NAFTA Turns 20, To Mixed Reviews

New Year's Day will be the 20th anniversary of the North American Free Trade Agreement. The passage of NAFTA by Congress was one of the most controversial events of the 1990s. Critics predicted a massive loss of American jobs to low-wage Mexico, but most manufacturing jobs went elsewhere instead.

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It has been almost 20 years since the U.S. Congress approved the North American Free Trade Agreement - New Year's Day to be precise. It was an agreement that was met with all kinds of controversy. Over the next few weeks, NPR will be airing a series of stories looking back at NAFTA. This morning, NPR's Jim Zarroli tackles one of the first assumptions about NAFTA, that it would send a wave of American jobs to Mexico, where labor is cheaper.

JIM ZARROLI, BYLINE: NAFTA was designed to break down the walls separating North American economies and let goods move freely across borders. The U.S. and Canada already had a free trade treaty. NAFTA would bring Mexico in as well. U.S. companies had long viewed Mexico as a sleepy backwater, hostile to outside businesses. Bill Lane is director of global government affairs at Caterpillar.

BILL LANE: You might get a small spurt of growth and then there would be a decline in economy. And the knee jerk reaction from the Mexicans was to raise the tariff walls and try to protect the local industries.

ZARROLI: Under NAFTA, tariffs were eliminated on imported goods, allowing companies to sell wherever they wanted. Dean Baker is with the Center for Economic and Policy Research, a liberal think tank. Baker say NAFTA also established laws that protected companies doing business in Mexico.

DEAN BAKER: Basically, if General Electric, General Motors, whoever might be, if they're looking at setting up an operation in Mexico, they want to be sure that they're not plunking down a billion dollars, or whatever it might be, to set up a factory and then they're going to see it taken over by the government two, three, four years down the road.

ZARROLI: Opposition to NAFTA was intense and bipartisan. Unions warned it would drive down U.S. wages and worker safety standards. Presidential candidate Ross Perot memorably warned that the loss of jobs to Mexico would create a giant sucking sound.

ROSS PEROT: This agreement would move the highest-paid blue-collar jobs from U.S. to Mexico. This is going to create serious damage to our tax base during this critical period. We have got to manufacture here, not there, to keep our tax base intact.

ZARROLI: But NAFTA had supporters in the White House - President George H.W. Bush and his successor. President Clinton argued that NAFTA could succeed if tied to adequate worker protections.

PRESIDENT BILL CLINTON: American workers are now the most productive in the world. You got to believe in yourselves. We can do this. We can compete, we can win if we have access to the markets. That's what this gives us.

ZARROLI: In at least one sense, NAFTA did as predicted. Trade increased dramatically between Mexico and the United States.

MANUEL SUAREZ-MIER: In 1993, the year before NAFTA came into effect, bilateral trade was $80 billion. Today, it's $500 billion, which translates approximately to $1 million per minute.

ZARROLI: Manuel Suarez-Mier of American University was a Mexican government official involved in the NAFTA talks. He says cross-border business activity has exploded under NAFTA.

SUAREZ-MIER: If you were to shut down the borders tomorrow, in three weeks, the auto industry of the three countries would shut down. They are so integrated that they need each other to survive.

ZARROLI: Suarez says NAFTA made Mexican businesses much more competitive, yet Suarez says growth has been less impressive than he hoped. He says Mexico has been slow to adopt needed economic reforms, like breaking up monopolies in sectors such as telecommunications. In the United States, NAFTA has enabled companies such as Mary Kay Cosmetics to expand into Mexico. Ann Cruz is the company's vice president of government relations.

ANN CRUZ: Frankly, NAFTA was a win-win on both sides of the border for Mary Kay, an opportunity for the U.S.-based company, as well as the opportunity to expand in Mexico and better serve Mexican consumers.

ZARROLI: Today, Mexico is the company's fourth biggest market. Caterpillar's Bill Lane argues that NAFTA has accomplished something else that's very important.

LANE: It kept both Mexico and the United States from embracing protectionist policies over the years, and as a result, it kept us from turning inward. And that's hard to quantify but it's enormously positive.

ZARROLI: But economist Dean Baker says there's little evidence to suggest NAFTA has added much to U.S. growth. And he argues that it's been one of the factors contributing to wage stagnation for most workers.

BAKER: The real story has been that it's had a negative impact on wages and, you know, probably roughly neutral for growth. Again, in the context of having a trade deficit of $50 billion a year with Mexico, I'd be inclined to say at the moment at the least that's probably - I won't say it's a big negative - but a modest negative in terms of overall growth.

ZARROLI: Baker says NAFTA has lowered prices by helping companies produce cheaper goods. But it hasn't addressed the big problems facing the U.S. right now - a weak job market and slack aggregate demand. The most frequently voiced warning about NAFTA, that it would decimate the labor market, hasn't exactly happened as expected. The U.S. did lose a lot of manufacturing jobs after NAFTA, but most of them went to China, not Mexico. The giant sucking sound that Ross Perot predicted came from another part of the world all together. Jim Zarroli, NPR News.

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