Corporate Control of North America

And how to bring NAFTA under popular governance

by Jeff Faux

The American Prospect magazine, January 13, 2003

The business interests that promoted the North American Free Trade Agreement (NAFTA) have gotten their money's worth. Since the agreement went into effect in January 1994, American and Canadian corporations have moved production and jobs south to take advantage of cheap Mexican labor. Subsidized agribusinesses in both northern countries have blown small-scale Mexican farmers out of their local markets for corn, wheat and other commodities. Eighty-five percent of the Mexican banking system is now foreign-owned. Mexican production, meanwhile, is moving to even lower-wage countries. And the Mexican business partners who brokered these deals got rich.

But business in all three nations has gotten a good deal more. NAFTA is a potential battering ram aimed at destroying domestic protections that temper modern capitalism. These social, labor, environmental and regulatory constraints, the fruits of more than a century of domestic political struggle in each of the three countries, are in danger of being swept away in a commercial arena impervious to democratic deliberation. NAFTA has plenty of business constituents. And it has business-devised rules of commerce. What it lacks are citizens. So NAFTA is leading the way straight back to the circa 1890 laissez-faire system: commerce unfettered by other stakeholders.

When two ex-corporate executives, George W. Bush and Vicente Fox, became presidents of the United States and Mexico two years ago, they were ready to do more business. Their public-relations people dubbed them the "two amigos," and they tromped around each other's haciendas in Texas and Guanajuato, bonded by a shared landscape and a shared faith in unregulated markets. Bureaucracies in both countries began to negotiate new deals that would liberalize Mexican migration to the United States and allow U.S. and Canadian investors access to Mexico's nationalized oil resources.

The terrorist attacks of September 1l, however, slowed things down. In their immediate wake, encouraging immigration from anywhere was a political nonstarter, and the White House put Mexico on its back burner. For a while, continental economic integration itself seemed to unravel. Tightened border security caused trucks to back up for miles into Canada and Mexico, and sudden new immigration restrictions fouled up thousands of cross-border business trips that had become routine for Canadian and Mexican businesspeople.

Fox, who had staked his presidency on his relationship with Bush, saw his popularity at home plummet along with the Mexican economy, which was now tied to the United States in recession. Feeling abandoned, he had Mexico side with France and Russia in the dispute over the wording of the United Nations resolution on Iraq. At an international conference in October, an angry Bush cold-shouldered his old pal. Meanwhile, Bush's threat of a unilateral attack on Iraq, the killing of Canadian troops by American friendly fire in Afghanistan and the U.S. government's refusal to give Ottawa consular access to a 6-year-old Canadian citizen held at Guantanamo Bay managed to tick off many partners to the north as well.

But commerce will prevail. More customs agents were sent to the border to break the bottlenecks. New "smart border" systems are being put in place, allowing Mexican and Canadian goods bound for the United States to be checked by American customs officials stationed at the factories, electronically sealed and sent without interference into the United States. Plans are also being developed for "NAFTA Express" immigration lines at airports for citizens of the three North American countries. Ultimately, the war on terrorism is more likely to constrict the freedom of Americans under the Bill of Rights than the freedom of money and goods to cross our borders under NAFTA.

The three countries are now on an irreversible path to further economic integration. Every day, more intracontinental connections in finance, marketing, production and other business networks are being hardwired for a seamless North American market. Nearly 70 percent of U.S. trade with Mexico is within the same firm or related firms producing the same final product. Ford pick-up trucks are now assembled in Mexico's Cuautitlan, with engines coming from Canada's Windsor, Ontario, and transmissions made in America's Livonia, Mich. Labor markets are relentlessly merging. For professionals from the United States and Canada- and increasingly from Mexico-career ladders are already continental. At the other end of the labor market, migrant workers from Mexico have spread to virtually every region in every industry north of the border. Illegal crossings from Mexico are now back to pre-g-11 levels and, homeland security notwithstanding, U.S. officialdom increasingly accommodates the porous border.

Thirteen states, 80 U.S. cities, 600 police departments and thousands of businesses formally accept a Mexican government card in lieu of a Social Security number as sufficient identification for applications for jobs, driver's licenses and bank accounts. Eight years after NAFTA, too many economic channels have been redirected north-south to reverse the course of economic integration. What remains is the question of how this new political economy will be governed, and in whose interest.

A CORPORATE UTOPIA

Markets are defined by rules, and common markets need common enforceable rules. Thus, more than a century ago, when the regional American markets merged into a national economy, the federal government took over what had been state functions to establish national rules for everything from banking to product standards to labor law. In Western Europe, the political union of countries infested with centuries of mutual hatred grew out of the strategic understanding that common political institutions are the inevitable consequence of common markets. A simple post-World War II joint agreement over coal and steel industries on the French-German border was relentlessly transformed into a supranational European Commission, a directly elected European Parliament and a single currency.

The American national economy expanded within an already established national Constitution, with a Bill of Rights and a defined process of democratic change. The European common market was subject every step of the way to fiery arguments over social and political, as well as economic, rules. In both cases, the erosion of local sovereignty was balanced with individual rights and political democracy, allowing businesses, labor unions, farmers and other stakeholders to engage in a common cross-border politics over the common market's rules.

By contrast, the constitution of the North American common market, NAFTA, was merchandised to the citizens and legislators of each of the three countries as a simple, narrow, stand-alone agreement on foreign trade. Neither Ronald Reagan, who thought up the idea, George Bush Senior, who negotiated it, nor Bill Clinton, who sold it to Congress, acknowledged that NAFTA was opening the door to the integration of people and political institutions that a common market ultimately requires.

NAFTA, in fact, is not a simple free-trade agreement. It is a 1,000-page blueprint for a continental society that recognizes only one class of citizenship: the multinational corporation. The treaty gives corporations enforceable rights to invest, produce and sell anywhere in all three countries. Governments are prohibited from restricting the flow of repatriated profits, barred from favoring their own citizens with government contracts and required to give multinationals American-style intellectual property rights. Chapter 1l of the agreement grants corporations of each nation the extraordinary power to sue the other two nations and overturn laws that might be construed as interfering with the corporation's profits. Disputes are settled in secret by tribunals and "experts," many of whom work as lawyers and consultants for the multinationals.

Individuals have no legal status in NAFTA. Human and labor rights, environmental protections, public health and democratic accountability were consciously excluded. In a bureaucratic design that Franz Kafka would have admired, two toothless commissions can listen to complaints that the governments are not enforcing their own labor and environmental laws but have no authority to act on whatever they might happen to hear. NAFTA thus represents the most extreme example of the so-called neoliberal model, in which supranational rules liberate the private corporate investor from the constraint of democratic public values.

Even in these conservative times, such a reactionary formula for governing their own national economies would be overwhelmingly rejected by the electorates of each of the three nations. But labeling it a "free trade" agreement, which puts it into the remote domain of foreign policy and international economics, has obscured NAFTA's significance as a blueprint for their future domestic society. Many members of the U.S. Congress were persuaded to vote for the NAFTA premise because they felt that foreign relations were the president's constitutional prerogative.

with the creation of a common market, however, the fundamental questions of how a market is to be governed, and in whose interest, become a domestic issue rather than a matter of foreign policy. And, in reality, a continental politics is being created over the issues of the common market's governance. But it is a virtual one-party system of cross-border business networks and their political clients. The policy hothouses that serve them are already busy planning the next stage of the North American constitution out of the earshot of popular politics.

Tri-national governmental task forces and commissions are preparing plans for guest-worker programs, continental transportation and the privatization of energy and water resources. Business associations, corporate-sponsored think tanks and a variety of academic institutes in Canada, Mexico and the United States are busy testing ideas such as a dollarization of the Canadian and Mexican economies, a North American Commission of non-elected prominent citizens to guide the future of the common market and the downward harmonization of business taxes among the three countries. E-mail traffic hums with notices of conferences, seminars and new research ideas. Organizations such as the Brookings Institution and the Institute for International Economics in Washington and the C.D. Howe Institute in Toronto have produced books laying out the future of economic integration on the neoliberal NAFTA model.

IN SEARCH OF AN OPPOSITION POLITICS

Although business is increasingly organized politically on a continental basis, the progressive opposition to the neoliberal model in North America was, from the beginning, fragmented by arguments that do not travel beyond national borders. Many U.S. labor and nongovernmental organization leaders condemned NAFTA because of its insufficient protection for all workers, but the grass-roots political heat that almost defeated the agreement in the U.S. Congress was fueled by the specter of American jobs moving to Mexico. The Canadian opposition painted NAFTA as a threat to Americanize Canadian culture and undermine its more social democratic welfare state. In Mexico, opposition was rooted in its people's historic mistrust of Yankee imperialism.

But economic and cultural nationalism was not enough to stop NAFTA and cannot now rescind it. Anti-American rhetoric is still present in Mexican and Canadian political life, further aggravated by the arrogance of the present U.S. administration. It will always be there in some form, reflecting the tensions that came with having to share the neighborhood with the world's superpower. Still, polls show that most of both countries' people have accepted that their fate is tied to the United States.

In the United States, Pat Buchanan notwithstanding, most of the opposition to NAFTA came from the left, and few in the labor or environmental movements have their hearts in nativism. Certainly there is no political traction in a politics of hostility to either neighboring country. Among Americans, approval ratings of Canada and Mexico are higher than go percent and 70 percent, respectively-higher than those of even popular U.S. politicians.

Once the fight over NAFTA was settled and the common market was established, economic nationalism lost much of its steam. Consequently, in the past two years, the Seattle Coalition has moved on to try to defend against neoliberalism in other global settings, such as the proposed Free Trade Agreement of the Americas (FTAA) and the new round of World Trade Organization (WTO) negotiations.

These are important battles, but the capacity of North American activists to influence these negotiations is marginal. Government-to-government bargaining over the FTAA and the WTO is even more remote, more secretive and more dominated by corporate interests than it was over NAFTA. At this stage of the development of global trade politics, there is little leverage for imposing labor, environmental or other social protections on these agreements. If the FTAA is derailed, it is most likely to be because a compromise cannot be reached among negotiators bargaining on behalf of the national economic interests that dominate their domestic politics, not because of the opposition of hemispheric civil society. Even someone such as Luiz Inacio Lula da Silva, the new populist president of Brazil and longtime critic of the FTAA, will in the end concentrate on protecting the home markets of Brazilian farmers and manufacturers and getting them greater access to U.S. consumers.

Meanwhile, the future of the common market of North America, in which the activists do have more potential leverage, goes uncontested. Given the influence of U.S. government in setting the rules for the global economy, a sustained challenge to the NAFTA model in North America is arguably the most important contribution progressives on this continent could make to the building of a more just global economic system.

It is therefore time for the social-democratic left in Canada, Mexico and the United States to go on the offensive by proposing a comprehensive vision of the North American future against the narrow business-dominated vision that currently overwhelms the non-electoral, but nevertheless very real, continental politics. A continental progressive movement would build on the existing social-democratic infrastructure in each nation-labor, environmentalists, human-rights activists, progressive churches and populist legislators. Add to that the small-business people and farmers whose markets are being crushed by multinationals. And add to that the majority of ordinary citizens in all three nations who clearly prefer their national economies to come with social safety nets and protections.

Among other things, creating cross-border alliances and synergies requires that progressives expand their political language beyond the categories of the nation-state. Polls show that Canadians, Mexicans and Americans all think that their neighbors have benefited more from NAFTA than they did. Yet to ask whether Canada, Mexico or the United States "won" or "lost" tells us little or nothing. The reality is that the corporate investor class in each country generally "won" and working people generally "lost." The private corporate sector in each nation was strengthened and the public sector was weakened. We need a language that reflects how the economic interests of a working family in Canada will have more in common with working families in Mexico and the United States than with the CEO of a continental enterprise headquartered in, say, Toronto.

Creating a continental political consciousness does not mean forming one nation. Few are ready for that. In particular, polls show a majority of Canadians and Mexicans opposed to the proposition that the United States might absorb them. At the same time, a majority in each country says it would support the creation of a new North American country (i.e., not just a larger United States) if it would result in a higher quality of life. Indeed, some three-fourths of Canadians say that some sort of political union with the United States is likely within the next 10 years, and some 40 percent think it likely that the United States will absorb the entire country within a decade. On the other hand, only 15 percent say they want Canada to be more like the United States.

Another recent poll showed that despite their willingness to contemplate closer union with the United States, a majority of Mexican leaders think that NAFTA has been a bad bargain for their country. Despite the promises since 1994, Mexico's growth is still not enough to absorb its expanding labor force, and the distribution of income and wealth has gotten more lopsided. With half the population living on about $z a day, the definition of middle class in Mexico today is someone who can afford toothpaste and shampoo. Meanwhile, jobs that had been outsourced from the United States and Canada are now moving from Mexico to China, where labor is even cheaper. The fact that Mexico desperately needs to keep sending people to the United States-both to reduce unemployment and to maintain the flow of emigrant remittances-is one of the many implicit acknowledgements that NAFTA did not deliver.

Moreover, Mexico is now facing a NAFTA-generated political crisis in its agricultural sector, which employs one-fourth of the country's labor force. In order to placate Mexican farmers concerned about competition from highly subsidized U.S. and Canadian food imports, the Mexican government promised them generous financial and technical aid. The assistance never came. Moreover, last year's massive new subsidies for U.S. agribusiness put them in a position to further undercut Mexican farmers when tariffs are further reduced on many farm products beginning Jan. 1, 2003. In recent weeks, angry Mexican farmers have blockaded roads, hounded Fox and disrupted the Mexican Senate to demand that NAFTA's agricultural rules be renegotiated. The Mexican government's response is that it has no power to reopen an international treaty, so the conversation stops there. Yet in a common market, the costs of the massive dislocation in rural Mexico will not be borne by Mexico alone. As we have seen already, displaced rural families will join the migrant stream and head north.

A NAFTA WITH CITIZENS

The first step in building a progressive continental politics is for progressives of each country to join in a demand to amend NAFTA by adding enforceable human and labor rights, social protections and the preservation of local democracy. Proposing a formal revision of NAFTA would take the discussion out of the seminar rooms and watering holes of corporate lobbyists and bring it out into the open, where the electorates of all three countries could share the dialogue over a common future that was denied them in the first NAFTA debate.

This in turn requires the building of a cross-border organizing infrastructure. Given the disparity in income and development, labor and NGOs in the United States and Canada need to help nurture the struggling independent labor movement and the thin civil society in Mexico. Progressive legislators in all three countries should begin meeting and working out proposals-covering issues such as corporate governance, public health and safety, investment in education-that could be simultaneously introduced in all three capitals. Labor and environmentalists in all three countries would bring simultaneous actions in the existing side-agreement institutions to demonstrate their weakness and to work out the principles of a continental social contract.

An amended NAFTA could reflect a new bargain among the citizens-as opposed to the business interests-of the continent. It would therefore include assistance to Mexico in building its economic and social infrastructure, just as the European community has redistributed funds to its poorest members in order to create a more balanced economy.

As part of the bargain, continent-wide labor, human-rights and environmental protections ought to be established to prevent the erosion of living standards in Canada and the United States, and to ensure that Mexican workers share in the benefits of growth. Chapter 11 should be removed, as well as other provisions that erode the ability of the local public sector in all three countries to promote the welfare of its citizens.

Progressives need to pose the central question: What do we want the future of North America to look like? For example, do we want a social contract that looks more like Canada's balance of class interests or something more like the American/Mexican blend of socialism for the rich, economic insecurity for the middle class and contempt for the poor? Despite all the obvious difficulties in developing a crossborder politics around this question, if progressives want to influence this historic interlocking of the three societies, they have little choice but to grasp hands across the borders and work together to build a shared economy that serves all of the continent's working people. The North American constitution will otherwise continue to be written on the NAFTA template, side agreement by side agreement, sealing off more and more public decision making from the reach of those noncorporate humans who are citizens of Canada, Mexico and the United States-but not yet of North America.

JEFF FAUX, the founding president and current Distinguished Fellow of the Economic Policy Institute, is writing a book on the future of North American integration

Corporate Control of American Democracy

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