What NAFTA teaches us about new trade deal

The 1994 agree­ment has al­ready tested some ar­gu­ments

Los Angeles Times - - NEWS - By Michael Muskal michael.muskal@latimes.com

The Obama ad­min­is­tra­tion this week will con­tinue to wres­tle with re­luc­tant con­gres­sional Democrats seek­ing a com­pro­mise to ad­vance the pres­i­dent’s hoped-for legacy of ex­pand­ing trad­ing re­la­tions with Asia. Although a va­ri­ety of po­lit­i­cal con­cerns color the de­bate, the heart of the is­sue is eco­nomic: whether ex­pand­ing free trade is good for the U.S. econ­omy and for Amer­i­can work­ers, a key con­stituency for Democrats.

If the dis­pute sounds fa­mil­iar, it is. Amer­i­cans have been fight­ing over free trade and its fall­out since the North Amer­i­can Free Trade Agree­ment, which went into ef­fect in 1994 de­spite strong op­po­si­tion from unions and their work­ers’ rights al­lies. NAFTA cut tar­iffs and changed rules to al­low free trade among the United States, Canada and Mexico.

Ever since, NAFTA has served as a tem­plate for agree­ments that cover U.S. free-trade re­la­tions, which have grown to in­clude 20 coun­tries. NAFTA also serves as a cau­tion­ary tale of what op­po­nents main­tain has gone wrong with free trade and what pro­po­nents ar­gue has suc­ceeded. Here is a primer on the Tran­sPa­cific Part­ner­ship dis­pute and what NAFTA can teach us. What are the ar­gu­ments in fa­vor of the free-trade bill?

The ar­gu­ments for free trade pre­date NAFTA but picked up speed in the 1990s. In gen­eral, pro­po­nents say free trade stim­u­lates the economies of all of the coun­tries by al­low­ing goods and money to more easily cross borders, cre­at­ing new busi­nesses, jobs and wealth for ev­ery­one. What are the ar­gu­ments against free trade?

The ma­jor ar­gu­ment is that free trade doesn’t ful­fill its prom­ise in cre­at­ing new jobs or wealth. Even if new jobs are cre­ated, they are far less de­sir­able and do not pay as well as the jobs that are lost. Fur­ther, cheaper for­eign goods will mean that U.S. wages will be forced down so Amer­i­can com­pa­nies can com­pete. Over time, en­vi­ron­men­tal or safety rules that pro­tect U.S. work­ers will also tend to be ig­nored as com­pa­nies strug­gle to keep la­bor costs

down. Have jobs been cre­ated or lost?

Both. Some jobs, mainly in man­u­fac­tur­ing, were cer­tainly lost, but pro­po­nents of free trade ar­gue that the num­ber of cre­ated jobs were eco­nom­i­cally more sig­nif­i­cant.

For ex­am­ple, in their re­port on the ef­fects of NAFTA, Gary Huf­bauer and Jeffrey Schott of the pro-trade Peter­son In­sti­tute for In­ter­na­tional Eco­nom­ics in Washington said the United States gained 100,000 jobs per year thanks to in­creased North Amer­i­can trade from 1993 to 2003, although all of the in­crease may not have been due to NAFTA.

In 2005, Peter­son re­searchers es­ti­mated that height­ened trade had in­creased U.S. eco­nomic out­put by 7.3%.

Op­po­nents sharply dis­agree. Public Citizen, a Washington-based con­sumer ad­vo­cacy group, es­ti­mated that 1 mil­lion jobs have been lost be­cause of NAFTA. What had been a small trade sur­plus in the U.S. turned into a com­bined trade deficit of $177 bil­lion as more goods from Mexico and Canada crossed the bor­der, the con­sumer group says, cit­ing gov­ern­ment sta­tis­tics.

There cer­tainly were some jobs lost, how­ever. Ac­cord­ing to the White House, 2.2 mil­lion Amer­i­can work­ers have re­ceived fed­eral money or re­train­ing since 1974 af­ter los­ing their jobs be­cause of trade-re­lated is­sues. How sig­nif­i­cant is the job loss?

This is another con­tentious area. The num­ber of man­u­fac­tur­ing work­ers has fallen this cen­tury from about 15 mil­lion to about 13 mil­lion, but fac­to­ries have con­tin­ued to func­tion at well more than 85% out­put (with a slight dip dur­ing the re­ces­sion years). Bet­ter tech­nol­ogy al­lowed in­dus­try to con­tinue to func­tion well de­spite the loss of some jobs.

But many fac­tory work­ers found they had to take pay cuts to find new work. “Ac­cord­ing to the U.S. Bureau of La­bor Sta­tis­tics, two out of ev­ery three dis­placed man­u­fac­tur­ing work­ers who were re­hired in 2012 ex­pe­ri­enced a wage re­duc­tion, most of them tak­ing a pay cut of greater than 20%,” Public Citizen said. In ef­fect, the mid­dle class, fu­eled by bet­ter-pay­ing jobs, shrunk, and in­come in­equal­ity in­creased as a re­sult of the trade agree­ment. Is there a neu­tral view?

In 2013, on the 20th an­niver­sary of NAFTA’s pas­sage, the Con­gres­sional Re­search Ser­vice tried to find the mid­dle ground: “In re­al­ity, NAFTA did not cause the huge job losses feared by the crit­ics or the large eco­nomic gains pre­dicted by sup­port­ers,” the

re­port con­cluded. What has hap­pened so far in Congress?

The House ap­proved the first part of a bill, giv­ing the ad­min­is­tra­tion fast-track au­thor­ity to ne­go­ti­ate the Trans-Pa­cific Part­ner­ship trade deal, or TPP, de­signed to cover trade re­la­tions among Aus­tralia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Sin­ga­pore, Ja­pan, the United States and Viet­nam. Fast-track au­thor­ity means Congress can de­bate the agree­ment and vote it up or down, with­out amend­ment or fil­i­buster, a faster than usual route.

How­ever, 144 Democrats in the House joined with 158 Repub­li­cans to de­feat the part of the trade bill known as Trade Ad­just­ment As­sis­tance, or TAA, de­signed to help those who have lost their jobs be­cause of tradere­lated is­sues. About 125 of the Democrats had sup­ported TAA when it was last reau­tho­rized in 2011, but re­fused to back the pro­gram this time around be­cause of ques­tions about how it was to be funded.

The Se­nate has ap­proved both parts of the trade mea­sure in one vote so the House can­not ad­vance TPP to the pres­i­dent’s desk un­til it solves the TAA por­tion. The Obama ad­min­is­tra­tion needs to con­vince dozens of Democrats to change their votes on the TAA or fig­ure out a way to re­solve the con­flict be­tween the two houses.

Ir­fan Khan Los An­ge­les Times

THE TWIN PORTS of Long Beach and Los An­ge­les. Pres­i­dent Obama’s Trans-Pa­cific Part­ner­ship trade deal is fac­ing a dif­fi­cult time in Congress.

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