Saturday, July 14, 2007

High Toll on U. S. Business & Industry

By Dennis Behreandt - April 16, 2007
On September 26, 2006, the Economic Policy Institute (EPI) unleashed a broadside against the North American Free Trade Agreement (NAFTA) in the form of a briefing paper by EPI economist Robert E. Scott, Professor Carlos Salas of Mexico’s El Colegio de Tlaxcala, and Bruce Campbell of the Canadian Center for Policy Alternatives. In the opinion of Scott, Salas, and Campbell, NAFTA has been a tragedy for all three nations.

Scott, writing of NAFTA-related problems in the United States, noted: “In the United States workforce, NAFTA has contributed to the reduction of employment in high-wage, traded-goods industries, the growing inequality in wages, and the steadily declining demand for workers without a college education.” According to Scott, those who have lost high-wage jobs have had to take substantial pay cuts to get jobs in the growing service-sector economy. The employment trend has resulted in a much lower standard of living for many Americans. “Growing trade deficits with Mexico and Canada have pushed more than 1 million workers out of higher-wage jobs and into lower-wage positions in non-trade related industries,” Scott notes. “Thus, the displacement of 1 million jobs from traded to non-traded goods industries reduced wage payments to U.S. workers by $7.6 billion in 2004 alone.”

According to Carlos Salas, the situation in Mexico has not differed substantially from that in the United States. South of the border too, NAFTA has not lived up to its billing. According to Salas, “Since NAFTA took effect, Mexico has experienced a continual increase in the precarious nature of employment.” Not surprisingly, NAFTA has also hurt the Canadian economy. “Not only has NAFTA failed to deliver the goods it promised, its effect on the well-being of a large majority of Canadians and on the social cohesion of society has been negative,” Bruce Campbell notes in the Canadian section of the EPI report.

The facts are in: NAFTA is an economic disaster for all three nations. Nevertheless, internationalist policy analysts at leading think tanks and within the Bush administration, as well as in both Canada and Mexico, have been pushing hard for further integration of the three NAFTA nations, something many have begun to call a North American Union. Built on the creaky foundation of NAFTA, such a union would be an unmitigated disaster of world-historical proportions because NAFTA itself, as an examination of important sectors of the economy shows, has been and continues to be nothing short of catastrophic in its effects.

Ready or not, Mexican trucks are coming to the United States. NAFTA mandated that the roads of all three signatory nations be open to trucks from all three countries, but safety concerns have kept Mexican trucks confined to a narrow corridor along the border. Now a “pilot program” of the Department of Transportation would give Mexican drivers from 100 approved Mexican trucking companies access to the entire country.

It’s a move that is supposed to be good for business, but it is really part of the plan to increase the tonnage of shipping handled by Mexican ports and to move that freight through Mexico into the United States by means of NAFTA corridors — the so-called NAFTA Superhighway (see article "Paving Over Our Borders"). Like everything else related to NAFTA, opening the borders to Mexican trucks will have consequences for American workers, putting U.S. truckers out of business — while making American roads more dangerous.

The pilot plan “is a big push by American and Mexican big business to use cheap labor,” said Jim Hoffa, president of the Teamsters Union. The wage disparity between Mexican drivers and their U.S. counterparts is substantial. According to Fleetowner magazine, the Owner-Operator Independent Drivers Association (OOIDA), for instance, “contends that competition from Mexican carriers will eventually overwhelm U.S. fleets because Mexican drivers are paid 25% to 50% less than most domestic drivers.”

The Teamsters found out how poorly Mexican drivers are paid when they sent investigative reporter Charles Bowden to Mexico to report on the condition of the Mexican trucking industry last August. Bowden talked to drivers who worked for days on end, sometimes driving for 48 hours without a break. “The men earn about $1,100 a month,” Bowden reported. And the pay is for a workload that can be handled only with assistance from narcotics.

The Mexican drivers Bowden talked to insisted that they can only stay awake on their long and frequent journeys across Mexico by using what they euphemistically term “magic dust.” According to Bowden, the truckers “are all family men who run the highways at least 25 days a month and they are adamant about two things — that nobody can run these long hauls without cocaine and crystal meth, and now and then some marijuana to level out the rush.”

The Electronics Industry
From before World War II through the 1970s, the United States’ electronics industry was an economic powerhouse. All of the world’s most advanced electronics, from consumer to industrial applications, were designed and manufactured in the United States. Firms like GE, Magnavox, Sylvania, Zenith, RCA, and others dominated electronics manufacturing and sales — and the products these companies produced were made in U.S. factories by U.S. workers. Foreign competition began to decimate the industry in the 1980s, but the death knell came with the passage of NAFTA, when even Japanese firms moved production to Mexico. The remaining U.S. producers packed up and went south, taking their high-paying jobs with them.

In 2004, Sen. Joe Lieberman released a report through his Senate office detailing the economic impact of this “offshore outsourcing.” The report, prepared by Lieberman staffer Sara E. Hagigh and Mary Jane Bolle of the Congressional Research Service, noted that the trend to move business offshore is still “contributing to historically high levels of unemployment among electronics, software and computer engineers in the United States.” The Lieberman report also noted, ominously, that “the loss of R&D infrastructure could have important ramifications for our ability to create high-wage, high-technology jobs in the future. What is at stake is the ability of the United States to remain a global leader in innovation, to maintain high-paying jobs, and to ensure future competitiveness and growth.”

Oscar F. Contreras, visiting fellow at Mexico’s El Colegio de Sonora, and Rhonda Evans of the University of California, Berkeley, were more blunt in their assessment of NAFTA’s effects on the U.S. electronics manufacturers. In a 2002 report, they wrote: “The North American Free Trade Agreement (NAFTA) that went into effect on January 1, 1994 encouraged a regional reorganization of the consumer electronics industry in general and the TV segment of the industry in particular.... All stages of TV production, including design, the manufacture of key components, and final assembly shifted from the U.S. to northern Mexico in the wake of the agreement.”

The drain on electronics continues. In Pittsburgh, 900 jobs in the industry have been lost at the city’s Sony Technology Center as the company moves capacity to Mexico. “Now, Sony Technology Center-Pittsburgh no longer manufactures anything, only assembles Grand Wega and SXRD rear-projection TVs; and that business moves to Mexico this year,” the Pittsburgh Tribune-Review reported. While Sony may move some LCD production to Pennsylvania, that too may be transitory. “The way things go with Sony is that things start in Japan, then they bring the idea to the U.S. to refine it, then when they’re really ready to ramp up production, they’ll take it to Mexico,” Edward Taylor, former head of business planning for Sony’s U.S. TV operations, told the Pittsburgh paper.

NAFTA is not just about destroying good blue-collar jobs. White-collar American professionals will also see their jobs disappear and their standard of living fall as, because of NAFTA, professional standards and licensing practices and requirements are harmonized across the continent. The effect will be a substantial downward pressure on white-collar compensation, something strongly advocated by no less a luminary than former Chairman of the Federal Reserve Alan Greenspan.

At a conference on maintaining the competitiveness of U.S. capital markets on March 13, Greenspan said that it was essential to flood the United States with foreign professionals in order to drive down salaries of high earners. “Our skilled wages are higher than anywhere in the world,” Greenspan said, according to Bloomberg News. “If we open up a significant window for skilled workers, that would suppress the skilled-wage level and end the concentration of income.”

That could be accomplished by harmonizing licensing and professional requirements across all three nations. Doing so would result in a larger supply of licensed professionals, driving down rates paid for professional services and possibly driving some in the United States out of business, while simultaneously making it harder for new U.S. professionals to get established.

In accounting, the harmonization of licensing began very early in the evolution of NAFTA. The CPA Journal reported in 1995: “In addition to harmonizing accounting standards, there is also an initiative to extend licensing to the professionals of other NAFTA countries. Partly as a consequence of the predecessor U.S./Canada free trade agreement, the AICPA [American Institute of Certified Public Accountants] and the CICA [Canadian Institute of Chartered Accountants] have developed special examinations for CAs and CPAs interested in becoming licensed members of the other professional body. In November 1993, the AICPA administered the first such examination, while CPAs took the fast shortened CA examination in May.”

The groundwork for this kind of harmonization has been laid in other professions since NAFTA, though resistance remains. A case in point is the engineering profession. Writing for the Association of Professional Engineers, Geologists and Geophysicists of Alberta, Canadian engineer Darrel Danyluk notes “that a NAFTA Mutual Recognition Agreement (MRA) was signed by Canadian, American and Mexican representatives in 1995” and that “the accord provides a means for recognizing the qualifications of engineers working temporarily in another NAFTA jurisdiction.” But, he complains, it hasn’t been implemented in the United States. “The National Society of Professional Engineers, and the Accreditation Board for Engineering and Technology in the U.S. ratified the MRA without reservations in 1995. The third American national body which had to ratify the MRA, the National Council of Examiners for Engineering and Surveying, gave provisional ratification for a two-year period which now has expired. The expiration of the NCEES ratification has had the effect of making the MRA technically unapproved in the U.S.”

The Timber Industry
What is perhaps the most contentious trade dispute in modern history has been ongoing between the United States and Canada since the early 1980s over the dumping of government-subsidized Canadian timber into the U.S. market. The matter was already a crisis before NAFTA, but turned into a scandal that uniquely highlighted the trade agreement’s destruction of national sovereignty after NAFTA took effect in 1994.

Beginning as early as 1982, U.S. timber producers charged that Canadian lumber was trading at artificially low prices in the U.S. market because Canadian timber is mostly owned by provincial governments that set stumpage prices at artificially low levels resulting, essentially, in a subsidy to the Canadian timber industry. To offset the subsidy, the U.S. assessed tariffs against Canadian lumber.

In 1991 a review of U.S. tariffs was conducted by a panel convened under the authority of the Canada-U.S. Free Trade Agreement (the precursor to NAFTA). That panel found against the United States, as would NAFTA courts convened under Chapter 19 of the later agreement. The Commerce Department finally settled on a tariff of 10.8 percent in 2005. But in March of 2006, the NAFTA panel again found in Canada’s favor, stating that Canadian subsidies were too small to be of any consequence, even though, according to the Coalition for Fair Lumber Imports, “Canada’s lumber subsidies are destroying the U.S. lumber industry, threatening its workers with mounting unemployment, and denying many tree farmers a market for their timber crops.”

The NAFTA rulings forced the United States to agree to a new Softwood Lumber Agreement (SLA) with Canada that will result in a massive refund totaling $4.3 billion for duties collected on lumber imports from Canada. In exchange, Canadian lumber exporters will pay an “export charge” collected by Canada on exports to the United States whenever the price of softwood lumber in the United States falls below certain specified amounts per 1,000 board feet.

Despite the agreement, NAFTA is probably not finished wreaking havoc on U.S. timber producers. Critics charge that some Canadian provinces are not respecting the terms of the SLA. According to a March 5 Reuters report, “on Capitol Hill, Senators pressed USTR [U.S. Trade Representative] head Susan Schwab on the deal in a hearing last month. Last week, Sen. Larry Craig, an Idaho Republican, asked Schwab to begin steps for consultations. ‘I am very concerned that this agreement is about to come apart at the seams,’ Craig said,” according to the report. It will come apart even faster if NAFTA is transformed into a North American Union.

Small Business
NAFTA has been trouble for many small businesses, something businessman Brian Coons, president of Brico Welding & Fab of Chesterfield, Michigan, knows all too well. According to Crain’s Detroit Business, a business journal serving the Detroit area, Coons “lost contracts to Mexican and Canadian competitors that he said don’t have nearly the wage and health insurance expenses carried by U.S. manufacturers.” Low wages in Mexico meant competitors there could undercut prices while favorable exchange rates meant that competitors in Canada could do the same. “NAFTA has drained us dramatically,” Coons told Detroit Business. “Let’s say I had an aluminum fabrication job, 100 pieces at $38 a piece. [A customer] can send it to Canada or Mexico and get 30 percent off.”

Plastics firm Bermar and Associates is another small business in Michigan that faced trouble in the wake of NAFTA, losing bids to firms in Canada and Mexico. “We were getting underbid by 25 to 40 percent,” company president Jan Roncelli told Detroit Business reporter Terry Kosdrosky. “We lost jobs because we could not compete. That’s into the profit margin. U.S. manufacturers don’t reap the benefits of free trade.”

The anecdotal evidence that NAFTA presents substantial problems for small business corresponds with the real trend of lost market share across the board for U.S. companies. According to the U.S. Business and Industry Council (USBIC), a group that represents small- and medium-sized firms, 111 out of 114 U.S. industries saw market share shrink in the years after NAFTA. According to Paul Johnson of the North Carolina High Point Enterprise, the USBIC data show that during an eight-year post-NAFTA period, “the level of import penetration at least doubled in 26 industry sectors. By 2005, 24 industries had lost 50 percent or more of their U.S. market to imports.” For small businesses, NAFTA has meant both the loss of existing clients and future income opportunities. And because many Americans depend on small businesses for jobs, the NAFTA hit on small business means hard times for the middle class.

Agriculture and Immigration
For thousands of years corn has been grown as a staple crop in southern Mexico. Until the mid-1990s, small Mexican farmers tended the land, following the traditions of their ancestors, protected by trade barriers from competition from America’s heavily subsidized and more efficient corn growers. NAFTA changed all that. In just over a decade, wrote St. Louis Post-Dispatch reporter Bill Lambrecht in 2005, “An estimated 1 million farmers in rural Mexico have lost their livelihoods.”

Farming jobs lost in Mexico have had a direct effect on the United States in the form of both immigration and drugs. “The idea was that bringing greater growth to Mexico, fewer Mexicans would need to leave. Mexico said, ‘we want to export our tomatoes, not our people.’ But, in fact, it led to greater migration,” said Deborah Meyers of the Migration Policy Institute. Farmers who stayed behind turned to cultivating marijuana. According to the Post-Dispatch, “the amount of marijuana seized annually along the Mexican border has doubled to 1.1 million pounds since 1994, the year NAFTA took effect.”

NAFTA has had other effects on agriculture as well. In the wake of the trade agreement, large farms growing fresh fruit and vegetables sprung up in the Mexican sun with the intent of selling cheap produce in the U.S. market. Not only did this have the potential to undercut U.S. farmers growing the same crops, the new farms further destabilized the Mexican agriculture market. As the Washington Post reported on January 7, after NAFTA, “Huge farms have been developed to grow artichokes, tomatoes and other produce for the U.S. market. But those farms, many launched with American investment, typically pay about $13 a day. That’s not enough to keep workers from leaving: They can make three to four times as much in even the lowliest U.S. jobs.”

What’s worse, produce deemed unfit for the U.S. market is sold in Mexico at cut-rate prices, driving out small producers. Then they go north too. Mexican farmer Ruben Rivera is one such small producer whose livelihood has been destroyed by NAFTA. According to the Washington Post, “He used to grow tomatoes and onions, hiring 150 workers to help at harvest. Now he doesn’t even bother to plant.” It’s cheaper to buy leftover produce from the big producers than it is for him to grow his own. “For people who can grow huge scale for export, NAFTA has been good,” Rivera, whose three sons live in Georgia and send $800 home to Mexico per month, told the Washington Post. “For people like us, it’s been a bloodbath.”

The Auto Industry
The statistics are so incredible as to be almost unbelievable. The Big Three automakers, direct employers of hundreds of thousands of American workers, are hemorrhaging colossal sums of money and laying off workers in droves. Last year Ford alone lost $12.7 billion; Chrysler lost only $1.48 billion, but it was enough for Germany’s Daimler to start looking for a way to divest themselves of their unstable American partner. The huge losses are leading to equally large layoffs. Ford, for one, is laying off over 30,000 employees in North America, many of them in the United States, and is closing a number of U.S. factories. The controversial closure in Atlanta, long the home of Ford Taurus production, came despite the fact that the plant “has ranked among the top 10 most productive assembly plants in North America, as reported by Harbour Consulting,” according to a Ford Fact Sheet. Like Ford, General Motors is cutting 30,000 jobs and closing a number of U.S. factories.

The problems of the Big Three can’t all be attributed to NAFTA. But while Americans lose high-paying jobs in the auto industry, Mexican workers who are paid much, much less can expect more work. In 2005, in the midst of losing $10.6 billion, GM was ramping up the production of trucks at its Mexican factories. “We’re short on trucks. Dealers don’t have them in all the colors and with all the options that people want,” Gilbert Duhn, a GM manager, told the San Antonio Express-News. “We’ve started building more trucks in Mexico.”

Ford is doing the same thing, producing its new family of midsize cars, including the Ford Fusion, Mercury Milan, and Lincoln Zephyr, at its Hermosillo plant in Mexico. In fact, Mexico has become a major center for the manufacture of cars and trucks that are intended for sale in the United States. According to Business Week, “Three-quarters of Mexican-made vehicles are exported to the U.S., largely by Detroit’s Big Three but also by German giant Volkswagen.” Those are cars that could have been built in America by Americans.

In the face of recent catastrophic losses, the pressure on U.S. automakers to move to a low-cost environment may be overwhelming. In a May 2002 paper, Korean economist Ho Yeon Kim pointed out that Mexico has always had low “site costs” (defined as “low wages, amenities and taxes”) and that NAFTA had significantly lowered Mexico’s “situation costs” (defined as costs for transport of raw materials and finished products), but that Mexico would not be attractive for small-car production unless other “non-tariff barriers” were overcome or reduced. The increased production of GM trucks and Ford midsize sedans in Mexico suggests that, under the current business climate, Detroit no longer views those “non-tariff barriers” as impediments to Mexican production. So while the loss of tens of thousands of jobs in Detroit’s U.S. factories may not have been directly caused by NAFTA, they may be prevented from ever returning to the United States — largely because of NAFTA.

If you are a longshoreman and you work at one of the nation’s West Coast ports, especially Los Angeles or Long Beach, NAFTA has an ugly surprise in store for you: your job will soon be gone.

In order to facilitate the shipment of Chinese goods to the United States, freight will be brought to huge and improved ports, like that at Lazaro Cardenas in Mexico, according to author and investigative journalist Jerome Corsi, “bypassing the Longshoreman’s Union in the process.” Interestingly, the port in Lazaro Cardenas is owned by Hutchison Port Holdings, a subsidiary of Hutchison Whampoa, the Chinese firm operated by billionaire Li Ka-shing that now operates the Panama Canal’s anchor ports of Cristobal and Balboa following a controversial takeover in the 1990s.

After unloading at Mexican ports, freight will be loaded onto Mexican trucks for shipment to the United States, bypassing Teamsters and U.S. independent owner-operators as well as larger American trucking firms. According to Corsi, the Mexican trucks “will drive on what will be the nation’s most modern highway straight into the heart of America.”

The plan to ship Asian goods into the United States through NAFTA corridors linking up with Mexican ports has even begun to draw the ire of socialists. Richard Vogel, writing for the socialist Monthly Review, argues that this NAFTA-based plan “signals the beginning of the assault on labor in the north, which could eventually result in the offshoring of hundreds of thousands of transportation jobs to the south and undermine the working class on both sides of the border significantly.” Among those who will be most affected will be America’s dockworkers.

NAFTA Only the Start
When NAFTA was being debated in the early 1990s, the American people were not told that the proposed arrangement would be the starting point for further political integration of Canada and Mexico with the United States. But the planners behind NAFTA had that goal in mind all along. NAFTA, with all its economic dislocations, was meant to be just the beginning of a larger plot. Speaking at the Canadian-American Business Council Luncheon on June 24, 2003 in Washington, D.C., then-U.S. Secretary of Commerce Donald L. Evans, referring at the time to efforts to build a Free Trade Area of the Americas (FTAA), noted that NAFTA was only a starting point for regional integration. “NAFTA was just the beginning,” Evans enthused. “President Bush has said that ‘We have a great vision before us: a fully democratic hemisphere, bound together by good will and free trade.’”

The FTAA ran into intense opposition but internationalist planners didn’t give up. Instead, following the motto that NAFTA is just a beginning, they hit upon a new plan: North American Union. In a 2005 op-ed in the Wall Street Journal obnoxiously entitled “North America the Beautiful,” internationalist theorists John Manley, Pedro Aspe, and William Weld argued that, over the last decade, “the pace of economic integration within North America has outstripped the capacity of the Nafta framework.” To rectify that, they proposed that the leaders of the NAFTA nations “should announce a plan to establish a North American security and economic community by 2010.”

The op-ed came just a few days after a meeting on March 23, 2005 of the heads of state of the NAFTA nations. At the meeting, then-Canadian Prime Minister Paul Martin joined with President Bush and former Mexican President Vicente Fox in taking the first step toward that economic community by constructing the Security and Prosperity Partnership of North America — the next step on the road to a North America Union.

The economic dislocations of NAFTA have been terrible; just imagine how bad they will be under a more fully implemented plan for regional governance. If ever there was a time for the country to abandon NAFTA, now is that time — before the nation is maneuvered into a North American Union it can ill afford.

Published in The New American.

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