Foreign Policy In Focus | January 9, 2009
Obama and NAFTA
Will he or won’t he?
In the shadow of the economic crisis, a war of words rages over whether President-elect Barack Obama will hold to his campaign promise of opening up the North American Free Trade Agreement for renegotiation.
The debate isn’t likely to stay in the shadows for long. Campaign attacks on NAFTA and candidate promises to renegotiate proved that demands for revision of the free-trade model have reached critical mass in U.S. politics. A post-election report from Public Citizen’s Global Trade Watch heralded a net gain of 28 fair-trade members in the House and seven senators. Most of these politicians, it notes, didn’t just happen to be critical of the free-trade model. They actively ran on a fair-trade platform and won partly on that stance.
The economic crisis only strengthens those demands. If international trade and investment policy is the pillar of the current economic model, its revision must be a foundation of global restructuring plans.
Why renegotiate NAFTA?
The mainstream press is wrong when it says the United States can’t "unilaterally" call for renegotiation. Not only is renegotiation permitted legally - in fact, any country can unilaterally withdraw with six months notice - but there have been many calls for renegotiation in Canada and Mexico.
Canadians have built a strong grassroots movement to protect natural resources from predatory NAFTA clauses. Broad-based citizen groups like the Council of Canadians oppose NAFTA because of the energy proportionality clause that requires Canada to export oil to the United States even in times of scarcity, the investor-state clauses that give investors the right to sue governments contained in Chapter 11, and the clause that permits bulk-water exports. Polls in the general population show that 61% favor renegotiation.
In Mexico, 100,000 people marched in the streets on two separate occasions under the banner of renegotiation to revise NAFTA’s agricultural provisions. They demanded protection of basic food production by removing corn and beans from the agreement. In 2003, former President Vicente Fox requested opening up the agreement only to be rebuffed by the U.S. government.
For the United States, the main issue is jobs. Senator Sherrod Brown, an Ohio Democrat, cites a loss of 200,000 manufacturing jobs due to NAFTA for his state alone. The nation has lost 3.1 million manufacturing jobs since 1994, and its trade deficit with Mexico and Canada has risen to $138.5 billion in 2007 from $9.1 billion in 1993. The opposition to NAFTA within the United States goes well beyond organized labor. While job loss and insecurity under globalization were major constituency-builders in blue-collar states during the elections, polls taken before the election revealed that a national majority opposes free trade and particularly NAFTA, and that opinion increased during the campaign. A June 2008 Rasmussen nationwide poll showed 56% in favor of renegotiating NAFTA. Many people feel that NAFTA has given companies incentives to move production to where labor is cheaper, exporting jobs and eroding working conditions.
In general, U.S. opposition to the trade agreement is split between fair-trade groups that focus on jobs and the environment and a nationalist rightwing that believes NAFTA and its offspring, the Security and Prosperity Partnership, threaten U.S. sovereignty. Neither of these currents could properly be called "protectionist," and both call for more transparency in the process.
Among the differing priorities, citizen demands concur that the current agreement favors transnational companies and is unfair to citizens in all three nations.
Broadly shared priorities for renegotiation are:
– Eliminate Chapter 11. Corporations shouldn’t have the right to sue governments and supersede national laws. Trade tribunals lack adequate transparency and accountability, and consistently reflect a strong, pro-corporate bias.
– End the energy proportionality clause between the United States and Canada, and exclude bulk water as a commodity. Canadian national and provincial governments should be able to fulfill their responsibilities in long-term energy planning without restrictions under NAFTA.
– Get NAFTA out of food and agriculture. Countries should be able to develop national agendas to assure food quality, farm livelihoods, and consumer safety and then adapt the trade agreement to those objectives rather than the reverse. NAFTA favors corporate farms and bans certain policy tools to support small farmers and consumers, including special products protections. Renegotiating the agreement’s agricultural provisions shouldn’t involve surgical incisions of specific clauses, but a deep reform and reorientation toward food sovereignty.
– End the Security and Prosperity Partnership. This 2005 NAFTA extension into further trade and investment liberalization and national security has no public mandate in any of the three countries. Further negotiations on expanding integration should be reviewed and, where approved, be channeled into open, representative talks. The U.S. military aid package it spawned, the Merida Initiative, should be converted into a development aid package for the 2010 appropriations.
Citizen movements also call for national governments to have more development and social policy tools, many of which are prohibited under the competition and privatization terms of NAFTA. Some of these groups together produced a document of 10 areas that should be reviewed: energy, agriculture, role of the state, financial services, foreign investment, employment, migrants, environment, intellectual property, and dispute settlement.
Will He or Won’t He?
Obama’s campaign promise was explicit: "NAFTA’s shortcomings were evident when signed and we must now amend the agreement to fix them." The president-elect called for enforceable labor and environmental standards in the text, an end to the ability of corporations to sue governments, and emphasizing the needs of "Main Street" over "Wall Street."
But now some Obama-watchers claim he’s waffling on his trade commitments. Although these contentions in the pro-free-trade press are mostly wishful thinking, experts and activists are following the appointments closely. So far it has been a mixed message. The initial nomination of Bill Richardson, point-person for the passage of NAFTA under the Clinton administration, didn’t sit well with fair-trade groups and elicited a sigh of relief among free-trade promoters, who instantly chalked up the president-elect’s anti-NAFTA statements to electoral propaganda. Obama’s economic advisors, led by Larry Summers, and appointee for Treasury, Timothy Geithner, at face value would also indicate a commitment to the status quo on trade. And when Ron Kirk, a former mayor of Dallas who proclaimed his city the "capital of NAFTA," accepted the nomination for U.S. Trade Representative, it reversed satisfaction among fair-traders at the initial nomination of Xavier Becerra, who turned down the job.
Pending the new Commerce designate, that leaves Hilda Solis, Obama’s nominee for Secretary of Labor, as the only real bright spot for fair-traders. A NAFTA critic, she would wield real clout since jobs will be the pivotal issue for the United States in renegotiation. As a Latina, she also has an acute understanding of the need to make NAFTA fair for all partners.
Pessimistically, it’s possible to imagine that the Obama presidency could end up merely adopting the Democratic platform on trade, which would stick side agreements in the text, add International Labor Organization core labor standards, and create an expanded U.S. jobs displacement program. Obama voted for the U.S.-Peru Free Trade Agreement, which was modified along these lines. But the economic crisis has changed everything. Even as the Bush administration frantically - and incredibly - insists that free trade isn’t the problem but the solution, most other countries are taking a second look at the model. As the crisis sets in, Europe wants more regulation and developing countries want more policy space. And Americans want more protection from the disaster that’s currently befalling them.
With every appointment, Obama has insisted he’ll be the one calling the shots. For the next few weeks, then, all we really have to go on for predicting trade policy is Washington’s current favorite game - the psychic exploration of Obama’s inner mind. A more productive activity for fair-traders is to pull out all the stops in the tri-national campaigns to renegotiate NAFTA and impose a moratorium on new free trade agreements. This is an historic opportunity to change course in crisis.
Citizens Organize for Renegotiation
Citizen organizations and legislators have called for renegotiation of NAFTA in the United States, Canada, and Mexico. The collapse of the financial sector spells the need for a reconversion strategy for the "real economy;" that is, U.S. productive capacity in the United States. This strategy will require a careful and critical look at NAFTA, our blind reliance on market forces, and the promotion of outsourcing as a competition strategy.
The industrial policy that Obama outlined clashes ideologically and legally with NAFTA and other free trade agreements. It hasn’t been lost on the rest of the world that the U.S. government is adopting measures such as massive subsidies and bailouts that it has sought to deny developing countries under free-trade rules. Robert Kuttner at The American Prospect refers to this as "the sin of committing industrial policy" and warns that it’s only a matter of time before a trade partner registers a suit against Obama’s anti-crisis measures. This would be an excellent opportunity to expose the hypocrisy of our trade policies and chart a new course.
The new fair-trade members of Congress and others outside the leadership clique will provide new allies and be far more willing to move beyond the stodgy party leadership’s position on trade. Some already have. The TRADE Act, introduced into Congress in April 2008, calls for a NAFTA review and lays out fair-trade principles.
Meanwhile, poor countries need maximum room for maneuver to help those who are already living on the edge. Mexico is no exception. Although the current government isn’t likely to willingly change neoliberal policies and accept NAFTA renegotiation, the citizenry opposes NAFTA two to one. Echoing the phrase that did in John McCain’s candidacy, President Felipe Calderón continues to argue that the Mexican economy will be fine even as reports of job loss, wage declines, inflation, and capital flight pour in. In Mexico, as in the United States, only energetic measures can address the deepening crisis and growing social unrest.
Renegotiation can and should be good for citizens in all three countries. With such a high degree of integration, our futures are intertwined. A recent study calculated that when Mexican wages drop 10% relative to U.S. wages, attempts to cross the border illegally rise 6%. Real wages in Mexico fell 24% from December 2006 to August 2008 and are plummeting now with the crisis; renegotiation should include a view toward job generation and retention in Mexico, and a compensation fund similar to the European Union’s transition funds for less-developed countries. The current security aid in the ill-conceived Merida Initiative should be converted to this end.
Review and Redo
The first step for renegotiation must be a broad, in-depth review of NAFTA, or rather three reviews, one per country. Review bodies must be independent, representing different orientations and expertise. These should carefully define the criteria of evaluation, including social, economic, political, and cultural indicators. The U.S. TRADE Act, which also calls for a review, lists some criteria for evaluation, but we need precision. Also necessary are public consultations and other mechanisms for incorporating civil society input into the process.
The review would achieve several important goals. First, it would open up a debate that in the United States had been practically dormant between NAFTA’s passage and the recent presidential campaign. It also would provide valuable information on impacts. The apples-and-oranges debate on trade policy - one side argues that NAFTA increased international trade and the other argues that international trade isn’t all it’s cracked up to be - is sterile and abstract. We should be able to move beyond this debate with additional data and analysis.
To convince public opinion of the case for renegotiation, at this critical moment in a process of economic integration gone awry, will require thinking about international trade and investment in the context of new economic arrangements. To do this we need to build both arguments and alliances. Renegotiation demands must be woven into comprehensive proposals for reform that have a coherent logic and go beyond NAFTA articles. Related issues include enforcing antitrust legislation, ending commodity speculation, adopting supply management mechanisms, creating grain reserves, supporting domestic food production, and building local marketing systems.
Renegotiating NAFTA should no longer be a question of "will he or won’t he." To confront the crisis and establish mutual well-being in the region, the debate must move quickly now to "how and when."
Laura Carlsen (lcarlsen(at)ciponline.org) is director of the Americas Policy Program (www.americaspolicy.org) in Mexico City, where she has been an analyst and writer for two decades. She is also a Foreign Policy In Focus columnist.