Jobs Issue Hides NAFTA’s Real Intent, Analysts Say

When Pendleton Woolen Mills moved its Sellwood, Ore., manufacturing plant to Mexico last August, eliminating 119 jobs, there seemed little doubt who the villain was: Company and union officials both pointed to NAFTA--the North American Free Trade Agreement.

Today, company managers concede that heightened global competition and price pressures are what forced the company to shift some manufacturing facilities south of the border. Even before NAFTA, Pendleton had begun buying fabric and some finished shirts from Hong Kong.

“It wasn’t so much the lure of NAFTA” as “the pressure we were under” to cut prices and Mexico’s proximity, which promised a quick turnaround on orders, says Gary Benson, Pendleton’s corporate human resources manager. NAFTA “just happened to be there.”

The Pendleton case illustrates a point: In its fourth year, NAFTA has not siphoned huge numbers of jobs from the United States, as its critics had feared. Nor is there evidence that it has spawned a boom in export-related jobs, as its supporters had promised.

In fact, many analysts believe that the strident debate over jobs that has dominated the national controversy over the free-trade pact among the United States, Canada and Mexico misses NAFTA’s central aim: to keep Mexico moving toward a free-market economy.

“It was really a matter of foreign policy, of encouraging Mexico to continue the trajectory it was on,” says Frederick W. Mayer, a former congressional staffer who now heads the Duke University Center for North America Studies.

After years of recalcitrance, Mayer points out, Mexico has finally begun lowering trade barriers. The economy is recovering. And, as Monday’s stunning electoral upset of the Institutional Revolutionary Party showed, democracy is beginning to blossom--albeit with some snags.

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“The jobs issue is a drop in the bucket in the overall scheme of things,” says Raul Hinojosa Ojeda, a NAFTA expert at UCLA. “But it is driving the entire trade agenda.”

Critics contend that NAFTA is to blame for eliminating 420,000 U.S. jobs, for bringing on the 1995 peso crisis [and a subsequent brief decline in Mexico’s standard of living] and for damaging the environment. Many want the United States to abrogate the treaty.

Proponents assert that NAFTA has produced enough business to “support” almost 3 million U.S. jobs, has spurred sharp increases in U.S. exports, both in high-technology and industrial goods, and has improved economic conditions in Mexico, particularly along the U.S. border.

The White House is expected to join the fray this week by issuing a 200-page report on NAFTA’s first 3 1/2 years that takes account of both sides’ views but contends that the accord is working and should be continued intact. Later this month, Congress is planning to hold hearings to review the treaty’s impact.

Yet, serious students of NAFTA argue that it still is too early to confirm any of the more extreme claims. The combatants--both supporters and opponents of NAFTA--are so wrapped up in their own agendas, according to this view, that they often focus on the wrong points anyway.

Decrying the estimate of 420,000 jobs lost as absurdly high, Hinojosa points out that the pact was never intended as a job-saving scheme for the United States, but rather as a tool to push Mexico away from a state-centered economic system that was keeping it impoverished.

The acrimony over NAFTA is threatening to spill over into President Clinton’s efforts to obtain “fast-track” authority from Congress for other trade accords--such as one governing global financial services--for which the United States has been pushing for years.

United States negotiators report that U.S. trading partners say they will not begin serious talks on these and other issues until Congress agrees to guarantee a quick up-or-down vote on any new accords. Yet the controversy about NAFTA has made lawmakers wary of granting such authority.

Just why NAFTA should provoke such an emotional response among Americans puzzles some analysts--particularly at a time when the United States is in the middle of a 6-year-old economic boom, with no signs yet that the good times at home are likely to end soon.

Job growth has been spectacular in the United States, with some 7.5 million jobs created since NAFTA took effect. The nation’s unemployment rate is at its lowest level in 24 years. And American business has become among the world’s most competitive.

William Schneider, a political analyst at the conservative American Enterprise Institute, attributes the current stridency over NAFTA to a variety of politicians and interest groups that have exploited the issue from the start to advance their own agendas.

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Independent presidential candidates Ross Perot and Patrick J. Buchanan ignited the anti-NAFTA feeling by warning--wrongly, it turns out--of massive job-loss that, in Perot’s words, would produce a “giant sucking sound” as U.S. jobs moved to Mexico.

“For many Americans, it was clearly a moral issue,” Schneider says, “the image of giving away American jobs to low-wage Mexican workers.”

Adds Duke’s Mayer: “It was a very visual thing, and it has stuck with NAFTA ever since.”

Many analysts also fault Clinton, who all but ignored the then-pending trade pact during his first few months in office and later exaggerated its potential benefits by touting a shaky formula that promised it would create large numbers of jobs.

For all the claims and counterclaims about NAFTA’s impact on employment, analysts have no good way to measure it. The Labor Department counts 125,000 Americans eligible for job-loss benefits under a NAFTA program, but many of those layoffs were unrelated to Mexico.

Here are some of the other major issues involving NAFTA:

Trade balance. More generally, U.S. imports from Mexico have risen since NAFTA took effect, and the U.S. trade deficit has increased. But analysts say much of the change stems from Mexico’s economic slump, which, together with the devaluation of the peso, has dulled Mexico’s appetite for U.S. exports.

Peso crisis. Analysts say the notion that NAFTA caused the 1995 peso crisis is simply wrong-headed. The crisis--and the slump that followed--were spawned by mismanagement on the part of Mexican policymakers, who had kept the peso artificially high to distract from domestic political problems, analysts say.

In fact, most financial authorities agree that NAFTA helped contain the problem. Unlike the case in 1982, before NAFTA was in place, Mexico did not slap limits on imports and nationalize more industries. The Mexicans also repaid--three years early--a $13.5-billion loan the United States had offered as part of a rescue package following the 1995 peso collapse. Mexico was credit-worthy again within six months of the peso crisis--a feat that took six years after the financial debacle of 1982.

Trade disputes. The two sides have had a series of minor trade disputes since NAFTA took effect, but all have been resolved, and some that caused the most controversy here at home were largely of the United States’ own making.

In one, involving truck safety rules, Washington reneged on allowing Mexican trucks to cross the U.S. border, largely to mollify the Teamsters union. The administration also filed a questionable case against Mexican tomato growers, mainly to placate growers in Florida.

Julius Katz, who was a U.S. trade official during the George Bush administration, agrees with Hinojosa’s cautious assessment that NAFTA has had relatively little impact one way or the other so far, but insists the benefits--for both sides--will begin to show up soon.

“You’ve got to put this into perspective,” Katz says. “This was not merely about the U.S. and Mexico--it was part of a larger strategy . . . to promote freer trade throughout the world.”