BUSINESSWEEK ONLINE : MAY 8, 2000 ISSUE
BOOKS

Did NAFTA Backers Bamboozle America?


THE SELLING OF 'FREE TRADE'
NAFTA, Washington, and the Subversion of American Democracy

By John R. MacArthur
Hill & Wang 388pp $25

The North American Free Trade Agreement was a package of misleading promises sold to an unsuspecting Congress by a cynical band of White House operatives and mendacious business lobbyists. It immediately failed to live up to the assurances--of more jobs and greater prosperity--made by President Bush, who negotiated it, and by President Clinton, who lobbied for its approval. So, at least, insists John R. MacArthur, author of The Selling of "Free Trade": NAFTA, Washington, and the Subversion of American Democracy. In addition, he says, NAFTA cost jobs in the U.S., held down wages in the U.S. and Mexico, and led to increased pollution along the border.

MacArthur, the publisher of Harper's magazine, makes a strong revisionist case about the history of the negotiations and the Washington lobbying effort. The pact was not a real free-trade deal, he asserts, so much as an agreement to make Mexico safe for foreign investment--by making sure the Mexican government's history of seizing foreign assets would not be repeated.

U.S. multinationals were eager to move south; the Mexican government sought the job-creating investment. But as MacArthur notes, that couldn't be stated openly because it clearly suggested the movement of jobs from the U.S. to Mexico. The pact was instead marketed as a deal to increase U.S. exports. Indeed, U.S. exports to Mexico did eventually grow, but U.S. imports, many from border-area assembly plants called maquiladoras, increased even more. The U.S. merchandise trade surplus with pre-NAFTA Mexico of $1.3 billion became a $22.8 billion deficit by 1999.

NAFTA's secondary purpose was to provide a form of indirect foreign aid to Mexico. This is the "Trade Not Aid" mantra so often repeated as a justification for deals with poor countries. But after NAFTA went into effect in January, 1994, lots of bad things happened that were supposed to have been prevented by the deal: Employment did not move from the rudimentary maquiladoras into more sophisticated plants in central Mexico as hoped, for example. Instead, employment in border assembly plants doubled. And along with concentrated border industrial growth came pollution, which NAFTA was supposed to reduce.

In addition, the peso and the Mexican economy collapsed. A peasant uprising in the South ensued. The Mexican President who negotiated NAFTA, Carlos Salinas, fled the country amid corruption charges. Mexico required a $47 billion bailout loan from the U.S. But just because these events followed NAFTA doesn't mean the trade pact caused them, as MacArthur seems to imply. Many economists attribute the peso's collapse and Mexico's resulting economic troubles to other factors, such as endemic corruption and mismanagement by the long-ruling one-party government, along with its penchant for massive deficit spending in election years.

Despite some shortcomings, MacArthur's is the first book to relate the inside story of the Washington battle over NAFTA in a highly readable style. The author painstakingly reconstructs one of the most intense Washington lobbying efforts of all time, and he offers sharp profiles of its major players: former U.S. Trade Representatives Carla A. Hills and Mickey Kantor, White House political director Rahm Emanuel, and former House Majority Leader Richard A. Gephardt, among many others. Somehow he got lobbyists--who seldom depart from self-serving spin--to reveal embarrassing details: Clinton's promise to accompany a congressman on a duck-hunting trip, the massive ego stroking necessary to recruit former Chrysler Corp. Chairman Lee A. Iacocca as a NAFTA salesman, and the genesis of the toothless and largely unenforcable side agreements on labor and the environment. The author also says that Ross Perot's fight against NAFTA backfired when Vice-President Al Gore bested him in a televised debate and made anti-NAFTA sentiment seem as crackpot as Perot.

Fascinating, too, is MacArthur's historical account of New York's Swingline staple factory, which he uses to highlight some of the harm in the U.S. from the trade deal. The 50-year-old unionized plant in Long Island City had helped generations of immigrants to pay for houses, cars, and vacations, but by the end of the book, their hopes are dashed: The factory is moved to Mexico to take advantage of low wages and benefits there. MacArthur's sympathies clearly lie with the Americans, while he views the Mexican workers at the new plant as victims of corporate exploitation.

There are other flaws in The Selling of 'Free Trade.' The author doesn't acknowledge that Mexico's economy is in recovery, expected to grow by 5% this year. Nor is much attention paid to Canada, the third partner in NAFTA. And there is the matter of the title: NAFTA did not ''subvert'' American democracy. The lobbying battle was just a larger version of what goes on every day in Washington--what is going on right now, for example, in the comparable fight over granting permanent Normal Trade Relations status to China. The AFL-CIO, which opposes the status change, also fears a loss of U.S. jobs if production is shifted to China.

The current scuffle may in fact be the reason Washington officials have been devouring this book in pre-publication galley form. And well they should.

By PAUL MAGNUSSON
Magnusson covers international trade and economics from Washington.

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PHOTO: Cover, ``The Selling of `Free Trade'''



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