NAFTA dreams sag with the peso While U.S. awaits Mexico's recovery, jobs trickle south


WASHINGTON -- Two years ago, an alliance that included President Clinton, three former presidents and the business community predicted that if Congress passed the North American Free Trade Agreement, the jobs created in the United States would be better, higher paying and more numerous than the jobs lost.

Today, however, trade statistics paint a picture that is nearly the opposite of what Mr. Clinton or any NAFTA's champions had envisioned.

Before passage of the treaty -- and before the collapse of the Mexican peso a year later -- the United States had a trade surplus with Mexico. Now there is a trade deficit that will be about $16 billion by year's end.

"It's exactly the reverse of what the proponents said would happen," said Mark Anderson of the AFL-CIO, "and eerily similar to what we said would happen."

One NAFTA supporter, Greg Mastel, vice president of the Economic Strategy Institute, a nonpartisan think tank, concedes that backers made unrealistic predictions, but insists that the accord's promise eventually will be fulfilled.

"You can't just look at the short run," Mr. Mastel said. "In the long term, the dropping of tariffs and other barriers will increase American exports. It hasn't yet because the Mexican economy has been in the tank. But Mexico will eventually recover from this recession."

NAFTA supporters had said that up to 150,000 American jobs would be lost in the first few years of the agreement, but they insisted that these losses would be swiftly offset by as many as 350,00 new, higher-wage jobs fueled by increased exports to Mexico.

Administration officials now say that the creation of such high-end jobs is a long-term proposition. The bottom line so far is that no new jobs have been created -- and the estimate of lost jobs might have been low.

The U.S. Department of Labor already has certified 41,201 Americans for assistance because they lost their jobs as a result of trade with Mexico or Canada, also a signatory to NAFTA. Thousands more claims are pending. Others -- the Labor Department isn't sure how many -- have applied for assistance under a related program.

Effect of peso's plunge

Most trade experts agree that the sharp drop in the peso was a bigger factor than NAFTA. Overnight, Mexican labor became much cheaper for those wishing to expand operations. At the same time, American goods became unaffordable for most Mexicans.

But some economists say NAFTA played a crucial role in the drop of the peso: that, because the administration and the Mexican government were so eager to get NAFTA approved, they ignored signs that the peso was dangerously overvalued and that Mexico was borrowing too much in relation to the goods and services it produced.

"When everybody said, 'We're going to get rich because of NAFTA,' they were looking at a mirage created in part by an overvalued currency," says Thea M. Lee, an economist with the pro-labor Economic Policy Institute. "But everybody kept quiet."

At a recent luncheon, Mr. Clinton offered a counter-argument. Because of NAFTA, he said, the peso devaluation didn't hit the United States as hard as it otherwise would have.

Many NAFTA backers agree, saying that because of the treaty, Mexico couldn't do what it traditionally had done in a recession: raise tariffs even higher.

"If you look at 10 years from now, 20 years from now, 25 years from now, it is plainly the right thing to do," Mr. Clinton said. "A strong, stable, healthy, democratic Mexico with a sensible economy is plainly in our interest."

The president also said that the United States eventually must replace low-wage manufacturing jobs with jobs that require more skill and training. Many independent economists agree, even if the recent trade figures make them nervous.

Washington economist Jeffrey Schott, co-author of one of the rosiest pre-NAFTA predictions, says the potential benefits were oversold. Mr. Schott's estimate that NAFTA could create a net of 170,000 new jobs by 1995 was widely touted by the Clinton administration -- and was rounded off to 200,000 -- but important caveats were lost along the way.

For one, Mr. Schott wrote that his estimate was based on the continuation of "stable economic conditions" in Mexico. Moreover, he made his projection in 1990, meaning it was a five-year projection, not a two-year one.

"The jobs issue was grossly exaggerated by both the proponents and the critics," said Mr. Schott, who regrets the emphasis put on his estimate, but not the passage of NAFTA itself.

"The debate was so superficial," said Carol Wise, a professor at the Johns Hopkins School of Advanced International Studies. "We were licking our chops at all the American products Mexican consumers were supposedly going to buy.

But that country is capital-scarce, and those consumers don't have any money."

Holding the tomatoes

A case in point is the California Tomato Board, which projected that exports would grow from 7,000 metric tons in 1993 to 17,000 tons this year. Instead, they've trickled to almost nothing.

"The peso devaluation really crushed us," said Beth Weibert, an official of the board, which promotes the sale of California tomatoes.

She believes that NAFTA contributed to the devaluation, but says that whatever the underlying causes, the lower exchange rate has made exporting to Mexico all but impossible.

Public Citizen, a Ralph Nader-founded watchdog organization that opposed NAFTA, polled 81 companies that had predicted a surge in business. Instead, the study found, these firms are fighting to keep the market shares they had before -- or they are laying off American workers.

Bechtel Corp. had predicted an increase in its engineering and construction business in Mexico by 50 percent if NAFTA passed. The company reports no increase in jobs.

The chairman of Allied-Signal, a New Jersey-based aerospace company, asserted that the jobs moving to Mexico "have already moved there."

This year, however, the Labor Department certified some 260 former Allied-Signal workers for assistance because the company moved their jobs to Mexico and Canada.

Orchard Heights winery in Salem, Ore., had said the NAFTA-mandated cut in tariffs from 20 percent to 10 percent would allow it to increase its exports to Mexico to 5,000 cases of wine a year. Instead, the company has stopped exporting to Mexico altogether, costing one full-time job and seven part-time jobs.

Another factor contributing to job losses is Mexico's gradual dismantling of its own trade barriers apart from NAFTA.

In the 1980s, more than 2,000 manufacturing plants, called "maquiladoras," sprang up on the Mexican side of the border.

Each of these plants was supposed to be a "twin" of a plant on the U.S. side. But over time, lower labor costs in Mexico led to phasing out manufacturing on the U.S. side.

Thus, NAFTA -- and the peso devaluation -- accelerated a trend already under way.

One example was the experience of a Maryland firm, Polk Audio Inc., which built stereo speakers in Baltimore.

In 1988, the company opened a manufacturing plant in Tijuana. This year, citing lower labor costs in Mexico, it closed down its Baltimore manufacturing operations -- laying off 34 people -- and hired about the same number in Mexico.

Polk's president, George Klopfer, says NAFTA was not the primary reason for the move. However, the company did apply for NAFTA-related assistance benefits on behalf of its workers. The Labor Department granted the petition, and many of the laid-off workers are enrolled in education and retraining courses.

"Maybe this will turn out to my advantage," said 46-year-old Joyce Herndon, who was an $11.60-per-hour assistant manager at the Polk plant and is now taking computer services classes.

"Maybe this will help me get a better job, because I didn't have any skills."

Ms. Herndon and her former co-workers are not versed in the complexities of NAFTA, but they share the gut feeling that something is wrong when the law encourages U.S. companies to relocate abroad.

"I just don't think they ought to be allowed to do that," she said.

Impact on 1996 race likely

Though Mr. Clinton insists that by 2015 everyone will see that NAFTA has been good for both countries, his campaign for re-election will occur not 20 years from now, but next year.

Already, the issue is a potentially potent one on the presidential campaign trail.

Texas billionaire Ross Perot, who had warned that NAFTA would cause a "giant sucking sound" as American jobs went south, is forming a third party and dropping hints that he'll run for office again.

Briefly an independent presidential candidate in 1992, Mr. Perot had debated eventual Vice President Al Gore on the subject of NAFTA in a televised contest that most observers scored for Mr. Gore. Perhaps Mr. Perot will want a rematch.

In addition, conservative Republican Patrick J. Buchanan is getting impassioned responses from working-class audiences when he outlines his agenda of "economic nationalism," a plan that includes repealing NAFTA, ending foreign aid and canceling the administration's plan to stabilize the peso.

Eager to confront the accusation that the president risked Americans' money, White House officials organized a big splash Thursday over a relatively minor development: a phone call that morning from Mexican President Ernesto Zedillo in which he told Mr. Clinton that the first repayment -- $700 million -- of the money supplied by the Clinton administration during the peso crisis was being paid.

Mr. Clinton's aides acknowledged that, regarding U.S.-Mexico trade, the best thing the president has going for him politically is that the Republicans running against him -- with the notable exception of Mr. Buchanan -- themselves supported both NAFTA and the peso bailout.

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