Nafta failures a warning to treat TPP trade deal with caution

The Nafta agreement is said to have caused mass instability in Mexico. Photo / AP

Twenty years ago, on January 1, 1994, the Zapatista Army of National Liberation, groups of armed Mayan Indians, began to seize towns in Chiapas, Mexico's southernmost state, freeing prisoners and torching government buildings, having declared "war on the Mexican state".

The Mexican Army quickly regained control but the Zapatistas, who mixed Marxist liberation ideology with anti-globalisation sentiments, persisted.

Their target was the North American Free Trade Agreement (Nafta) between the US, Canada and Mexico, which took effect on the day the revolt began. The Zapatistas feared Nafta would deepen inequality.

The agreement, hyped by US President Bill Clinton and corporate backers, was sold as an instrument that would create jobs, raise wages, fuel prosperity and improve environmental and health standards. Clinton, who promised 200,000 new jobs in the US alone by 1995, said Nafta would create the world's biggest trade zone, promoting social progress and economic growth.

A key step towards the globalised economic system, now the world norm, the pact foreshadowed the Trans-Pacific Partnership (TPP), being negotiated by the US with 11 other nations, including New Zealand. Unlike past deals, focused on Adam Smith-style free trade that involved slashing tariffs or barriers, Nafta, like the TPP, was more insidious.

Essentially, it opened the door for multinationals to create global supply chains that exploited cheap labour. Furthermore, corporates could use World Bank or UN tribunals to circumvent domestic courts and laws if public interest policies, such as health or environmental laws, threatened profits. The tribunals could order unlimited sums to be paid to compensate litigants.

It was a giant step in reducing national sovereignty to facilitate business.

Since Nafta became law the "investor-state" enforcement tool has lead to a tsunami of litigation, as corporates allege threats to "expected future profits". To date, US$360 million ($436 million) of taxpayer funds have been paid out, while claims worth US$12.4 billion are unresolved. None involve traditional trade issues.

Critics say the TPP will only heighten taxpayers' exposure to such risks. Unsurprisingly, US polls show strong opposition to Nafta-style deals.

In a withering report, Nafta at 20, just released by Global Trade Watch (GTW), the pact is blasted for eliminating one million US jobs, causing mass displacement and instability in Mexico, record income inequality and a dramatic uptick of corporate attacks on environmental and health laws.

The deal was embraced by US multinationals that promised American communities jobs. Instead, many US jobs went overseas - a process memorably described by presidential candidate Ross Perot as a "big sucking sound", when jobs fled to Mexico factories, or maquiladoras - triggering a ripple effect at home as people competed for poorer paid employment.

"A lot of small to medium US firms - between 45,000 and 47,000 - got wiped out," says Lori Wallach, GTW director. "Whole sectors that were supply chains for multinationals. They were union jobs. It was a gruesome story for workers who had a middle class income but no college degree."

At the same time prices went up. Take farming. The US agriculture trade deficit with Mexico doubled and sectors like beef and pork were clobbered by imports, as US agribusiness firms like Archer Daniels Midland moved operations south to exploit cheaper labour costs and laxer regulations.

The GTW report found 1 million Mexican campesino farmers lost their livelihood - crushed by cheap US corn imports - along with a further 1.8 million in the rural economy, with many fleeing north to find jobs, a root cause of the subsequent US immigration crisis. There is now a school of thought in Mexico that this rural crisis helped facilitate the rise of the drug cartels, as Mexico veered dangerously close to failed state status.

As in the US and Canada, small Mexican businesses suffered, unable to compete with mega retailers that sold goods transshipped from China, a crisis that provoked the famous rolling El Barzon demonstrations, including nude protests, against neoliberal policies.

At the same time Nafta helped integrate the North American economy during a time of seismic change, facilitated by the internet and the rise of economic titans like China. The Brookings Institute found, post-Nafta, that trade was driven by regional cross-border links between major cities.

"Across North America, 58 per cent of the value of all goods trade between the US, Canada and Mexico happens between a network of 432 metropolitan areas," write Joseph Parilla and Alan Berude. "For six critical advanced industries - aerospace, automotive, electronics, machinery, pharmaceuticals and precision elements - the metro share rises to 69 per cent." There is no room in this new world order for Mexican campesinos.

Clinton sought to use the Nafta model for deals with Latin America and in the Asia-Pacific, overtures rejected by other nations when they saw the dire fallout from the 1994 pact. In 2008, responding to US unhappiness with Nafta's effect, President Barack Obama - who said he had never supported Nafta - told voters he would not pursue similar agreements.

"While Nafta gave broad rights to investors, it paid only lip service to the rights of labour and the importance of environmental protection," he told voters on a stump speech in the crucial swing state of Ohio. Six years later, says the GTW report, "the Obama Administration is now seeking to deepen the Nafta model and expand it to additional countries through the TPP."

Critics denounce the TPP as "Nafta on steroids," promoting corporate welfare - benefiting the pharmaceutical, energy, entertainment and financial industries - at the expense of ordinary people locked out of negotiations.

"These deals aren't about free trade," says Wallach "but about copyright and patents, financial regulations, immigration policy, food safety or access to cheap medicine." Only five out of 29 chapters in the TPP concern free trade.

Clinton got Nafta through using Fast Track trade authority after Congress gave the president exclusive legislative power. Obama seeks the same authority. This time round Congress is less keen to abrogate its jurisdiction in areas like copyright, financial regulation and so on.

Despite historic levels of partisanship, 178 members from both sides of the aisle expressed their opposition. Little wonder. The US team in the TPP talks is backed by 600 corporate "advisers," intent on promoting measures denied by Congress.

Wallach says corporates are "trying to relitigate things they lost in Congress," such as the bid by Big Content - Hollywood and Silicon Valley - to further extend copyright periods or criminalise small-time violations.

Emasculating food safety and financial rules are also corporate wish lists. But without Fast Track to steamroller Congress any US promises may be hollow, a process Wallach warns creates a "buyer beware" risk for other nations, "because I think our trade negotiators are writing cheques that will bounce."

Meanwhile, inequality has steadily worsened across North America. The Occupy movement, picking up the Zapatista protest baton, raged against the 1 per cent - American CEOs earn on average 273 more than US workers.

Obama has described inequality as "the challenge of our time". Yet, how can he solve this while pandering to corporate demands that arguably helped worsen inequality in the first place?

"That's one of the huge questions being discussed with the TPP and the Trans-Atlantic Free Trade Agreement," says Parilla, a research analyst with the Metropolitan Policy Programme at Brookings.

"On the one hand his administration is pivoted towards issues like raising the minimum wage. At the same time they are pushing through these huge agreements that are heavily criticised by organised labour and others."

Can Obama square the circle? The devil will be in the detail.