Ken Bonetti, Rocky Mountain Peace and Justice Center, Boulder, CO.

This summary highlights important socio-economic consequences of so-called “free trade” as embodied in the current NAFTA regime, changes included within the recently negotiated and revised NAFTA, and the possibility for a different more equitable set of “fair trade” rules.  Trade policies profoundly impact Americans’ quality of life.  We hope our federal elected representatives support trade policies that prioritize people, communities and the environment and oppose corporate-biased trade deals that put corporate profits above democratic governance, social welfare and environmental sustainability.

NAFTA’s Legacy:  Damage to People, Communities and the Environment  

It is important to understand that damage to US, Canadian and Mexican civil society is not a done deal, but an ongoing process.  Each week, American jobs are exported to Mexico under NAFTA. For a comprehensive analysis, see Public Citizen’s NAFTA at 25.

• NAFTA went well beyond traditional bilateral trade agreements that dealt narrowly with tariffs, subsidies and quotas to grant vastly expanded rights to corporations over much more than trade.  New rules lowered risks for foreign investors enabling them to outsource jobs to low wage markets and challenge laws that negatively affect expected future profits, including those that serve the public interest and protect the environment. 

• Opposite of what proponents promised, NAFTA caused large trade deficits and heavy US job losses. The combined trade deficit with the two countries increased over thirteen fold in inflation adjusted dollars with a consequent loss of at least a million American jobs, mostly in manufacturing.  A flood of displaced factory and tech workers put downward pressure on wages, decreasing middle and working class living standards and helping to increase economic inequality.

• NAFTA employs a system of ‘corporate tribunals’ technically known as ISDS (Investor-State Dispute Settlement) arbitration panels that enable foreign corporations to sue national governments for unlimited “compensation.”  The tribunals are staffed by corporate lawyers and not subject to rules of due process.  The tribunal system reduces risks and costs normally associated with foreign investment, in effect subsidizing investment for a select class:  international investors.  Domestic businesses labor organizations, civil society and environmental organizations have no access to tribunals.

• Tribunals override national and local laws, courts, regulations and even constitutions.  Domestic policies including those affecting public health, economic policy, environmental quality, consumer product safety, land use, labor and human rights standards are subject to ISDS arbitration.  There’s no appeal process for losers.  When a corporation wins, taxpayers may be compelled to pay unlimited “compensation” unless the offending regulation is modified or repealed.   Fear of expensive corporate suits has a chilling effect on governments’ willingness and ability to serve their citizens and protect the environment.

• NAFTA effectively prohibits enforcement of the Buy America Act by granting waivers to foreign investors.  Foreign corporations can sue states or the federal government to stop local job creation programs.  Prevailing wage laws intended to ensure government contractors pay wages comparable to local area wages can be challenged.  This NAFTA rule undermines domestic employment and the ability of the government to stimulate the domestic economy while offshoring tax dollars.

• Corporate suits under NAFTA often try to roll back environmental and public interest regulations.  Mexico has lost hundreds of millions to corporate challenges against the government’s attempts to protect public health and environment. One result has been increased water and air pollution in affected areas, particularly in mining districts, and maquiladora free trade zones along the Mexican border. Such corporate assaults fundamentally challenge a country’s ability to enforce its own laws to protect people and the environment..    

• Family farms in the U.S. were weakened by NAFTA as Mexican demand for American produce dropped after a NAFTA-inspired devaluation of the Mexican peso. 

• NAFTA removed Mexican tariffs on heavily subsidized US corn exports allowing giant agribusiness corporations to “dump” subsidized corn and other products driving down domestic farm prices and decimating the country’s family owned agricultural sector. Two and a half million farmers and agricultural workers were dislocated, fueling a mass migration of unemployed Mexican workers to the US.

• Meanwhile, retail corn prices in Mexico skyrocketed as the corn market concentrated into a few large corporations.  Consumer prices rose six hundred percent as incomes plummeted.    Twenty million more Mexicans now live below the poverty line than in 1994, the year NAFTA went into effect.

• NAFTA compromises food safety as standards and inspection regimes for meat and produce imports are watered down to reduce costs for foreign food exporters.  Several studies have found significant sanitation deficiencies in imported food from both Canada and Mexico.

• NAFTA prohibits enforcement of U.S. vehicle safety and driver’s licensing regulations on foreign vehicles and drivers on U.S. roads.

• NAFTA gives big pharmaceutical and medical products firms special protections against competition so they can raise prescription prices, renew long term patents, prevent other manufactures from supplying cheaper generic drugs, medical equipment and procedures.

Revised NAFTA:  What’s Better the Same and Worse?

On May 18, 2017, the Trump administration issued its long anticipated letter informing Congress of its intent renegotiate NAFTA.   Official negotiations began August 16, 2017 and were conducted in secret with over 500 “advisors” representing dozens of transnational corporations and investors in attendance.  The bulk of civil society was excluded from the negotiations.  The revised NAFTA text was released to the public on September 30, 2018.  The agreement was signed by the three parties on November 30, 2018.  Congress will possibly consider the agreement beginning in mid- to late April once the US International Trade Commission analyzes the agreement and releases their document to Congress.

Congress has the power to mandate substantive changes to the treaty and associated enforcement, particularly those provisions requiring alterations in U.S. law.  Theoretically, labor and environmental standards and protections can be mandated through implementation legislation passed by legislatures of the states involved.  The US Congress can lead the way.  A final up or down no amendments attached vote could occur as early as the first quarter of 2019.  Though there are a number of important improvements, serious flaws still remain. The revised NAFTA text is still unacceptable to large swaths of civil society.  For an extensive analysis, see Global Trade Watch NAFTA 2.0 Text Analysis.

• The revised NAFTA largely eliminates the ISDS tribunal system, removing an important tool corporations can use to block government actions that may hinder their progress or reduce profits.  Further, the type of challenges that can be initiated has been substantially narrowed and corporations must exhaust domestic remedies before petitioning for international enforcement.  However, important loopholes were inserted to water down the impact of this systemic improvement, including a 3-year delay in implementation and important exceptions granted to select oil companies operating in Mexico.  These loopholes must be closed.

• The main U.S.-Mexico investment annex eliminates the protections that have functioned as no-cost risk insurance to firms considering outsourcing, making it cheaper and less risky to relocate production. Unfortunately, failure to eliminate the Buy American Act (BAA) waivers in NAFTA 2.0 punches a large hole into this improvement. The BAA mandates a certain proportion of government procurement expenditures for public services and infrastructure be reserved for domestic businesses and workers thereby creating local jobs and keeping tax dollars circulating in the US economy.  The BAA waivers must be eliminated.

• While the revised NAFTA brings language regarding labor rights from unenforceable ‘sidebars’ into the main text, they do not go far enough to comply with international standards.  Further, there is no language specifying swift and certain enforcement against violations, particularly with respect to Mexican labor, which is subjected to low wages, repressive work conditions and a lack of independent union representation.  Theoretically, Congress can remedy this critical weakness with strong ‘implementation’ legislation protecting labor in accord to international conventions.

• Two positive additions on the side of labor are enhanced rules of origin (ROO) that mandate a higher percentage of components for traded goods originate in North America (from 62.5% to 75%), and that 40% of cars and 45% of light trucks be manufactured with labor earning $16 and hour, for the first time tying wages to trade market access (referred to as labor value content”).  This provision helps narrow the wage gap between Mexico and the US and has important implications for future trade agreements.

• While corporations cannot use ISDS to easily thwart new environmental protections, important exemptions are granted to oil companies with Mexican government contracts.  More corporations could land future contracts making this loophole an ongoing problem.

• Like labor, language to protect environmental resources was moved into the main text of the agreement, but again strong enforcement language is lacking and weakening language was retained. 

• NAFTA fails to require each party to adopt, maintain, implement and enforce domestic laws that provide policies that fulfill a list of seven core multilateral environmental agreements, including protection of endangered species.  Specific language in the agreement actually weakens enforceability.  Strengthening language must be added and weakening language must be eliminated.  Most glaringly, there is no mention of climate change in the agreement.  Congress can remedy these gaps in environmental protection with insistence that appropriate language be added and strong enforcement requirements be mandated. 

• A significant positive addition for the environment is the elimination of “proportional sharing” from the agreement that mandates the export of natural resources such as water, timber, oil and gas into the indefinite future once such has begun. This provision must be retained.

• The revised NAFTA text retains the same sorts of provisions that we have long criticized as undermining domestic consumer safeguards.  The emphasis is on facilitating trade including food imports rather than protecting public health and safety.

• While the revised NAFTA resolves the issue of trucks entering the US not having to comply with US vehicle safety and driver training standards, there are no new rules generally safeguarding environmental health and public interest policies from corporate attacks.

• The revised NAFTA text includes intellectual property and other provisions that extend beyond the original NAFTA terms to lock in bad U.S. policies that keep prescription drug prices highand export those policies to Mexico and Canada.  The revised NAFTA text would require at least 10 years of government-granted marketing exclusivity – that is, longer monopoly protections – for cutting-edge biologic medicines such as many new cancer treatments.  There are also an array of giveaways to brand name drug firms in the revised text, which would grant pharmaceutical firms new monopoly rights.  In summary, these provisions constitute a blatant attempt to lock in medical monopolization in the US, extend such to Canada and Mexico, and eliminate generic competition.  Clearly these provisions have to be eliminated.

• Instead of improving food safety border inspection, the revised NAFTA text replicates the original NAFTA language that prioritizes trade facilitation over food safetyand adds additional limits on inspections.

• The revised NAFTA text does not include a meaningful sunset provision. Rather than requiring an affirmative vote to continue the pact after its first five years in effect, which was the U.S. proposal, the text includes language stating that the new pact’s term will be 16 years and can go on indefinitely via six-year reviews and rolling renewals.

• The revised NAFTA fails to provide strong safeguards against currency misalignment and manipulation.  There is no mechanism for disciplining actions countries may take to manage the value of their currencies.

• New “digital trade” rules could undermine governments’ efforts to protect their citizens’ privacy, personal data and security.

• The revised NAFTA intellectual property text includes a plethora of copyright rules that require careful analysis to determine their implications for freedom of expression and access to information on the internet.

What Fair Trade for People and the Environment Looks Like: A Short Summary 

For a more comprehensive discussion see New Rules of the Road: A Progressive Approach to Globalizationby Lori Wallach and Jared Bernstein.

• Fair trade implies that international exchange and investment occur within a global framework of rules designed to ensure the benefits of international exchange flow to all citizens and protect the environment.
• Fair trade is negotiated and administered transparently and inclusively.  No secret negotiations, no ‘fast tracking’ corporate gains at public expense.  Facilitate broad public input and enforceable protections for the public and the environment.
• Replacement of the corporate-dominated Investor-State tribunal system with an independent and transparent legal adjudication mechanism accessible by all stake holders, including civil society, labor and environmental organizations, not just corporations is a high priority.
• Fair trade honors the 1933 Buy American Act and similar taxpayer-funded programs in member nations that create local jobs and allow national government procurement to stimulate their own economies when needed.
• Fair trade ensures imported goods and services meet domestic safety standards, particularly food and consumer product imports. 
• Fair trade prioritizes swift and certain enforcement of international agreements and standards covering human rights labor standards, environmental conservation and protection, climate policy and consumer product safety. 
• Fair trade ensures international investment and trade do not conflict with global strategies to mitigate climate disruption and a timely and just transition to fossil fuel-free economies. 
• Enforcement of any trade agreement necessitates strong ‘rules of origin’ so that some cannot cheat by sneaking in cheap products from low-wage countries not party to the agreement, e.g. China.
• Fair trade includes enforceable standards to guard against and offset currency manipulation. 
• Fair trade ensures all persons are guaranteed access to affordable medical treatment, including pharmaceuticals. 
• Export of private goods and services subsidized by governments is prohibited (Example: Under NAFTA, dumping of US-subsidized corn largely destroyed Mexico’s indigenous agricultural sector resulting in mass migration of dispossessed farmers and workers to the US). 
• Fair trade facilitates regulation of financial products, transactions and capital flows to protect national economies against speculation and financial manipulation by large investors and banks. 
• Fair trade excludes excessive monopolistic patent and copyright protections, including medical technology, intellectual property and cultural products. 
• Fair trade rules guarantee Internet neutrality for all member countries, protects public access to information, and protects consumer information from unauthorized uses.