (compared with 326 million inthe European Union) with a com bined GD P of US$6.8 trillion. Itsobjectives are to eliminate trade barriers between the threecountries, promote conditions of fair competition, increaseinvestment opportunities, establish effective procedures for theresolution of disputes, and promote further trilateral, regional,and multilateral co-operation. To achieve this, it prov ides for thegradual elimination of tariff and non-tariff barriers against themovement of goods, services, and capital in the region over aperiod of 10 to 15 years.To ensure that the benefits of the NAFTA are accorded only togoods produced in North America, strict rules of origin arespecified in the agreement. These mean that goods may qualifyfor duty-free import or export within the region only if a highpropo rtion of their production costs is add ed in North Am erica.Intellectual property (such as copyrights and patents) is alsodealt with in the agreem ent, which p rovides for strict protectionof the paten ts of US companies.The NAFTA provides for the creation of a Trade Com mission todeal with the resolution of disputes. If the Commission fails toreach an agreem ent, a bilateral arbitration panel can be set up toensure a speedy resolution.Although the NAFTA clearly encompasses more than just trade,it is limited to issues strictly defined as business. Unlike theEuropean Union agreement, the NAFTA does not create acommon market for the movement of people. NAFTA'simmigration provisions are limited to the 'reciprocal entry ofbusiness persons' under tightly defined categories.5 The8


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The North American Free Trade Agreementagreemen t does, however, have tw o side-accords, on labour andthe environment, which have been tacked on in an effort toenforce minimum standards. The USA and Mexico have alsoagreed to establish a North American Development Bank, tofinance the clean-up of the border region, which has been badlypolluted as a result of the Border Industrialisation P rogramm e. Inaddition, the US government has set aside funds to retrain USworkers w ho w ill lose their jobs as a result of the agreem ent.In signing the agreement, the Mexican government hoped thatintegration with the US market will spur economic growth,generate employment, and allow its economy to take off in thesame way as that of the 'four tigers' of Asia (Hong Kong,Singapore, Taiwan, and South Korea). The country's superiornatural resources, its cheap labour, and its proximity to theUnited States, together with the advantages of a trilateral free-trade agreement, supposedly set the stage for this hoped-fortransformation.


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Opposition to the NAFTAOnce it became known that negotiations were under way toestablish a free-trade agreement between Mexico, the UnitedStates, and Canada, there was wide-scale publicity on the subjectin all three countries. Broad-based coalitions were formed ineach, to challenge the NAFTA proposals. Some advocatedoutright rejection of the proposed agreement. Others argued forreform of various aspects of its provisions.In the USA, opposition to the NAFTA came broadly from twoopposing perspectives. One represented a narrow, nationalistview in favour of increased protectionism , mainly in the interestsof preserving US jobs. The other took a broader developmentperspective, arguing that the high social and environm ental coststhat would occur on both sides of the Mexican borde r as a resultof the agreement dem onstrated the NAFTA to be a flawed devel-opment model. The ensuing debate was bitter and protracted,and split the Democratic Party, forcing BillClinton, in his electioncampaign, to promise side-accords on labour and the enviro-nm ent in an effort to reun ite his pa rty and counteract some of thenegative aspects of the agreem ent.In Mexico, a broad-based coalition was founded in early 1991,called the Mexican Action Network on Free Trade (RMALC).This coalition of independent unions, environmental groups,representatives from the small-business sector, and popularorganisations expressed its concern that the NAFTA wouldsubvert national sovereignty. It warned that the agreementwo uld 'give a legal and p erm anen t status to the subordination ofnational needs to the interests of large corporations and to theneo-liberal policies which have already cost our people somuch'.6

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Opposition to the NAFTALessons from CanadaMost vociferous of those cam paigning for an outrig ht rejection ofthe deal were those coalitions which formed around the issue inCanada. They pointed to their coun try's experience of free tradewith the United States. This had been provided for by the FreeTrade Agreement (FTA), which came into effect in January 1989and which paved the way, and provided the model, for theNAFTA.The FTA was sold to the Canad ian public on the grou nds that itwould promote economic development. However, theagreement has become highly controversial. Unable to competewith lower-cost US industry, many of the smaller Canadianmanufacturing companies have closed down. Others havemoved south across the border to take advantage of lowerinterest rates and lower social-benefit charges. There has been arecord number of mergers, takeovers, closures, and'rationalisations' of industry; thousands of jobs have beendestroyed in the process. Unem ploym ent is now officially 10 percent, although unofficially estimated at 15 per cent.7 By allowingUS companies investment opportunities in Canada and byremoving controls on exports, free trade with the USA is alsothreatening Can ada's control over its ow n natural-resource baseand its ability to conserve its environment. Canadians opposingthe NAFTA argue that their own experiences prove that freetrade carries high social and environmental costs, entails a loss ofnational sovereignty, wh ile han ding over considerable pow er tothe corporate sector, and is of questionab le economic benefit.Prospects for the poor in MexicoOpposition to the NAFTA in the USA and M exico has tended tofocus on specific aspects of the agreement, particularly thoseconcerning the expected social and environmental costs. Yet atthe heart of public concern lie the huge social, economic, andpolitical disparities that exist between Mexico and its northernneighbours.

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NAFTA: Poverty and Free Trade in MexicoAll the indicators show the increasing poverty and desperation ofthe Mexican people since the country embarked on itsprogram m e of economic reform in the early 1980s. According toofficial figures, half the Mexican population live in poverty, andone fifth in conditions of extrem e poverty.8 Since 1979 the buyingpower of real wages has fallen by nearly 60 per cent. Publicexpenditure on health care and education has fallen to half its1980 level. Two thirds of the population are malnourished:Mexico's record in this respect is one of the worst in LatinAmerica.9

In 1990 the World Bank estimated that one sixth of LatinAmerica's poverty-stricken population lived in Mexico. Itsingled out four states where the problem was most serious,am ong them Ch iapas, location of the 1994 upris ing. Seventy percent of the combined population of these states live below thepoverty line. Half are illiterate, four times more than in regionswith better economic conditions. Between 30 and 40 per cent lackaccess to health services, and 80 per cent are without safedrinking water.10 These disparities are not peculiar to the statesmentioned by the World Bank. In general, Mexico's ruralpopulation suffers disproportionately from high rates ofunemployment and infant mortality, and lack of governmentresources. Such figures a re a clear indication that the free-marketeconomic policies pursued by the government since 1982 havefailed the poor.Increasingly, poverty in Mexico has served to accentuate many ofthe disparities that exist between Mexico and its northernneighbours in areas such as health care, education, and basicliving standards. In addition there are huge economic disparitiesbetween the three countries. Economically Mexico lags waybehind, with a Gross National Product only one tenth of that ofthe USA, w hile wages in Mexico are only a fraction of those in theUnited States and Canada (see Table 1). This has given rise toconcerns that the NAFTA , by lifting investment restrictions, willsimply encourage US indu stry to move south to take advantageof cheap M exican labour. This would not only cause job losses inthe USA, bu t also reinforce a low-w age strategy in Mexico.12


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Opposition to the NAFTAIn the agricultural sector there are huge differences, both inproduc tivity per hectare and in the costs of produc tion. These areparticularly worrying in the basic grains industry, upon whichmost of Mexico's rural population depend for a livelihood (seeTable 2). Free trade in these ag ricultural sectors will enable USand Canadian grain producers to dump their surpluses inMexico. Mexican peasant p roduce rs w ill be unable to compete,and will be forced to find alternative m eans of making a living.For many, this will mean leaving the land .

Table 1: Hourly rates of pay (US$) in the industrial sector (1990)Country Manufacturing Textile ElectronicsMexicoUSACanada

1.4010.8012.301.279.7411.23

1.0414.3113.99

Table 2: Average yields per hectare and costs of production (CP)between 1985 and 1989Country Maize(tons)

1.77.06.2

CP(US$)25993n.a.

Beans(tons)5421.7

1.9

C P(US$)641220n.a.

MexicoUSACanada(Data from research carried out by Mario B. Monroy for his book Socios aSociados en Sociedad: Asimetrias entre Canada, EEUU, Mexico, Mexico City:RMALC, 1993)In recognition of the disparities that exist among membercountries of the European Union, a SocialDevelopment Fund hasbeen established specifically to assist the economic and socialdevelopm ent of the weaker economies, such as Portugal, Greece,and Ireland. While this has often been criticised for beinginadequate, and has been the cause of considerable controversy,it is a mark of recognition of the social costs of economic union.

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NAFTA: Poverty and Free Trade in MexicoYet, in the NAFTA, where the asymm etries betw een Mexico andits northern neighbours are so much greater than between any ofthe countries in the European Union, there has never been anydiscussion of compensatory financing or social developmentfunding. Indeed, the sums that would have to be involved inorder to close the gaps between Mexico and North Americawould require a level of financing that would be absolutelyunacceptable to either the US or Canadian governm ents.

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The democratic deficit

Most people agree that a North American free-trade agreementshould be built on democratic principles, yet the way in which thenegotiations w ere conducted has served to reinforce the lack ofdemocracy in Mexico and has underm ined democratic decision-making in the USA and Canada.The ruling Institutional Revolutionary Party (PRI) has been inpower in Mexico since 1929." There are numerous, mostlyfragmented, opposition parties in Mexico, but un til the 1980s thePRI faced little serious opposition, and only in the latter half ofthat decade did it face opposition capable of defeating it. Thiscame from the National Action Party (PAN) and, to a lesserextent, the Party of the Democratic Revolution (PRD). The PRI'svictory in the 1988 elections was w idely suspected to have beenachieved by fraudulent means.This political context effectively precluded a democratic debateon NAFTA in Mexico; but even in Canada there was little realconsultation. When polled by their governm ent in August 1991,sixty per cent of Canadians declared themselves opposed to theagreement. The Canada-US Free Trade Agreement had providedthem with an unsettling education in how corporate-definedtrade relations with the USA can affect the social fabric of anation. However, this verdict on the NAFTA did not deter theCanadian government from pursuing the negotiations. InMexico President Salinas, by defining the agreem ent as a treaty,denied the opportunity for a full debate on the issue in theChamber of Deputies. It was held in the Chamber of Senators,where 61 out of 64 Senators belong to the ruling PRI. Henegotiated the agreement following the elections in 1991. The USAdministration effectively stifled public debate by pushing theNAFTA through on fast-track legislation, which limited USCongressional consideration of the agreement.12 The firstopportunity for public debate on the actual proposals of the

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NAFTA: Poverty and Free Trade in Mexicoagreem ent came in 1992, bu t only after a draft text had beenleaked to the public.Many commentators have compared the process of NorthAmerican integration with the history of the European Union. Ithas been po inted out, for example, that as long as Spain, Portugal,and Greece were ruled by d ictatorships, they w ere not welcometo join the com munity of European nations. Moreover, unlike theEuropean U nion, which has incorporated a Social Charter into itsplans for further economic integration, discussions on basichuman, social, and environmental rights were tacked on to theNAFTA at the last moment, rather than being central to thediscussion.

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Rural poverty and the NAFTATequisquiapan lies on the edge of a large valley in the State ofQueretaro, about three hours north of Mexico City off the mainhighway to the US border. Attracted by its thermal springs,vineyards, and pleasant climate, tourists have flocked to thissmall town for years. Most are Mexicans, retreating from therigours of life in the capital city. But as recession bites, and theMexican middle classes have had to tighten their belts, the touristindustry has begun to contract. Now aday s business is slack in thetow n's normally busy restau rants, and m any of its hotels are u pfor sale. Disappearing with them is a major source ofemployment for the area, reflecting not only the fickle nature ofthe tourist industry, but also the sorry state of the Mexicaneconomy.

The area surrounding Tequisquiapan is wide, open, aridcountryside dotted with cacti and fringed by rocky hills coatedwith stubby vegetation. The summers are hot and dry and thewinter nights bitterly cold. Small, dusty villages are scatteredacross the valley and the dry, brown, windswept landscape isbroken u p by green sw athes of irrigated grass-land, ma rking thecattle ranches of the rich. The peop le of this valley are know n fortheir skills as weavers , but for most it is the land upo n wh ich theydep end for a livelihood.Much of this is ejido land: com munal land farmed by small groupsof peasants, whose families benefited from the sweeping land-reform programmes of the 1930s. Corn and beans are the staplecrops. On the homesteads there are chickens and sometimes acow to prov ide m ilk for the family.Rural comm unities, such as those scattered across this Q ueretarovalley, still form the backbone of Mexican society. While thegovernment pursued policies of modernisation through importsubstitution, from the 1940s to 1970s, such com munities benefited

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NAFTA: Poverty and Free Trade in Mexicofrom a range of subsidies and support policies designed to nurturethe country's food-sufficiency programmes. When economiccrisis struck and the country was bowled towards structuraladjustment and free-market policies, government su ppo rt for thepeasant agricultural sector began to be withdrawn. As of 1995there will, for the first time in decades, be no guaranteed price forcorn. Instead, farmers will receive a payment of 300 Mexicanpesos, about US$100, per hectare per year. What they are able toearn in addition to this from their crops will be further threatenedby the accelerated pace of liberalisation resulting from the signingof theNAFTA. The gradual d ismantling of import restrictions willopen Mexico up to cheap US grains and render most Mexicanpeasant producers uncompetitive. They will have little choiceother than to leave the land .

Resisting the drift to the citiesResponding to this crisis is a small regional development andtraining programme for farmers. The programme, which hasseveral thousand members draw n from the valley com munities,is pu rsuing a strategy of regional self-sufficiency. To this end itpromotes a range of activities which include family savingsschemes, income-generation projects, technical support for thebasic-grains producers, and regional marketing schemes. In thisway the organisers hope to help insulate the communities fromthe external economy w hich not only threatens their agriculturalsystems bu t has also reduced oppo rtunities to earn extra m oneyfrom the Tequisquiapan tourist industry. They hope that, withthe help of the union , people w ill feel able to stay on the land andnot be forced to drift to the cities in search of employment.The program m e organisers do not know if their strategy w ill besuccessful in helping rural communities to survive the fullonslaught of liberalisation resulting from the NAFTA. The forcesagainst success are powerful. The Mexican government haspledged itself to reducing the rura l popu lation from 27 per cent ofthe economically active population to only 10 per cent by the endof the decade."18


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Rural pove rty an d the NAFTAFree-market restructuring of the agricultural sector1985, the year in which the Mexican governm ent had to requestfurther loans from W ashington, signalled the start of a completeoverhaul of the Mexican agricultural sector. The guidelines forthis restructuring were set by the World Bank and the IMF as acondition of further bor row ing, and reflected the prevailing free-market orthodoxies of the two institutions. While therestructuring process began in that year, it accelerated in 1988following the election of Salinas de G ortari as President. H e, evenmore than his predecessor de la Madrid, was committed to theprinciples of free-market economics and privatisa tion.The objectives of the restruc turing have evolved over the years inwh ich it has been taking place. The governm ent h as prom oted aliberalised agricultural sector which is open and responsive tothe forces of the free m arket. Self-sufficiency in food is no longeron the political agenda. From being self-sufficient up un til thelate 1960s, Mexico now has to import one third of its food needs.14Under the free-market model, it is envisaged that the nation'sfood security will be achieved by its ability to purchase foodimports with its agro-industrial export ea rnings, while the ruralpeasant population will be absorbed by the growing industrialand service sectors, thus completing Mexico's shift from a ThirdW orld agra rian society to a First W orld industrial nation .To achieve this 'mod ernisa tion' of the agricultural sector, policyreform has concentrated on four main areas: the removal of subsidies and price-support mechanisms; the privatisation of agricultural parastatal bodies; reform of the land-tenure systems; and the removal of border restrictions on trade.With regard to the first area, Mexico's peasant producers used tobe able to rely on subsidies to enable them to afford fertilisers,fuel, credit, water, seeds, and crop insurance. How ever, these aregradually being w ithdraw n, as are price guaran tees for all crops.Government subsidies will henceforward apply to the land itself.

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NAFTA: Poverty and Free Trade in MexicoThe second area concerns the privatisation of agriculturalparastatals and the encouragement of agro-industrialinvestment. In 1990 the government's 'National Programme ofModernisation of the Countryside, 1990-94' was unveiled,announcing the private-sector focus of the new agriculturalpolicies in Mexico. How ever, even before this announcem ent, thegovernment had been moving to sell off its various firms andagencies. The restructuring of CONASUPO, the state's food-distribution agency, and Inmecafe, the coffee marketing board,was already und er w ay, and a num ber of parastatals have sincebeen sold to foreign enterprises, most of which are from theUnited S tates. The lifting of investment restrictions thro ugh theNAFTA will open the way for further investment by NorthAm erican corporations.The third area of policy reform concerns Mexico's land-tenuresystem. Three fifths of Mexico's agricultural land , approx imately205 million acres, belong to peasant collectives (made up of 2.7million farmers), kno wn as ejidos. The ejido lands were distributedtoMexican peasants after the Mexican revolution. The small plotsof land could be farmed and passed from generation togeneration, but not sold. However, in December 1991 thegovernment approved a constitutional amendment giving theejidos title to comm unal land w ith the right to mortgage, lease, orsell it. W hat this m eans is that w ith the sale and consolidation ofthese plots it will become possible to modernise, industrialise,and increase agricultural production in almost every sector ofMexican agriculture.The fourth category of policy reforms is directed at theliberalisation of agricultural trad e throu gh the removal of bord errestrictions. Upon joining the m ultilateral GATT trade accord in1986, Mexico accelerated its liberalisation policies, open ing up itsborders to international trade far beyond the terms of theagreement. Highly significant in this was the government'selimination of most import licences (meaning that it no longerhad to approve the purchase of foreign commodities). Suchpolicies have paved the way for implementation of the NAFTA.The section which relates to agriculture provides for the20


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Rural pov erty and th e NAFTAimmediate removal of all non-tariff barriers to trade (methodssuch as the imposition of technical or health standards used tolimit, or exclude, unwanted goods) through their conversion totariffs. These will then be eliminated over a period of ten to fifteenyears, eventually allowing for the unrestricted movement ofagricultural prod ucts between the three countries.Impact on the poorThere is little doubt that the Mexican agricultural sector was inneed of reform. Management of the sector had been erratic formany years and had lost its once-clear sense of direction: tosup port national self-sufficiency in food, through the prom otionof small-scale agricultural production. It had suffered from cost-cutting in the austerity years of the early 1980s and had hadliberal sums of money poured into it during the boom years of the1970s. Its priorities had wavered between support for thepromotion of food sufficiency through peasant-sectorproduction and support for the promotion of the agro-exportindustry. There was growing discontent among ruralcommunities over the mismanagement and increasingmarginalisation of their sector of the econom y.Erratic management has, undoubtedly, been replaced by clearpolicy direction, but it is a policy that contributes to themarginalisation and increasing poverty of rural communities.Starved of credit and unable to pay ever-spiralling prices forinputs such as fertilisers, farmers are abandoning newtechnologies, improved seeds, and chemical inputs, and theirproductivity is falling. Many farmers are resorting to subsistenceagriculture. Others are looking for ways to supplement theirincome. Frequently this has meant leaving the countryside toseek work in the cities or in the USA. This in itself is contributingto a deepening of rural poverty, as fewer family mem bers, oftenwom en and children, are left to carry on the task of subsistenceagriculture. Trad e liberalisation with N orth A merica will add totheir difficulties. Its most dam aging im pact w ill be on the g rainssector. Corn, which is grown on 42 per cent of all arable land inMexico and by one out of every th ree farmers, will not be able to

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NAFTA: Poverty and Free Trade in Mexicocom pete with the much cheaper US corn. US corn benefits fromgovernment support equal to 35 per cent of its produc tion value ,compared with a level of support worth only 3 per cent ofproduction value in Mexico. Once these markets are opened,Mexican produce rs w ill be at a severe competitive d isadvan tage.Overall projections for the number of peasant farmers who willbe displaced as a result of these policies vary from 5 to 15million.15 Am ong them will be m any of the country's 2.7 millioncom munal farmers. The way has been prepared for them to leavethe rural sector, by the reforms to the land-tenure laws whichmean they may now ow n and thus sell their land.In many parts of Mexico, rural communities are struggling tocombat spiralling poverty through collective action, in an effortto construct alternative developm ent models. Some are w orkingto promote the concept of regional self-sufficiency. Others aretrying to forge 'alternative' trading links with sympatheticconsumers in the North, while some are trying organicproduc tion in an effort to break into new markets. The despair ofMexico's rural communities, resulting from the failure of theirgovernment's policies to address the problems that they face,undoubtedly lies behind the Chiapas rebellion and underlinesthe need to redirect government policy in favour of the ruralpoor.

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Urban poverty and unemploymentProponents of the free-market model argue that strengtheningthe industrial and service sectors of the economy will createemploym ent for those wh o have lost their jobs or livelihoods as aresult of the restructuring of the economy. However, there isoverwhelming evidence to suggest that this cannot happen inMexico, and that the free-market development model iscontributing to structural unem ploym ent.The liberalisation process has bitten hard into the rural sector, butthat is not the only p lace where its effects have been felt. Sm alland m edium-sized businesses in Mexico have also suffered. Onceprotected by policies designed to nurture import substitution,this sector of the economy, producing goods such as shoes,clothing, textiles, and vehicle parts, thrived and providedimportant employment opportunities, particularly in urbanareas. Faced with increasing levels of com petition from impor ts,many have been forced to close dow n. The NAFTA, with its strictrules of origin, new rules on trade standards, and its eventualremoval of all import restrictions on North American goods,threatens this sector with extinction. With it will go thousandsmore jobs.The liberalisation process has attracted investment to Mexico.However, the new style of industrial development, apparent inMexico City's sprawling industrial suburbs, where highlyautomated foreign corporations such as Ford and GeneralMotors have set up business, is much less labour-intensive thanthe type of operation that had previously prevailed. It is arguedthat the new type of investment will never be able to providesufficient employment to cater for the vast numbers of peopledisplaced by the restructuring of the econom y.Official governm ent statistics pu t unem ployment levels at 3.5 percent of the economically active population.16 Unofficial figures

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NAFTA: Poverty and Free Trade in Mexicosuggest that close to 40 per cent of the population are eitherunemployed or underemployed. Am ong these are the hordes ofmen , wom en, and children on the streets of Mexico City who a retestimony to the extraordinary ingenuity of people in search ofways to surv ive. Fire-eaters, their faces raw from the heat of theflames, entertain passers-by on the city's highways in the hope ofbeing thrown a few coins. Women and children sit patiently bythe roadside , ever-hopeful of selling the few trinkets or crafts laidout before them to passing tourists. Others wash carwindscreens, clean shoes, or sell sweets. These are the peoplewho never appear on the governm ent's unemploym ent register,bu t equally may never find jobs.

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Labour and labour rightsMy name is Alma Molina, and I live in Juarez,Mexico with m y husbandand son. In June 1992,1 went to work for Clarostat, a US company, witha plant in Juarez. I was among some 300 workers who made electricalswitches and sensors. I earned the Mexican minimum wage, $4.50 for anine-hour day.

A group of us wanted to improve our working conditions, safety, andwages at Clarostat. We worked with dangerous chemicals, includingphenol and epoxy resin, but no masks were provided. The chemicals alsoirritated our skin. Six of us began to organise a union. We had meetingsevery two w eeks. After a few months, another worker informed on me,and then I was fired. Four other workers were fired one week later. Thepersonnel manager told me I was being fired because I was trying toorganise a union. I told them this was unfair, and that I was going tofight this unfair termination. Clarostat then sent me my severance pay.Shortly after being fired, I was hired by Electrocomponentes, which is aGeneral Electric (GE) Company. The GE logo is on the factory. A t thatplant, 1,800 workers make wiring for refrigerators sold in the USA. Iearned $4.50 for working from 6.30 am to 4.30 pm.I had been atGEfor only seven days when I was called to the personneloffice and shown a list with my name on it. This list was kept in a blackfolder. The personnel man said that he did not know why my name wason the list, but that he would have to fire me anyway. He told me that thiswas a list of 'undesirable' people, like criminals and drug addicts andthieves. He asked me what kind of criminal I was. I told him that I wasnot a criminal, but I thought that workers' rights should be respected. Isaid that maybe this was the reason why I was on the list. He told me tosign a letter of resignation. I would not.(Extract from the testimony of Alma Molina, maquiladora worker, on thesubject of violations of workers' rights in Mexico, given before theSubcommittee on Employment, Housing and Aviation HouseGovernment Operations Comm ittee, US Congress, 15 July 1993)

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NAFTA: Poverty and Free Trade in Me xicoMexico is no stranger to unregulated foreign investment. In1965 the government instituted the Border IndustrialisationProgramme, which opened up a 20 km strip along the borderwith the United States to labour-intensive, export-orientedassembly plants. Since then some 2,000 factories, mainly US-ow ned, em ploying half a million Mexican workers, have spru ngup, mainly along the border but also in other parts of Mexico.These factories, known as maquiladoras, import duty-freematerials from the USA. The materials are then processed orassem bled, and re-exported back to the Un ited States.

Maquiladoras: exporting profitsThe advantage for the companies which own the maquiladoraplan ts is that they can maintain p roductivity levels but at onlya fraction of what it would cost them to do so in the USA. W agesin Mexico are approximately one tenth of those north of theborder, and health and safety and environmental regulations,which exist under Mexican law, are hardly ever enforced. AsAlma Molina's testimony claims, any attempt by workers toorganise to improve conditions is forcefully suppressed; andMexico's rapidly rising levels of unem ploym ent mean that thereis never any shortage of workers to replace the labour activists.As a result, the maquiladora zone, a haven for companyinvestment, has some of the poorest living and workingconditions in the world and suffers the effects of widespreadenvironmental degradation.It was to the maquiladora zone , as the shape of things to come, thatcritics of the NAFTA pointed when they challenged thederegulation of trade between Mexico, the United States, andCanada. Workers in the USA fear job losses as com panies shiftpa rt of their operations sou th, to take advantag e of cheap labourand lax investmen t regulations. A Wall Street Journal poll of 505senior executives of US manufacturing companies showed that40 per cent of them would consider shifting some production toMexico following a free-trade pact.17 Other studies based on theexperience of the European Union predict that between 260,00026


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Labour and labour rightsand 439,000 jobs could be relocated from the USA to Mexicofollowing a free-trade pact.18 The agreement could also put adownward pressure on wages in the United States. Oneeconomist has predicted that increased competition fromMexican workers will depress the wages of unskilled wo rkers inthe USA by an estimated one thousand dollars a year.19Critics of NAFTA in Mexico fear that the agreement will workagainst democratic reform and will thus lock Mexico intomaquiladora-style development based on low wages, poorworking conditions, and environmental degradation. Key toensuring that the country remains an attractive investment sitefor North American companies is the continued repression ofindependent trade unions. If wages and conditions ofemployment in Mexico rise as a result of free collectivebarga ining, the country will lose its com petitive advantag e.However, there is little danger of this happening. Labourorganising in Mexico is tightly controlled. There is one officialunion, the CTM (the Confederation of Workers of Mexico).Members of the CTM are obliged to vote for the ruling PRI party,bu t have no rights to genuine collective bargaining . There is oneindependent labour union, the Authentic Labour Front (FAT),which is democratically run and unaffiliated to any politicalparty . Not surprising ly, it has a strong following among M exico'spoorly paid workforce and has 40,000 workers organised in 18Mexican states. As such it is a threat to the status quo, but, as AlmaMolina's testimony claims and critics of Mexico's human rightsallege, they tend to be ruthlessly dealt w ith:The victims of human rights violations are most often individuals whohave tried to secure union rights or form independent labour unions toimprove the abhorrent working conditions in transnational industries.They have been actively targeted: many have been captured, torturedand assassinated.20As a result of such repressive measures, Mexican wages havebeen kept well below those of South East Asia and in real termshave fallen by 50 per cent over the last ten years.21

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NAFTA: Poverty an d Free Trade in Me xicoThe labour side-accordWidespread opposition in the United States to the NAFTA onthese grounds led Governor Bill Clinton to commit himselfdu rin g his Presidential election campaign in October 1992 to theadoption of a parallel side-agreement on labour. This wasdesigned to placate opponents by setting up mechanisms toenforce minimum labour standards. They apply to all threecountries, but are particularly directed at the Mexican laboursector. The side-accord was published in August 1993 and cameinto effect with the m ain agreement in January 1994.The accord allows for complaints to be dealt with by theimposition of trade sanctions on m atters that relate to the use ofchild labour, minimum-wage violations, and health and safetyregu lations. While the side-accord has been welcomed, in that itrecognises the need to link international trade regulations withthe need to improve worke rs' conditions, it is widely argued thatits main provisions will do little to encourage better workingpractices in M exico.The use of child labour in Mexico is widespread, despite theexistence of well-written laws that prohibit it. As many as tenmillion children work illegally, or subsist as street vendors.22However, children are not employed in the macjuila plants, orother parts of the formal sector of the Mexican economy whichwill come within the orbit of the NAFTA . The provisions in theside-accord tha t relate to child labou r will, therefore, be im potentin tackling the wider problem.As for the provision on m inimum wages, there is already a legalminimum wage in Mexico. In the formal sector most employerspay slightly above it, thus shifting responsibility for makingsocial-security contributions on to the employee. However, theminimum wage is set so low that it barely constitutes a livingwage. At aro und US$4.50 a day , it is less than the average hourlyrate in the USA. The health and safety provisions have also beencriticised, on the grou nd s tha t in Mexico there is no tradition ofreporting accidents. Lawyers argue that there wou ld have to be a28


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Labour and labour rightsprofound cultural change in Mexico before health and safetylegislation could be effective.23

However, the side-accord attracted most criticism because itcontains no similar provisions on w orkers' rights. In its preamblethe accord recognises the need to promote w hat it calls 'w orke rs'provisions', such as the freedom of association and the right tocollective bargaining. But these are m ere obligations to be under -taken by the parties. They are to be backed u p not by the threat oftrade sanctions, bu t by fact-finding exercises, and in some cases'consultations'.Some unions in the USA now recognise that their best chance ofdefending US jobs is by encouraging the building of strong,independent labour unions in Mexico, able to defend workers'rights and improve working conditions. This marks a dramaticreversal in their NAFTA strategy, which, when the negotiationswere under way, was to oppose the agreement outright on thegrounds that it would result in US job losses. At the forefront of thisnew approach is the United Electrical Workers' Union, whichrepresents about half of all unionised w orkers in the giant GeneralElectric Corporation. In the last decade GEC has moved 15 of itsplants to M exico, with consequent job losses for workers in the USA.To help strengthen labour organising in Mexico, the unions arepursuing a twin-track approach. The first (pioneered by theElectrical Workers' Union) is to build a strategic organisingalliance with the Mexican Authentic Labour Fron t, the FAT. Theunion is subsidising FAT organisers in the border maquiladoras,targeting facilities owned by corporations with strong US unionsthat can put pressure on international headquarters to settlegrievances in Mexico. Their second approach is to strengthenthose areas of the NAFTA labour side-accord which relate toworkers' rights, by filing test cases. The first of these was filed on14 February 1994 by the United Electrical W orkers' Un ion an d thepowerful Team sters' Un ion. The complaint challenges the firingof over 100 workers in two Chihuahua plants of US-ownedcompanies, General Electric and Honeywell. Most of the firedworkers were accused of participating in union activities.24

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NAFTA: Poverty and Free Trade in MexicoThe outcom e of the case has yet to be seen. If the ru ling is in favourof the union 's case and results in the reinstatem ent of the sackedworkers , then the side-accord, for all its weaknesses, could makea significant contribution to an improvement in workers'conditions and pave the way for the strengthening ofindepen den t labour organisations in Mexico.

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NAFTA and the environment

The environm ent is a crucial issue for M exico. Mexico City, hom eto 18 million people, has the w orst atm ospheric pollution of anycity in the world. Deforestation has reduced Mexico's tropicalforests from 27 million to only one m illion hectares. Eight per centof land suffers from erosion and 10 per cent from salination.Industry annually generates 115 million tonnes of solid wastes andan undeterm ined am ount of untreated toxic waste, both of whichpose a grave threat to public health. Eighty per cent of the rivers arepolluted, as well as a large portion of the Gulf of Mexico.25

Rampant pollution ...Some of the worst examples of environmental degradation arealong the US-Mexico border. Cheap unorganised labour is notthe on ly attraction of Mexico's maquiladora zon e for US corporateinterests. By moving sou th, they also escape compliance with USenvironmental standards. Similar laws exist in Mexico but, aswith the country's labour laws, enforcement is weak. By law,Mexican companies are supposed to ship their toxic waste backacross the bord er to the USA. But the heavily polluted local riversand contaminated water supplies are powerful evidence thatmany are not doing so. Air pollution is also a serious problem.Cars lack pollution-control devices and travel on unmade-uproads, throwing dust into the air. Added to this is industrialpollution, some of it coming from US furniture makers thatmo ved out of Los Angeles to escape new restrictions on emissionstandards covering toxic solvents used in paints, stains, andlacquers. Still more comes from local residents who, in theabsence of any othe r way of disposing of it, bu rn their rubbish.26

... and pillaged resourcesThe US-Mexican border is a concrete example of howunregu lated trade can serve to degra de the environm ent, and it is

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NAFTA: Poverty and Free Trade in Mexiconow widely recognised that complete deregulation poses agrave threat to national and global efforts to protect theenvironm ent. Ap art from the opportunities it gives companies toflout lax environmental laws, it can also undermine national orlocal efforts to protect the environment. Free trade woulddesignate any restriction on imports or exports onenv ironm ental g rou nd s as a non-tariff barrier to trade , and thu san unacceptable protectionist measure. Likewise free tradewould prev ent in ternationa l, national, or local efforts to protectthe global com mo ns by, for example, forbidding countries to banimports of unsustainably produced tropical hardwood in theinterests of rain-forest conservation. Such powerful argumentseventually succeeded in forcing the GATT to consider the tr ad e/environment connection within the Uruguay Round, with theresult that a trade and environment committee will beestablished in the new World Trade Organisation. They alsobrou ght the issue to prom inence in the debate on the NAFTA .Empty promisesThe US Administration labelled the NAFTA as the 'greenest'trade deal so far and, given that previous trade agreements havealmost entirely ignored environmental issues, such a claimwould not be hard to prove. Its preamble states that the NAFTApartne rs are committed to 'prom ote sustainable deve lopm ent...protect, enhance and enforce worker's rights and to improveworking conditions in each country ... and strengthen thedevelop ment and enforcement of environm ental law s'. A majorweakness is that the preamble does not go on to definewhat is meant by 'sustainable development'. However,environmentalists argue that the agreement itself promotes amo del of developm ent that posits that wealth must be generatedfirst wealth which will, in turn, allow future generations topay for the clean-up. This is in direct contradiction to the viewthat sustainable development is about meeting the needs ofpeople today without jeopardising the ability of futuregenerations to meet their needs . In short, the NAFTA is a gambleon sustainability.

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NAFTA and the environmentFour main concerns about the agreement have been voiced byenvironmentalists. The first is that the NAFTA could result in a reduction ofenvironmental regulations to the lowest prevailing standards inthe free-trade area. This would come about as a result of the'harmonisation' of standards which could be used to reduce morerestrictive national standards to existing internationallyrecognised levels. The second concern relates to the poor enforcement ofenvironmental laws in Mexico. On the evidence of themaquiladora

zone, it is easy to see how Mexico could simply become a'polluter's haven' for those companies which are unwilling tocomply with regulations which are enforced in the USA orCanada, but not in Mexico. Thirdly there is concern that, given budgetary constraints, there isinsufficient funding for Mexican government agencies to dealproperly with pollution problems. Finally, the NAFTA will inhibit the ability of governm ents tocontrol exports of natural resources for conservation purposes,with the aim of encouraging domestic processing of rawmaterials. For Mexico this could mean losing any means ofcontrolling its oil industry .The environmental side-agreementAs with labour, in response to the criticisms levelled at theagreement on environm ental groun ds, President Clinton had anenvironment side-agreement drawn up, in an effort to addressthe environmental weaknesses in the NAFTA. It provid es for theestablishment of a tri-national Commission for EnvironmentalCo-operation (CEC) to deal, through a complicated and lengthyprocess, with disputes between countries regarding laxenforcement of environmental laws. In addition it announcedthat the USA and Mexico will continue discussion on thefinancing of infrastructure, such as sewerage systems, in theborder region.

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NAFTA: Poverty and Free Trade in MexicoHowever, the side-agreement did little to convinceenvironmentalists. Friends of the Earth have criticised the CECon the g rou nd s that it lacks teeth. The Com mission, it argues, hasno po wer to investigate a complaint, but m ust rely on evidencesupplied by a government. It can draw attention toenvironmental problems, but cannot offer preventativesolutions. Its definition of environm ental law is so narrow that itexcludes many important areas, including laws regulating theexploitation of natural resou rces. It places the responsibility forthe enforcement of environmental law squarely on the sho uldersof gov ernm ents, thus exem pting indu stry from any obligations.27The side-agreement also resulted in the setting up of a NorthAm erican D evelopment Bank to help finance env ironmental andinfrastructural projects along the US-Mexican border. The cost ofcleaning up the border region has been estimated to be in theregion of US$8 billion. The USA and Mexico will both contributefunds to the bank , but M exico's share of this will be 70 per cent even though much of the pollution has been caused by UScom panies flouting Mexico's lax environm ental laws.

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Free trade increasedprotectionismCritics of the NAFTA arg ue th at it is not, as its nam e suggests, afree-trade agreement, but a new form of protectionism. Whiletariff ba rriers are lowered, the agreement also pu ts into place newbarriers against trade . These, in the way that they are designed,will protect and nurture the interests of large corporations overthose of wider society. There are three principal ways in whichNAFTA does this: firstly thro ugh ap plyin g strict rules of origin,secondly through those measures which relate to tradestandards, and thirdly through giving increased protection tointellectual property.Rules of originTo ensu re that the benefits of NAFTA are accorded only to thosegoods p roduc ed in the region, strict rules of origin are laid do w nin the NAFTA text. These vary b y sector. For example, in the carindustry 62.5 per cent of parts, labour, and other costs must beadded in North America for a car or truck to qualify for lowerduties. For computers, only 20 to 40 per cent of a computer'svalue need be N orth Am erican to qualify.28This will have a profound impact on the small and medium -sizedbusiness sector in Mexico, particularly in the automobile andtextile industries. The automobile industry in Mexico isan important source of employment. Companies importcomponents, from countries such as Brazil, take them on to thenext stage of assembly, and sell them on to the big, generally US-owned, companies. Under the new rules they will no longer beable to do this, as the assembled car or truck w ill not m eet 'rulesof origin' requirements. The same problem faces the textileindustry in Mexico, which relies on impo rts of the raw materialsfrom coun tries in , for exam ple, Asia.

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NAFTA: Poverty and Free Trade in MexicoTechnical standardsChapter 12 of the agreement covers all standards-related measuresin relation to trade between the three countries. While encouragingeach country to comply w ith international standards, as set out inthe GATT agreement for exam ple, it also permits each party to '...establish and maintain its own standards-related measuresrelating to environmental, health, safety or other standards-re latedmeasures, including measures to prohibit the importation ofproducts failing to meet those standards or technical regulation'.

Some, particularly environm entalists, welcome this provision inthe NAFTA, because it ensures that each country has the right toadopt more stringent, science-based standards to achieve achosen level of protection. However, it has been criticised on thegro un ds that it could, just as easily, lead to unjust protectionistmeasures which work in favour of the larger, more powerfulcorporations and against the interests of the smaller, morevulnerable, companies.In the USA, the setting of technical standa rds is done by priva tecompanies. Furthermore, each state has autonomy over itsstandards-setting, so stan dard s m ay vary betw een states. If oneparticular company wants to keep a certain competing productout of the state, it simply ensures that the technical standards(relating to the environment, health, safety, etc.) are set higherthan th e produc t in question can match.Particularly vulnerable to these measures are small Mexicanbusinesses. For example, one Mexican co-operative was enjoyinga niche market in the USA for its fruit-juice exports. The technicalstandards were suddenly raised and the co-operative lost itsmarket. Such measures will undoubtedly contribute to thedifficulties faced by the small-business sector in Mexico.Intellectual property rightsFor m any , the most controversial chapter of the NAFTA, and theone that most blatantly favours corporate interests over those of36


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Free trade increased protectionismwider society, is that which relates to Intellectual PropertyRights. Since the 1980s, un de r pressure from US industry , the USadministration has been pushing to have intellectual propertyrights (IPRs) included in trade agreem ents. As a result, a detailedcode on intellectual property, known as the TRIPS TradeRelated Intellectual Property Rights Agreement, has beenincluded in the new GATT agreement, and a very similar codeappears in the NAFTA. Thus Intellectual Property Rights havebeen placed firmly on the international trade a genda.Intellectual Property R ights concern the rules governing pate nts,tradem arks, and copyrights, wh ich are normally held by privatecorporations. Intellectual pro per ty has become an issue of criticalimportance to US corporations. While some sectors of the USeconomy, such as manufacturing, are in decline, the USA stillmaintains its dominance in information and technology-intensive industrie s. The inclusion of IPRs in trade agreem ents isspecifically designed to ensure that they w ill be able to maintainthis dominanc e.The fundamental problem with the inclusion of IPRs in tradeagreements is that they protect the 'rights' of corporate ownerswithout recognising corresponding obligations to society as awhole. In particular it restricts the transfer of technology to lessdeveloped countries wishing to adapt technology to their owndevelopment needs. The IPR chapter of the NAFTA will,therefore, have a negative effect on Mexico's developmentprospects.Basically the NAFTA provision s on IPRs strengthen the ability ofcorporations to maintain exclusive ownership of a design,produ ct, or process. The most immedia te effects of this will be feltin the pharmaceutical industry. Mexico, like many othercountries , has developed a generic drugs industry whichreproduces the tried and tested brands of the major drugscom panies and sells them on the local market for a fraction of thecost. Unde r NAFTA it will no longer be possible for them to dothis. Products dev eloped by the major d rug s companies will beprotected from copying by tight patenting provisions, and as a

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NAFTA: Poverty and Free Trade in Mexicoresult the Mexican people will no longer hav e access to affordabledrugs.The IPR provisions will, of course, extend beyond the drugsindustry. The NAFTA also opens the ways for extendingpatenting laws to life forms: plants, animals, genetic materials,and even life forms derived from the human body. Foragriculture:Life form patents will result in farmers being denied their traditionalrights to save seed (because) planting seeds without paying royalties ismaking an unauthorised copy of a patented product. Farmers will beforced to pay royalties for every seed and farm animal derived frompatented stock, forced to become more dependent on fertilisers, pesticidesand the machinery made by the same companies who collected thetraditional seeds in the first place and now sell back the chemically-dependent derivatives.29The NAFTA's provisions on intellectual prop erty are novel a ndimportant not only for their broad scope, but for theirenforcement procedures. Unlike other sections of the NAFTA,including those on labour an d the environm ent, clear procedu resare laid do w n for the enforcement of intellectual prope rty rights,including border measures which prevent the entry of goodsalleged to infringe IPRs.30The protection of transnational' patents, provided for by boththe NAFTA and the GATT, will enhance the power of high-technology firms based in industrialised coun tries. The costs ofthis for the poorer countries could be high . It has been estimatedthat if N orthe rn tran sna tional co rporations w ere to collect all theroyalties they claim are ow ed to them by developing countries,the drain of wealth from the South to the North would beupw ards of US$100 billion a year.31 As one critic of IPR provisionspoin ted out, rules on intellectual pro per ty rights 'benefit only thepow erful... A lthough (they wo uld) apply equally to all nations,one can argue that equal treatment among unequals isprofoundly inequitable.'32

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Impact on the economyThe restructuring of the Mexican economy that precededMexico's accession to the NAFTA has not prompted theeconomic recovery promised by its government. In 1993economic grow th, at 0.4 per cent, was ou tstripped by populationgrowth for the first time since 1988.33 Mexico still had a substantialtrade deficit, of US$13.6 billion (9.3 billion) in 1993, and anexternal deb t in excess of US$124 billion.34AW orld Bank report published in February 1994 praised M exicofor having followed the Bank's advice on economic policy, butexpressed concern over its slow economic growth and lowsavings rate. It concludes that the high current-account deficitand modest improvements in productivity 'raise concern aboutthe sustainability of economic growth'. The Bank attributes thelow economic growth to the 'substitution of foreign goodsfor domestically produced goods'. Implicit in this is anacknowledgment of the importance of the small-business sectorin Mexico and the devastating impact that the restructuring hashad on it.The Bank recommends further reforms in four areas: the legalsystem, to make it easier for private-sector development; thelabour sector, to increase the quality of the labour force andestablish amore flexible labour market; environmental policy, forwhich it recom mends m andato ry fines for lack of enforcement incompliance with environmental law; and ways in which theprovision of infrastructure could be improved.35It appears that Mexico's free-market restructuring is not onlyfailing the poor, but is also failing to produ ce econom ic g row th.

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NAFTA and global economicintegrationThere are tw o w ays to view the NAFTA. One is that it is of littlesignificance, given the degree of integration that had alreadytaken place betw een the USA and Mexico un de r the free-marketreforms instigated by the de la Madrid and Salinasadministrations in the twelve years before the agreement cameinto effect. Viewed from this perspective, the NAFTA is simply away of formalising and speeding up that process of integration.On the other hand, the NAFTA can be seen as very significant, asit will lock into place the liberalisation measures already taken bythe Mexican government, making it difficult for futuregovernments to change the free-market orientation of Mexico'seconomic policies. It will mean that M exican foreign policy w illbe formulated in the shadow of the NAFTA, and it will shiftpower away from the government and into the hands of thecorporate sector. Most significantly, it signals the start of a newera of global political and economic relations that will have aprofound impact on countries throug hou t the developing w orld.Global economic liberalisation is at the heart of the USadm inistratio n's economic policy objectives. It has been pursu ingthis objective in two w ays. The first is throug h the GATT. But, asthe seven years that it took to complete the Uruguay Roundnegotiations pro ve, multilateral trade arran gem ents can be slowand problematic; so the USA is also pursuing a second route:economic liberalisation through a series of bilateral deals. Thefirst of these was with Canada, and the second with Mexicothroug h the NAFTA, the provisions of which are similar in m anywa ys to those contained in the Urugu ay R ound agreement.For the US adm inistration, the NAFTA is simply the first stage ofits wider policy objective of creating a hemispheric free-tradezone 'stretching from the port of Anchorage to the Tierra del40


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NAFTA and global economic integrationFuego'. The Enterprise of the Americas Initiative (EAI),announced by US President George Bush in June 1990, is a three-pron ged program m e, designed first to create a hemispheric free-trade zone, second to promote private investment in the region,and third to facilitate renegotiation of official debts owed to theUS government, including provisions for 'debt-for-nature'swaps.36From the outset President Bush made it clear that his offer ofexpand ed trade, investment, and debt renegotiation throug h theEAI would be open only to those countries that demonstrate acommitment to free-market economic reform by undertakingstructural adjustments such as liberalising their foreign-investment laws, privatising state-owned companies, andderegulating foreign trade. Mexico's whole-hearted embrace ofsuch policies made it a natu ral first can dida te for this schem e.Dem onstrating tha t such policies have cross-party sup port in theUSA, President Clinton told a meeting in New York, shortlybefore the NAFTA was signed: 'We see this not as an exclusiveagreem ent, but as part of the building blocks of a framew ork ofcontinually expand ing global trade.' H e we nt on to say that the'NAFTA could lead the way to a new partnership with Chile,with Argentina, with Colombia, with Venezuela, with a wholerange of countries in Latin America (that) have embraceddemocracy and market economics.'37

There is no shortage of countries in Latin America and theCaribbean wishing to demonstrate their commitment to free-market economic reform and join the EAI. Since the beginning ofthe 1990s, barriers against foreign trade and investm ent have beentorn down in country after country, leading to a boom in intra-regional trade. Currently there are five large trade pacts in theregion (see Table 3), in addition to several smaller, bi-national ortri-national free-trade pacts. By January 1992 the United States hadsigned 30 Framework Agreements with Latin American govern-ments. Only Cuba, Haiti, and Suriname have not been included.Chile, the pioneer in market reform in Latin America, is next in lineto join the NAFTA, with negotiations already under way.

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NAFTA: Poverty and Free Trade in MexicoTable 3: Integration and trade in the Americas*Name of pactNAFTA (1994)USACanadaMexicoM ercosu r (1991)ArgentinaBrazilParaguayUruguayG-Three (1994)MexicoColombiaVenezuelaAndean Pact (1969)BoliviaEcuadorPeruVenezuelaColombia

Population(millions)363

(250)(27)(86)197

148

97

G D P( U S $ b n )6,838.75,950.7

569.0319.0679.9228.8434.0

5.711.4

432.1319.0

52.061.1

177.16.1

12.745.261.152.0

Intra-regionaltrade (US$bn)

267.0

7.0

1.4

1.9

Central America Common Market (1960)27.8 27.7 n.a.Costa Rica 6.5El Salvador 6.0Guatemala 10.5Honduras 3.1Nicaragua 1.6CA RIC OM (1973) 5.4 12.6 n.a.(Antigua, Baham as, Barbados, Belize, Dom inica, Grenad a,Guyana, Jamaica, M ontserrat, St Kitts-Nevis, St Lucia, StVincent-Grenadines, Trinidad and Tobago)

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NAFTA and global economic integrationThese framework agreem ents are not legally bind ing, but they dosignal an intention to pursue further negotiations. Theirpream bles list principles such as mutual friendship, co-operationwithin GATT, intent to lower tariff and non-tariff barriers againsttrade, recognition of the role of private investment, theimportance of providing adequate protection for intellectualproperty rights, and respect for labour rights. Six similaragreemen ts have been signed w ith mem bers of the Association ofSouth East Asian Nations (ASEAN): Brunei, Malaysia, Indonesia,the Philippines, Singapore, and Thailand. At ASEAN meetingsheld in July 1992, both US and Can adian officials 'floated the ideaof future linkages' with NAFTA, thus dem onstrating its globalsignificance.39

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Towards sustainable economicdevelopmentGovernments throughout Latin America are queuing up to jointhe NAFTA. Many are able to display impressive credentials,demonstrating their commitment to free-market economics. YetMexico's experience clearly shows the potential flaws in thismodel of development. Its government's adoption of relatedpolicies, crow ned by its accession to the NAFTA, has resulted inincreased poverty and environmental degrad ation and , so far atleast, has failed to produce significant economic growth. Suchresults justify a critical re-examination of the m odel and a searchfor alternative developm ent models.In the negotiations that led to the adoption of the NAFTA, thebroad-based Mexican, Canadian, and US coalitions whichoppose it considered alternative policies that could promotesustainable development and respect basic rights. Their policyrecom mendations included the following key elements:401 In recognition of people's need for basic self-reliance in foodstocks, agricultural policies should be directed to: limiting international trade in food to products that complement

domestic production; eliminating subsidies that systematically encourage over-production and export dumping, and implementing subsidiesdesigned to encourage food self-reliance and ecologically soundagricultural practices.2 To ensure that basic workers' rights are respected, legislationshould: guarantee the rights of all workers to be represented byindependent trade unions; to participate in collective bargaining;to go on strike;

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Towards sustainable economic development prohibit the use of forced or child labour; guarantee basic benefits such as job security, unemploymentinsurance, workers' compensation, pensions, and a safe working

environment.3 To help to safeguard the environment: agricultural producers should be guaranteed returns highenough to sustain small-scale, diversified farms to encouragesustainable agricultural production; funds should be set aside to rehabilitate areas adversely affected

by commercial activities; international trade agreements should contain clauses that allowany party to take action necessary to protect the environment, forexample by establishing export or import restrictions and the useof subsidies, to prevent or remedy adverse environm ental effectsan d/o r conserve natural resources.4 Investment polic ies should respect the rights ofgovernments to choose their own developm ent priorities, andallow them to: favour locally-owned, community-oriented investments overforeign investors when licensing operations or allocatingfinances; screen all foreign investments and takeovers to ensure their

compatibility w ith the host country 's economic and social goals.5 Finance for local development initiatives and poverty-alleviation m easures should be m ade available by: reducing the debt burden of developing countries.6 Laws governing Intellectual Property Rights shouldrecognise the rights of the broader society by: recognising the sovereign right of countries to establish their ownpatent and copyright systems and to adapt technology to usesappropriate to their stage of developm ent;

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NAFTA: Poverty and Free Trade in Mexico prohibiting the patenting of life forms such as plant and animalspecies and biological materials.7 With the NAFTA in place, priority should b e given to: supporting networking activities between social organisationsand non-government organisations in Mexico and those in othercountries waiting to join the NAFTA, to help them press forpolicies that will promote sustainable economic development andprotect basic rights along the lines suggested above; increasing poverty-focused aid to Mexico by raising public

awareness of the situation of the poor in Mexico; supporting efforts to strengthen the provisions contained in theLabour and Environmental Side-agreements.

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Notes

1 From an article by Charles Lawrence in N ew York, sent to TheDaily Telegraph, dated 3 January 1994.2 Econom ist Intelligence Unit: Mexico Country Profile 1991-92.3 Tom Barry: Mexico: A Country Guide, The Inter-Hem isphericEducation Resource Center, Albuquerque, New Mexico,1992,p.292.4 ibid,p.81.5 IDOC Internazionale: 'The Dream of NA FTA -nuggets', July-September 1993/3.6 Barry 1992, op. cit . ,p.H9.7 Cavan agh, Gershm an, Baker, Helm ke: Trading Freedom

How Free Trade Affects our Lives, W ork and Environment,Institute for Food and Developm ent Policy, California, USA,1992, p.38 .8 NG O Working Group on the World Bank: 'StructuralAdjustment in Mexico: A Grass Roots Perspective', draftreport, April 1993, p.26.

9 Resource Centre Bulletin No 23, Albuquerque, N ew Mexico.10 W orld Bank 1989, cited in Barry 1992, op. cit., p.96.11 At that time it was known as the National RevolutionaryParty (PNR). In 1938 it was renam ed the Party of the MexicanRevolution (PRM) and in 1946 it was renam ed once again asthe Institutional R evolutionary Party (PRI).12 The Development Group for Alternative Policies: Look BeforeYou Leap: What You Should Know About a North American FreeTradeAgreement, Washington DC: Development GAP, 1991.13 Interview with Luis Hernandez on 19 Janu ary 1994, quo tingnew spaper reports dating back to January 1993.14 Resource Centre Bulletin No 23, Spring 1991, Albuquerque,Ne w M exico.15 Ecum enical Coalition for Economic Justice, O ntario :Ecumenical Justice Report, Vol. 2, No. 3, 'Ethical Reflections onNorth A merican Integration', October 1991.

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NAFTA: Poverty and Free Trade in Mexico16 Statistic given by Mantel Garcia Urrutia in interview on 21January 1994.17 Resource Centre Bulletin No 31/32, Albuquerque, New

Mexico.18 The Developm ent Ga p for Alternative Policies, 1991, op . cit.19 Resource Centre Bulletin N o 31 /32 .20 Co mm on Frontiers: Project on Hu m an Rights and EconomicIntegration, August 1992.21 Opening Statement by Ch airman Colin Peterson at thehearing of the Subcommittee on Employment, Housing andAviation at the USCongress, 15 July 1993.22 Ecum enical Coalition for Economic Justice, October 1991, op.cit.23 Interview with Mexican labour lawyer, Arturo Alcalde, 19January 1994.24 John Ross: 'On th e offensive now that NA FTA 's a fact, USlabour unions strike back', El Financiero International, 14March 1994.25 Ecumenical Coalition for Economic Justice, October 1991, op.

cit.26 B. Coote: The Trade Trap: Poverty and the Global CommodityMarkets, Oxford: Oxfam (UK and Ireland), 1992, p.134.27 Friends of the Earth, Washington office, press release:'Environmental Side Agreement Falls Short of FixingNA FTA's Flaws', September 1993.28 IMF: Mexico: The Strategy to Achieve Sustained EconomicGrowth, Occasional Paper 99, IMF, Washington DC,September 1992, p.32.29 Beth Burrows, Washington Biotechnology Action Council,quoted in Which W ay for the Americas: Analysis of NAFTAProposals and the Impact on Canada, published by the CanadianCen tre for Policy Alternatives, Novem ber 1992, p.40.30 Ian Robinson: North American Trade as if Democracy Mattered,Ca nad ian C entre for Policy Alternatives, Ottaw a, 1993.31 'Canad a and the En terprise for the Am ericas Initiative', draftpaper by The Development GAP, W ashington DC.32 GATT-Fly: Free Trade, Self Reliance and Economic Justice,Ecum enical Commission for Econom ic Justice, Ontario, 1987.33 Financial Times, 22 February 1994.

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Notes34 The Economist Intelligence Unit, Mexico Country Report, FirstQuarter 1994.35 Financial Times, 22 February 1994.36 Ecumenical Coalition for Economic Justice, Ontario: ECE/Background Paper No. 1, 'Overview for the Enterprise of theAm ericas Initiative', M ay 1993.37 US/Latin Trade The Magazine of Commerce in the Americas,January 1994.38 ibid.39 Ecumenical Coalition for Economic Justice, May 1993, op. cit.40 Ou tlined in the statemen t '51 Alternatives to N AFTA',

published in Economic Justice Report, Volum e 4, No. 1, Ap ril1993, by the Ecumenical Coalition for Economic Justice,Ontario.

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Further reading from OxfamThe Trade Trap: Poverty and the Global Comm odity M ar ke tsBelinda Coote1992,224 pages, paperback : ISBN 0 85598135 0,hardback: ISBN 0 85598134 2The Trade Trap shows how the terms of trade between Northand South put poor farmers at an impossible disadvantage. Itexplains the problems created by trad e blocs, the w orkings of thefutures m arkets, the role played by m ultinational corporations,and the failure of UNCTAD and the General Agreement onTariffs and Trade to protect the interests of developing nations.Illustrated with case studie s from m any of the 70 countries whereOxfam supports communities of poor producers, includingMexico.'A tour deforce! Everything you need to know abou t trade, with a wealthof case studies.' Michael Barratt Brown, Chair of Third WorldInformation N etwork (TWIN) and Twin Trading.

A Buyer's M ar ke t: Global Trade , Southern Poverty, and NorthernActionDavid D alton1992, up-d ated 1994,16 pages, paperback ISBN 0 85598 280 2A short and simple guide to the complexities of world trade,which explains why countries that dep end on the export of rawcomm odities can't w in unde r the present system.

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OxfamInsightOther books in the seriesThe Insight series offers concise and accessible analysis of issuestha t are of current concern to the international comm unity.

Paying for HealthPoverty and Structural Adjustment in ZimbabweJean LennockISBN 0 85 59 8 29 3 4, 40 pages, August 199 4Jean Lennock shows how the most vulnerable sections of societycarry the burden of structural adjustm

nafta: poverty and free trade in mexico

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