What You Don't Know About Nafta

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Tough Times in Textiles

The plight of 3,600 striking workers at five American Axle & Manufacturing plants in New York and Michigan acquired from GM in the '90s illustrates how tricky it is to assess blame. Last year, American Axle shut one plant in Buffalo and shipped much of the work to Mexico. Management now is demanding steep compensation cuts from the remaining workers, but the UAW wants guarantees that no more U.S. plants will close. The union claims the Mexican option gives management unfair leverage. The company retorts that the average $73-an-hour pay package at the five old factories is more than twice what workers make in its other U.S. plants.

Nafta's adverse impact seems plainer in textiles. Many big fabric producers backed Nafta because they assumed Mexican apparel factories would mainly [work] with cloth from efficient U.S. plants. "The orthodoxy before Nafta was, we may lose some labor-intensive apparel jobs, but we'll keep capital-intensive textile jobs," says trade hawk Charles W. McMillion, head of Washington consultant MBG Information Services.

But unlike previous pacts with Caribbean nations, there was no rule that Mexican-made apparel must contain U.S. fabrics to enter America duty-free. Mexican and Asian companies also built mills to supply apparel factories in Mexico, prompting a fall in fabric prices. The big blows came when the Asian currency crash of the late '90s made Asian fabrics even cheaper, and Chinese mill capacity soared. Some 500 U.S. mills have shut since Nafta went into effect.

Nafta's reforms often pushed Mexican companies to raise their game. When Mexican cellular service was opened up after Nafta, regulators there weren't vigorous in challenging the entrenched local players. But U.S. carriers were slow to seize the opportunity in cellular. Amârica Móvil, a local telco, made it easier for poor Mexicans to buy air time with prepaid cards. "By the time U.S. carriers woke up, Amârica Móvil owned the market," says Boston Consulting Group senior partner Jesus de Juan.

Nafta: "Just a Proxy"

There have been big U.S. winners, though. Farm exports to Mexico have nearly tripled since 1993. Banamex, owned by Citibank (C), is Mexico's No.2 bank. Wal-Mart (WMT) also dominates Mexican retailing.

The critics know Nafta cannot be blamed for all U.S. job losses. The real issue is globalization itself. "Nafta is just a proxy," says Lori Wallach, head of Global Trade Watch, which opposes free-trade deals. "It's not just that a certain number of jobs have moved to Mexico," adds University of California at Berkeley labor economist Harley Shaiken, who has studied Nafta. "[It's] that many companies have threatened to move to Mexico unless wage concessions were forthcoming."

What would critics fix if Mexico and Canada agreed to renegotiate Nafta? First off, tougher labor and environmental standards and enforcement. Mexico doesn't guarantee workers' rights to form independent unions and bargain collectively, for example. AFL-CIO policy director Thea M. Lee cites a case of union organizers at a Sony (SNE) plant in Nuevo Laredo who were fired. A Nafta panel agreed there were "serious questions" about whether rights were violated but took no action. "We're tired of filing these cases if nothing happens," Lee says.

If Obama or Clinton could reopen Nafta, however, Mexico probably would press its own demands. And a redrawn Nafta would not change the rules of world trade. "We have to go all the way to fixing the WTO," says Wallach. To do that, the U.S. would have to reopen decades' worth of trade talks the world over. Politicians can easily resurrect the rhetoric from the 1990s. Turning the clock back to a pre-Nafta global economy is another matter.

With David Kiley and David Welch in Detroit