NAFTA: Genesis of the Outsourcing Dilemma

Introduction The North American Free Trade Agreement (NAFTA) was a decisive moment in American History. It set the stage for massive job migration, from the United States to foreign countries. It proved to be a model for outsourcing that has begun to outpace the ability of the United States government to restrain. Looking back on NAFTA a decade later - it is clear that the signing of the treaty was pivotal in laying a foundation for the current outsourcing of American jobs, affecting all sectors of the U.S. economy - most recently, I.T. and Manufacturing. NAFTA, while exerting an arguably net positive effect on the trade between North American countries, has created a crisis in the migration of labor from the United States. Overview NAFTA was originally intended to lower barriers to trade between the three North American countries of Canada, Mexico and the United States and to provide economic benefits to all three countries. Trade has been a serious issue to governments and their citizens throughout history. Of specific interest to this discussion of NAFTA, is that trade became a national issue during the 1980s. There were a number of positions being touted as reasonable. The two main positions were protectionism and globalization. Free trade and NAFTA rose to prominence as major issues during the run-up to the election in 1992. Ross Perot represented protectionist interests and was solidly anti-NAFTA, whereas, both President Bush and yet-to-be-president, Bill Clinton were globalists. NAFTA became a hot topic for the candidates and was argued in every debate. Bill Clinton won the election and in 1992, was given Fast-Track authority by Congress. President Clinton used the Fast-Track authority to negotiate NAFTA on behalf of the United States government. NAFTA

was signed by representatives of the governments of Canada, Mexico, and the United States in 1992 and enacted into law in 1994. NAFTA Objectives NAFTA set six objectives for itself [NAFTA 2004]: 1. 2. 3. 4. 5. 6. Eliminate trade barriers and facilitate the movement of goods and services Promote fair competition Substantially increase investment opportunities Protect and enforce intellectual property rights Effective implementation of the treaty Establish a framework for expansion of the treaty

Today, NAFTA is expanding on the promise of these goals and has even achieved a fair number of them. However, fairness implies equality, to a certain extent, and because the economies of the three nations involved are not equal, there has been pressure to equalize them. One way to equalize economies is through wage pressure in this case, the outsourcing of American jobs, and to a lesser extent, Canadian jobs to Mexican workers who make significantly less. This is beginning to lead to an unchecked rise of job migration. Job Migration As early as 1995, job migration was becoming a serious concern. In Dougherty, the author states, At this point, we estimate that between 400,000 500,000 jobs from 1,700 U.S. Multinational corporations have been lost to workers in Mexico, like those in the Maquiladoras [DOUGHERTY 1995]. Dougherty blames this loss of jobs on low wages. Because of the wage
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differential between the U.S. and Mexico, which is as much as 10 to 1 (according to Dougherty), it is much cheaper to hire Mexican workers to work jobs requiring little training. It should be said that the maquiladoras are not all bad. There are those who argue that the maquiladoras have saved many company's bottom lines. Access to maquiladoras' low cost assembly has kept numerous U.S. companies from going out of business or losing significant market share because of competition from businesses in Asia [ECHEVERRI-CARROL 1995]. Nevertheless, jobs are being given to Mexican workers that previously belonged to U.S. workers and this is at the heart of the crisis of outsourcing. Illegal Immigration Illegal immigration is another outcome of the equalization pressure. Since NAFTA was enacted, there has been a dramatic rise in the number of illegal immigrants, coming into the United States. These immigrants represent another facet of job migration here in the U.S. Illegal immigrants now hold jobs that were previously held by lower income U.S. citizens. Today, as we approach the 2004 presidential election, both immigration and outsourcing are hot topics of political debate and are being discussed non-stop by the media. No Surprise Even before NAFTA was implemented there were fears that it would lead to increasing job migration. Labor unions fear that jobs will migrate from the north to Mexico, a fear shared by both Canadian and U.S. union leadership [MORAN 1994]. The impact of these fears on the wording of the treaty was negligible, but not entirely missing from the political realm. At one point it was unclear as to whether the treaty would even survive the murmurings, the opposition was so vocal that NAFTA's passage by Congress was in serious doubt [WIARDA 1994]. Partly

as a result of these fears, President Clinton's team made a number of side agreements. One agreement staggered tariffs to protect some industries, and another was designed to provide relief funds for displaced workers. These programs have all but disappeared over the last decade. Today, there is little remaining in the way of barriers to unrestrained job migration. Also, as the rate of job migration increases and expands to other countries such as India, Pakistan and China, it is becoming increasingly difficult to look back at the signing of NAFTA and not see it as a major turning point, leading towards the globalization of the United States economy and playing a major role in the outsourcing crisis. Proponents During the consideration of NAFTA, the biggest proponents were corporations. Eager to expand to global markets and thus rake in bigger profits, the corporations played a huge role in the passage of the treaty. Corporate interests were not shy about making their positions known in Washington, D.C., either. Other groups in favor of NAFTA included the National Association of Manufacturers, U.S. Chamber of Commerce, the Business Roundtable, the Council of the Americas and a host of small business groups and associations. Academics were also favorably inclined toward the treaty. These groups each shoulder some of the burden of not foreseeing with greater clarity the job migration problem. Again, Wiarda reminds us that warnings were in existence at the time, They recognized that some U.S. workers would likely be hurt in the short run by increased imports from Mexico, but the numbers would not be great; those who are hurt, they suggested, should be compensated and retrained [WIARDA 1994]. Neither compensation, nor retraining has been forthcoming in the last decade. Today, many victims of the outsourcing problem are actually forced to train their replacements as opposed to being retrained themselves. Conclusion
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In conclusion, it is clear that the signing of the North American Free Trade agreement was key in laying the groundwork and establishing a framework for today's outsourcing problem. The establishment of a 'free trade' zone between the countries of North America created a need for equalization. The disparity between the wages of Mexican workers and their American and Canadian counterparts created an imbalanced state of affairs. The equalization process has been partially realized through the mass migrations of jobs, from the U.S. to Mexico. The U.S.Mexican job migration proved economically, if not socially successful and provided a platform for building today's outsourcing economy. Without restraint, this will likely continue to grow.

Bibliography Dougherty, William. (1995). "A Labor Perspective on the NAFTA". NAFTA as a Model of Development: The Benefits and Costs of Merging High- and Low-Wage Areas. Eds. Belous, Richard and Lemco, Jonathan. Albany: State University of New York, 1995: 174-175.

Echeverri-Carrol, Elsie. (1995). "Flexible Production and the North American Free Trade Agreement: The Impact on U.S. and Japanese Maquiladoras". NAFTA and Trade Liberalization in the Americas. Ed. Echeverri-Carrol, Elsie. Austin: Bureau of Business Research, 1995: 162.

Moran, Robert and Abbot, Jeffrey. (1994). "NAFTA Managing the Cultural Differences: How to benefit from the economic and cultural integration of North America". Houston: Gulf Publishing Company, 1994: 18.

NAFTA. (2004). "North American Free Trade Agreement". [Online webpage]. NAFTASecretariat, 2004. Available http://www.nafta-sec-alena.org/DefaultSite/index_e.aspx? DetailID=78

Wiarda, Howard. (1994). "The U.S. Domestic Politics of the U.S.-Mexico Free Trade Agreement". The NAFTA Debate: Grappling with Unconventional Trade Issues. Eds. Baer, M. Delal, Weintraub. Boulder: Lynne Rienner Publishers, Inc., 1994:119,121-122.