Clinton has taken some small steps to mollify trade unionists and environmentalists, but the primary focus of his trade policy has been to facilitate investment by U.S. corporations overseas. As the wars in Central America drew to a close at the end of the 1980s, U.S. foreign policy toward Latin America and the Caribbean was reori- ented toward the consolidation of neoliberal economic policies. In 1990 George Bush proposed and launched the Enterprise for the Americas initiative, with its vision of a free trade zone stretching from Anchorage to Tierra del Fuego, and in 1993, Bill Clinton began an all- out effort to liberalize national economies throughout the hemisphere. Clinton's efforts have included a num- ber of far-reaching initiatives that have opened economies to foreign investment and trade, and locked in the structural adjustment programs first implemented in the 1980s. Of all these initiatives, the North American Free Trade Agreement (NAFTA) and the plans for its expansion provide the most vivid illustra- tion of his trade policy in Latin America. The President has taken some small steps toward the inclusion of labor and environmental issues in trade and economic policy in order to satisfy these two key Democratic Party constituencies, but his primary focus has been on facilitating investment by U.S. corpora- tions overseas. Toward this end, his administration has worked to create optimal conditions for low-cost, glob- Karen Hansen-Kuhn works on trade and structural adjustment issues as Latin American Program Coordinator for the Development GAP in Washington, D.C. 22 alized production, and to remove all barriers to the movement of goods and capital across national borders. During much of the 1992 presidential campaign, Clinton appeared undecided as to whether or not to actively support the NAFTA negotiated by the Bush Administration. On the one hand, the Clinton team was strongly influenced by both the populist appeal of Ross Perot's opposition to NAFTA and the broad-based labor and environmentalist campaign against the accord. On the other hand, his campaign was heavily financed by large corporations and Wall Street firms. Many of the men he later appointed to key positions, such as Treasury Secretary Robert Rubin, Commerce Secretary Ron Brown and Deputy National Security Advisor Sandy Berger, came from Wall Street finance houses or corporate law firms whose clients stood to gain enor- mously from new protections for foreign investment and from a liberalization of the Mexican financial sec- tor. There were rumors of a heated debate within the campaign team on the issue and, in fact, it was not until October that candidate Clinton announced his support for NAFTA. In a speech delivered at North Carolina State University, he insisted that problems in the agree- ment could be addressed without renegotiating the text, by expanding trade adjustment-assistance programs for displaced workers, implementing a more aggressive NACILA REPORT ON THE AMERICASREPORT ON U.S. POLICY interpretation of existing trade remedies and establish- ing parallel agreements to resolve environmental and labor disputes.' The commitments made in this speech sparked con- siderable enthusiasm among many of the large U.S. environmental organizations that had been active in the debate over NAFTA, and cautious optimism among U.S. unions and labor activists. The Bush Admin- istration had refused to even consider negotiating envi- ronmental or labor issues within the context of NAFTA, so Clinton's proposals seemed to be a step forward. But while Clinton did propose a new approach to labor and environmental matters, he did not question the basic doctrine of free trade. On the contrary, he lauded the neoliberal economic reforms of the Salinas Admin- istration and urged the establishment of a closer rela- tionship with a Mexico, "now under better leadership than ever in my lifetime." The final NAFTA text and the accompanying side agreements on labor and the environment were released in August 1993 to lukewarm public support. Some mainstream environmental organizations lauded the inclusion of an environmental standards article in the Agreement's Chapter on Investment. The article deems it "inappropriate" for countries to lower those standards in order to attract investment-even though no penal- ties other than "consultations" would result from such VOL XXXI, No 2 SEPT/OCT 1997 transgressions. Environmentalists had fought for and won a side agreement to NAFTA called the North American Agreement on Environmental Cooperation (NAAEC), which established a mechanism for the set- tlement of environmental disputes and set up the North American Development Bank (NADBank) to provide loans for border cleanup projects. None of the environ- mental groups that had previously opposed NAFTA, however, changed their positions as a result of these environmental concessions. Meanwhile, the North American Agreement on Labor Cooperation, the labor side agreement, divided labor- rights violations into two categories. Noncompliance with child-labor, minimum wage, and health and safety standards could be subjected to a slow process that could eventually result in sanctions. Violations of such rights as freedom of association and collective bargain- ing, on the other hand, were termed "industrial rela- tions" issues and could only result in consultations among the member governments. Like the environmen- tal side agreements, the labor agreements require com- pliance with national laws in each country, not interna- tional standards. No union withdrew its opposition to NAFTA as a result of the NAALC. While candidate Clinton may have been tentative and qualified in his support of NAFTA, President Clinton waged an all-out battle for the agreement's passage in Congress. By the summer of 1993, a full-scale public- relations campaign was well underway, and on November 17, 1993, after a good deal of wheeling, dealing and arm twisting by the Administration, NAFTA was approved in the House by a vote of 234- 200. Approval by the Senate, and by the Canadian Parliament and Mexican Congress, followed shortly afterwards, and the treaty was implemented as sched- uled on January 1, 1994. ptimism among U.S. investors that the agree- ment had ushered in a period of high financial returns from Mexico was quickly shaken. In Mexico, January 1 marked not only the implementation of NAFTA, but the armed uprising of indigenous Zapatista rebels in the southeastern state of Chiapas, who blamed NAFFA for the deepening of the region's poverty. The year also saw two high-profile political assassinations, and ended with the collapse of the peso and the flight of billions of dollars of portfolio capital out of the country. 2 The Clinton Administration has asserted that the Mexican peso crisis had nothing to do with NAFTA and that the agreement and the subsequent bailout package saved Mexico from a deeper crisis. In reality, the evolution of the Mexican economic crisis illustrates the connection between NAFTA and the neoliberal economic policies promoted by the U.S. 23REPORT ON U.S. POLICY Treasury through the World Bank and International Monetary Fund (IMF) since the early 1980s. In the wake of the 1982 debt crisis, the Mexican gov- ernment signed an agreement with the IMF that pro- vided access to foreign currency in exchange for the implementation of a strict stabilization and adjustment program. A series of agreements with the IMF and the World Bank followed over the next decade. Provisions ;n thnoP a rrPPmPntc inrhlrlPA rAuntlnno in public expenditures, tax reform, restriction of credit, wage "restraint," privatization of state- owned enterprises, and trade liberalization. Beginning with the 1989 Extended Facility Agreement with the IMF, the Mexican govern- ment agreed to a thorough reform of its financial system. This included a reduction of restrictions on foreign investment, as well as further trade liberalization. "This was one of the most momentous policy decisions in Mexico's recent economic history," says Mexican economist Alejandro Nadal. "Because Mexico lacked a long-term strategy to develop its competitive- ness, this simply opened the door to increased financial vulnerability." 3 Mexico's trade deficit skyrocketed in the 1990s as cheap imports flooded the country, undermining local producers. This deficit was financed by a deluge of foreign investment. Between January 1990 and June 1994, $91.7 bil- lion flowed into the country, 77% of which was portfolio investment, much of which can be shifted out of the country with the touch of a keyboard. 4 As investors began to get nervous during 1994 about the apparent political instabil- ity and the overvalued exchange rate-main- tained in large part to hold down inflation and I bolster me RIK s electoral cnances as well as Carlos Salinas' candidacy to head the World Trade Organization-the Mexican government raised interest rates and issued "Tesobonos," short-term, dollar- denominated bonds, in a futile attempt to forestall a devaluation and the capital flight that would ensue. On December 20, 1994, facing a situation of declin- ing reserves and payments owed on the Tesobonos and the rest of the dollar-denominated debt, the administra- tion of Mexico's new president, Ernesto Zedillo, ordered a 15% devaluation of the peso. This surprise announcement sparked panic among investors, leading to a further drop in foreign reserves. By December 22, the Mexican government felt it had no choice but to allow the peso to float (or sink) to less than half of its pre-crisis value. Fearing further economic collapse and a possible default on its debt and bond obligations, the Clinton Administration put together a "bailout" pack- age. This effort was led by Clinton's then-Under Secretary for International Affairs at the U.S. Treasury, former World Bank Chief Economist Lawrence Summers, following the refusal by the U.S. Congress to authorize new funds for this purpose. The conditions for the $52 billion multilateral loan package were set out in an "Economic Policy Memorandum" that committed the Mexican govern- ment to carry out a new stand-by arrangement with the IME In addition to the austerity conditions contained in that package, U.S. authorities insisted that the Mexican government raise domestic interest rates in order to shore up the peso. 5 The $13.5 billion from the U.S. gov- ernment was lent at market interest rates and was guar- anteed by Mexican oil-export receipts which flowed into a special account at the U.S. Treasury as long as the loans were outstanding. In its October 1996 report to Congress on the results of the bailout package, the U.S. Treasury disclosed that the U.S. funds lent to the Mexican government had been used to redeem the Tesobonos, a large portion of which were held by U.S. investors. 6 The impact of these policies on small and medium- scale producers and workers in Mexico has been dev- astating. Over 28,000 Mexican businesses have gone 24 NACIA REPORT ON THE AMERICAS CREPORT ON U.S. POLICY bankrupt because of the high cost of their loans (most of which carry variable interest rates), the drop in domestic demand (caused by the austerity measures and a 27% decline in real wages), and the influx of cheap goods from abroad. Nearly two million Mexican jobs have disappeared, even counting the hundreds of thousands of new jobs created in the foreign- owned maquiladora sector. In its despera- Over 28,000 tion to attract foreign investment, the Mex- Mexican businesses ican government has also passed legal have gone reforms to relax al- ready poorly enforced bankrupt because environmental regula- tions. 7 of the high cost of It is true that NAFTA itself did not cause the their loans, the crisis. Rather, it com- drop in domestic pounded the profound problems created by demand, and the these structural adjust- ment policies. But influx of cheap NAFTA seriously limits Mexico's options. The goods from chapter in the agree- ment on investment, for abroad. Nearly two instance, ensures that foreign investors are million Mexican treated no differently jobs have than national investors, thereby prohibiting the disappeared. Mexican government from regulating foreign investment in any effective way. It specif- ically forbids perfor- mance standards that would require a transnational cor- poration (even one not based in a NAFTA country) to give preference to domestic suppliers or to transfer tech- nology to the host country. These provisions have serious implications for Mexico and any other country that joins NAFTA under these terms. If countries cannot regulate foreign investment, they will be unable to implement a coordinated industrial or development strategy. Their only option, given the current structure of most Latin American economies, will be to continue to depress wages, working conditions and environmental regulations in increasingly desperate moves to attract mobile international capital. This, in turn, will continue to contribute to job and wage losses and to economic insecurity in the United States. VOL XXXI, No 2 SEPT/OCT 1997 t is difficult to know the full impact of NAFTA on U.S. jobs and wages, but some indicators do exist. As of May 1997, 127,000 workers had been certified under the NAFTA Trade Adjustment Assistance Program as having lost their jobs because of the agree- ment. This number probably understates the true num- ber of job losses, as many workers do not know about the program or choose not to apply for its benefits. These documented job losses have occurred dispropor- tionately in rural areas and in such sectors as textiles and electronics that tend to employ women and minorities. 8 There is also no proof that increased exports auto- matically lead to employment creation. A study con- ducted by economist Dave Ranney found that many U.S. firms both increased exports to Mexico and cut jobs at their U.S. facilities. Ranney notes that, "[i]n the new global economy, mobile multinational corpora- tions have no incentive or requirement to use the bene- fits from exports to create jobs or raise wages of U.S. workers." 9 Perhaps even more significant than the precise fig- ures on employment is the "blackmail" effect on American workers, as companies use the threat of mov- ing production to Mexico to undermine union organiz- ing or bargaining efforts in the United States. The depressed labor conditions and wages in Mexico, cou- pled with NAFTA's new protections for foreign investors, have made these threats all the more credible. A study conducted by Kate Bronfenbrenner for the Labor Secretariat of the North American Commission for Labor Cooperation found that complaints made before the National Labor Relations Board about plants shutting down just after a successful unionizing drive had tripled since NAFTA's implementation. In fully half of all unionizing drives since NAFTA, employers have threatened to close the plant if a union were orga- nized. More than 10% of the union organizers inter- viewed for the study reported that employers had made direct threats to relocate production to Mexico if the union campaign was successful. At the ITT Automotive plant in Michigan, for example, the company parked 13 tractor-tailors loaded with plastic shrink-wrapped pro- duction equipment in front of the plant during a union organizing drive. It also brought employees from its plant in Mexico to videotape workers at the Michigan plant on a production line the company claimed it was considering moving to Mexico.10 The fact that the promises made during the NAFTA debate have not materialized has not been lost on Congress. House Minority Leader Richard Gephardt, for example, reporting on a trip that he and House Minority Whip David Bonior recently took to the U.S.- Mexico border, wrote: "Rather than improving condi- tions, the NAFTA has validated Mexico's system of 25REPORT ON U.S. POLICY labor relations, wage-setting mechanisms and environ- mental enforcement that has damaged the standard of living, health and safety of the Mexican people." He concluded that he is, "unwilling to support new trade negotiations that do not address these fundamental flaws by including labor rights and the environment as chapters in the core of the agreement equal in stature and force and linked to provisions on investment and trade."ll Republican leaders, on the other had, have flatly rejected the inclusion of labor and environmental issues in any negotiating authority granted to the President, causing the stalemate that has existed on the issue since 1995. There appears to have been some softening of this position recently, with Rep. Gingrich agreeing to consider the inclusion of labor and envi- ronmental issues "directly related to trade." At the same time, however, the Administration appears to be backing away from its previous insistence on the inclu- sion of those issues in "fast-track" authority (where they would not be subject to amendment or a separate vote), offering to include negotiating objectives instead, in an accompanying non-binding presidential statement that would not be subject to Congressional approval.12 The Administration has indicated that it will formally request fast-track authority in September. Even if it does address the labor and environmental standards in its request, it is likely that they would be negotiated once again as side agreements. While the NAFTA side agreements represented an important first step in the establishment of a formal link between trade and the observance of labor and environmental rights, they have proven to be inadequate. Cases brought before the U.S. National Administrative Office under NAFTA's labor side agreement have resulted in public consultations and have thus served to highlight labor-rights abuses, but they have not resulted in direct remedies for any of the workers involved. On the environmental side, the situation is even worse. Little of the promised border clean-up has materialized, and by May, 1997, the NADBank, established for precisely that purpose, had approved only four loans. In its 1996 Country Assistance Strategy for Mexico, the World Bank mentioned that several large World Bank loans designated for environmen- tal cleanup along the border-loans promised with much fanfare just weeks before the NAFTA vote-had been canceled and the funding reassigned to "higher priority" areas, including financial-sector reform. If President Clinton were to chart a new course for U.S. trade and international eco- nomic policy, a first step would be to open the process up to participation by labor unions, environmental, family-farm and other groups directly affected by economic integration. In 1994, Clinton told Latin Cases brought under NAFTA's labor side agreement have served to highlight labor- rights abuses, but they have not resulted in direct remedies for any of the workers involved. for democratic development. Americas will depend on it. I American and Cari- bbean political leaders that through a hemi- sphere-wide free-trade area, "we can create a partnership for pros- perity where freedom and trade and eco- nomic opportunity be- come the common property of the people of the Americas." If that partnership is ever to address the con- cerns of all of the hemisphere's peoples, and not just a small, well-connected group of investors, then U.S. trade policy and treaties like NAFTA must be fundamentally reori- ented to serve as tools The future stability of the Americas will depend on it. Clinton, NAFTA and the Politics of U.S. Trade 1. "Expanding Trade and Creating American Jobs," remarks by Governor Bill Clinton, North Carolina State University, Raleigh, NC, October 4, 1992. 2. For more information on the origins of the economic crisis in Mexico, see Carlos A. Heredia and Mary E. Purcell, The Polarization of Mexican Society: A Grassroots View of World Bank Economic Adjustment Policies, (Washington: The Development GAP, 1994). 3.Alejandro Nadal, "The Micro-Economic Impact of IMF Structural Adjustment Policies in Mexico," unpublished paper, Mexico City, February 1997, p. 8. 4. Alberto Arroyo, "Hacia un diagn6stico de la crisis y propuestas de condiciones minimas para enfrentarla," unpublished paper, Mexico City, 1995, cited in Sarah Anderson, John Cavanagh and Dave Ranney, eds., NAFTA's First Two Years-The Myths and the Realities (Washington: Institute for Policy Studies, March 1996), p. 2. 5. Nora Lustig, "Mexico in Crisis, the U.S. to the Rescue. The Financial Assistance Packages of 1982 and 1995," Brookings Discussion Papers (Washington: Brookings institution, June 1996), p. 36. 6. Monthly Report of the Secretary of the Treasury Pursuant to the Mexican Debt Disclosure Act of 1995, October 1996, p. 3. 7. "Evaluaci6n macroecon6mica del TLCAN," in Espejismo y realidad: el TLCAN tres ahros despues (Mexico City: RMALC, 1997), p.51. 8. Anderson, Cavanagh and Ranney, NAFTA's First Two Years, p. 7. 9. David C. Ranney and Robert R. Naiman, Does "Free Trade" Create Good Jobs? A Rebuttal to the Clinton Administration's Claims, (Chicago: Institute for Policy Studies and the Great Cities Institute, University of Illinois at Chicago, January 1997), p. 1. 10. Kate Bronfenbrenner, "The Effect of Plant Closing or Threat of Plant Closing on the Right of Workers to Organize," report sub- mitted to the Labor Secretariat of the North American Commission for Labor Cooperation, September 30, 1996, p. 11. This report generated considerable controversy within the Administration, which delayed its publication of the full report until June 1997. 11. Letter from Richard Gephardt to Democratic Colleagues, February 26, 1997. 12. "Barchefsky Seeks Flexible Treatment of Labor, Green Issues vs. Trade," AmericasTrade, June 12, 1997, p. 1.
