Political and Financial History of Mexico before the adoption of NAFTA:
Critical events in the 1980s that undermined the position of labor
Mexico’s political past has been turbulent. During the long dictatorship of Porfirio Diaz, foreign investors, mainly American, owned 77% of Mexican industries and nearly all its mines and oil-production facilities. Four-fifths of all agricultural land was owned by 834 landlords.
The Mexican Revolution of 1910, led by Emiliano Zapata and Pancho Villa, returned the communal lands, or ejidos, to the peasants. The new Constitution, written in 1917 prohibited foreign ownership of oil and other mineral resources and protected the rights of industrial workers.
Mexico experienced a period of political instability following a Roman Catholic rebellion in the 1920s. A Christian fanatic assassinated President Alvaro Obregon in July 1928. Because the leader of the state-supported trade union, CROM, was implicated in the assassination plot, the government withdrew its support from this organization and it fell apart. Several new trade-union groups were created.
Meanwhile, a split developed within the ruling political party between former President Elias Plutarcho Calles and the newly elected President Lazaro Cardenas. Leaders of several trade unions formed a “Committee of Proletarian Defense” to support Cardenas.
After defeating Calles, President Cardenas reorganized the ruling party and merged the unions that had backed him in the struggle to form the Confederation of Mexican Workers (CTM). To keep labor from becoming too powerful, Cardenas created a separate union for farmers and small property owners, and another for public employees. He then merged these different groups into the ruling party.
During World War II, the government-controlled unions in Mexico signed a pact with management groups pledging not to strike. The U.S. Government, needing replacements for Americans who had been drafted into the war, brought thousands of Mexican workers into the United States to perform agricultural labor under the “bracero” program. This program lasted from 1940 to 1965. It exposed Mexicans to the economic advantages of living in the United States and exposed U.S. employers to the financial rewards of employing cheap Mexican labor.
In 1965, the Mexican government established the Mexican Border Industrialization Program to absorb the terminated bracero workers returning to Mexico. Under this arrangement, businesses could build factories in the 12.5-mile-wide strip of land running along the border with the United States and import capital goods or raw or semi-finished materials for use in these factories duty-free. Furthermore foreigners were allowed to have majority ownership. In return for these concessions, the Mexican government required that 100% of the goods produced in the border factories be exported to the United States or sent to another country.
The U.S. Government responded to this program by allowing metal and other products manufactured outside the United States to re-enter the country with a tariff levied only on the value-added portion of the product. The export-production factories became known as maquiladoras.
Mexico’s program of industrialization originally focused on the domestic market. Major sectors of industry including oil, telephone service, and the airlines were state-owned. Agriculture underwent a transformation from small-scale production on communal lands to specialized farming on larger, privately owned lands. Chemical fertilizers were introduced. Many peasants, forced off the land, went to work in the cities.
Aiming at economic self-sufficiency, the Mexican government limited foreign ownership of business and protected domestic businesses with high tariffs. At the same time, though, the Mexican economy underwent what some have called a “silent integration” with the U.S. economy. Many Mexicans crossed over the U.S. border to pursue better employment opportunities. Mexico continued to import large quantities of capital goods from the United States, thus increasing its dependency upon U.S.-made products.
Despite restrictions upon foreign ownership of business, Americans in 1970 controlled more than 50% of Mexico’s automobile, chemical, mining, rubber, tobacco, computer, and pharmaceutical industries. Nevertheless, the Mexican economy was booming. the pace of industrialization picked up around 1955. Mexico’s GNP grew at an average annual rate of 6.5% for the next three decades. Real wages steadily increased. One spoke of a “Mexican miracle”.
A worldwide “oil shock” occurred in 1973 as OPEC producers conspired to drive up the price of petroleum. Suddenly, Arab kings, Sheiks, and emirs were awash in funds needing to be invested or spent. The U.S. banks with whom large amounts of their money were deposited needed to recycle these “petrodollars” in some profitable way.
Loans to Latin American governments were poplar with international bankers in the 1970s because their countries had a history of rapid and sustained growth and the governments’ full taxing authority underlay repayment. Besides, the interest rates, commissions, and fees for such loans were quite high. So in those “go-go” years of international banking, U.S. and other foreign banks pressed additional loans on Mexico. Its long-term debt rose from $5.9 billion in 1970 to $88.7 billion in 1988.
The Mexican government used the proceeds from the loans to finance development projects which often involved purchases of capital equipment and skilled labor from the United States. Facing popular unrest, it also spent money on social-service programs. Mexico’s business and political elite skimmed off large sums of money, which were often transferred to foreign banks for safekeeping. It is estimated that by 1990 more than $60 billion had fled the country in this manner.
As Mexico’s debt load mounted, so did interest payments to foreign banks. Annual payments on the long-term debt rose from $283 million in 1970 to $7.6 billion in 1988. It became necessary for the Mexican government to borrow short-term funds from the International Monetary Fund and commercial banks to pay the interest.
A crisis occurred in 1976 when the government of Lopez Portillo was forced to meet various IMF-imposed conditions for continued borrowing, which included wage controls, devaluation of the peso, and cuts in government spending. After the Portillo government announced that Mexico had larger oil reserves than expected, bank credit again became plentiful. The price of oil rose in the late 1970s, giving Mexican leaders a renewed sense of confidence. They continued to borrow.
In 1982, however, oil prices plunged while interest rates remained at historically high levels. Mexico’s total earnings from oil exports barely covered the interest on its external debt. The Portillo government announced that Mexico could not meet its debt obligations.
A confidential U.S. State Department memo leaked then to the New York Times revealed the Reagan Administration’s hopes that “Mexico ‘might sell more gas and oil to us at better prices.’ Mexico ‘with the wind out of its sails’ might be more willing to ease restrictions on foreign investments ... and ‘be less adventuresome in its foreign policy.’” President Portillo responded to the financial crisis by nationalizing the banks. He also negotiated a humiliating agreement to sell oil to the United States for its strategic petroleum reserve for $4 a barrel less than the world price.
After struggling for another four years, the Mexican government disclosed in June 1986 that it was considering a moratorium on debt payments. Chairman Paul Volcker of the U.S. Federal Reserve Bank flew down to Mexico City to warn his colleagues there against making such a rash move. President Miguel de la Madrid backed off his threat. Instead, he appointed a new finance minister, Carlos Salinas de Gortari, who was more sympathetic to U.S. interests. Mexico subsequently loosened its restrictions on foreign investment and joined GATT.
Meanwhile, the U.S. Secretary of the Treasury, James Baker, unveiled a new program to deal with Third World deb which called for private commercial banks to make new loans to the debtor nations in exchange for accepting “structural adjustment programs” (SAPs). These SAPs gave the banks unprecedented control over the nations’ economic policies. Specifically, they encouraged debtor nations to privatize state-owned businesses, devalue currencies, control wages, and liberalize trade. Even this failed to attract new money from the banks so a subsequent Secretary of the Treasury, Nicholas Brady, came up with another plan which offered minor debt relief in exchange for collateral guaranteeing the remaining loans. The SAPs were continued.
Mexico, at any rate, had turned the corner. There would be no more talk of defaults or debt moratoriums but only full-hearted cooperation with the banks. Whatever it took, Mexico would come up with the money to service its foreign debt. Domestic consumption would have to be restrained, and exports pushed. There would have to be a reversal, in other words, of Mexico’s previous policy of inward development aiming to improve Mexican living standards.
President Miguel de la Madrid and his young protege, Carlos Salinas de Gortari, who succeeded him as President, were architects of the new approach. Their immediate task was to slash government spending and bring inflation under control. In the long range, they hoped to attract enough foreign capital to Mexico that the Mexican economy would grow faster than the debt payments and living standards would eventually improve.
Abandoning the old approach, they pursued instead what a World Bank report in 1985 called “a fast and far-reaching liberalization of the trading regime, aimed at expanding the tradables (export-KM) sector.” Average tariff rates on imported goods were reduced from 28.5% to 11% between 1985 and 1988. The reference pricing system, which set minimum prices for imports, was eliminated in 1988. The number of products requiring import licenses declined from 92.2% of the total in 1985 to 23.2% in 1988. An aggressive program of privatization reduced state ownership of business and relaxed restrictions on foreign investment. Between 1982 and 1989, 80% of 773 government-owned enterprises were sold to private investors, mainly foreigners. They included the telephone company, banks, airlines, mines, steel mills, food-packing plants, and roads. The international bankers and business executives loved it.
These moves to open up Mexico to foreign investment and trade were accompanied by a strenuous regimen of domestic belt-tightening. To fight inflation, the government controlled wages and cut public spending while allowing other prices to rise. The “Solidarity Pact” which the government imposed on workers in December, 1987, did finally bring inflation down. Even so, the real wages of Mexican workers declined by more than 60% between 1982 and 1989. The average hourly manufacturing wage declined from a high of $3.81 in 1981 to $1.57 in 1987 in terms of U.S. dollars. In the maquiladoras, manufacturing wages were substantially lower than that - between $.55 and $.60 an hour.
Another element of the anti-inflationary policy was to cut government spending for social programs. Real spending for programs in the areas of education and health care dropped by more than 50% between 1982 and 1990 as the need for them increased. Meanwhile, the percentage of public spending allocated to the rural areas, where poverty was worst, declined from 19% to 5%. The system of communal farming broke down due to lack of government credits, and much of the land was rented to private interests. As a result, corn production in Mexico, providing a staple of the Mexican diet, dropped from 14.6 million tons in 1981 to 11.6 million tones in 1987. Mexico had to import 41% of the beans its people consumed.
The Salinas created a new program called PRONASOL to coordinate government efforts to treat cases of extreme poverty. However, its annual budget of 2.8 trillion pesos represented only 0.12% of Mexico’s federal budget.
In 1986, as the Mexican government’s austerity program went into effect, two front-page articles in the Wall Street Journal reported that the budget cuts seemed to be directed in ways that would cause lasting damage to Mexico and its people. One article called this approach “the wrong kind of austerity”, adding that “governments have generally been reluctant to handle political hots potatoes ... (but) ... have cut capital spending for development projects to the bone and trimmed outlays for maintenance as well. The result: Latin America’s existing transportation and other facilities are falling apart, and new development projects lie unfinished or unbuilt.” For instance, a new highway from Altamira to Tampico, excavated in 1981, had become a bed of wild flowers give years later.
The other article told of the intense human suffering that accompanied the cuts in social programs. To “experts working in Latin America,” the article said, “the empirical evidence lead to an inescapable conclusion: A whole region is being pushed backward, so that what was once the middle lass now plunges toward poverty, and what was once the poorer class now lives hand to mouth.” The intense poverty was producing “severe malnutrition” in children. Many died or incurred mental retardation.
In contrast, the article also described a meeting between Richard Webb, former president of Peru’s central bank, and creditors in New York where “one banker began expounding on his warm feelings for Peru and on the “human cost” of its predicament. Mr. Webb first thought he was talking about starving Peruvians. Then he realized, to his horror, that the man was referring to the strain on bankers like himself.”
In Mexico, the millions of workers belong to state-controlled unions are required to belong to PR, the ruling party, as a condition of employment. They contribute financially to the party through a dues-checkoff system. Following the structure set up by Lazaro Cardenas in the 1930s, PRI contains a labor section known as the Congress of Labor”. This body consists of several major confederations of which the Confederation of Mexican Workers (CTM) is the largest and most important ...
The most powerful labor official in Mexico is Fidel Velazquez, general secretary of the CTM, who has been in his present position since 1940. With sunglasses and slicked-back hair, Velazquez has been called “the Al Capone of Mexico’s labor relations”. A phrase more often used in Mexico is “El Charro”, or “the Cowboy”. Originally this term referred to Jesus Diaz de Leon, a colorfully dressed union leader who was bought off by the government in the 1948 railroad strike. The “El Charro” type of union leader mixes bureaucratic corruption with violence. In the course of those activities, he serves a useful function for the foreign business leaders whom President Salinas has so assiduously courted.
Nicholas Scheele, Ford of Mexico’s managing director. summed up the situation in these words: “It’s very easy to look at this in simplistic terms and say this is wrong. But is there any other country in the world where the working class ... took a hit in their purchasing power of in excess of 50% over an eight-year period and you didn’t have a social revolution?”
Labor naturally became restive under those conditions. After all, Mexican workers have a constitutionally protected right to organize and to strike which even President Salinas would find hard to deny. The challenge was met with audacity and violence:
When workers at the Cananea copper mines in norther Mexico decided to strike for better wages in August 1989, the state-owned firm declared bankruptcy. On the same morning, between 3,000 and 5,000 soldiers of the Mexican army seized the mines and turned away miners reporting to work. The government proceeded to terminate all employees, offering minimal severance pay. Only after workers blocked highways and occupied government offices in the town of Cananea was the union able to renegotiate a rescission of the bankruptcy decision and restore most workers’ jobs.
The 1990 strike at the Modelo Brewery in Mexico City involved the national union’s refusal to let workers elect their own local leadership and the government’s refusal to recognize their right to strike. CTM’s general secretary, Fidel Velazquez, miffed at the removal of a crony, abolished the local union, created a new one, and aggressively recruited replacements for the striking brewery workers. A judge made the union post a bond of one billion pesos to cover possible property damage to the company. Armed riot police and firemen attacked pickets outside the brewery on the morning of March 17, 1990, and hauled the strikers away to a distant place where they were dropped off at the side of the road. In the end, the persistent union saved all but 100 jobs.
President Salinas himself may have had a grudge against the national head of the Petroleum Workers Union, Joaquin Hernandez Galicia, who had supported (Cuauhtemoc) Cardenas in the 1988 election. On January 10, 1989, police officers and army units attacked the labor leader’s home in Ciudad Madero, using a bazooka to glow off the front door of the house. Hernandez was arrested and charged with murder in the death of one of the attacking officers. Later, rejecting the choice of local union leaders, the government orchestrated the election of a new national union president. This official agreed to significant contract concessions and raised no objection to the government’s sale of PEMEX subsidiaries to foreign investors.
When workers at the Tornel Rubber Company petitioned to change their union affiliation from CTM to CROC, the Federal Board of Conciliation and Arbitration postponed the election date five times in one year. On May 3, 1990, five Tornel workers including the union’s principal leader were kidnapped at gunpoint, beaten, and then released. When the certification election was finally held in August 1990, workers arriving at the polls were attacked and beaten by a gang of 200 men wearing CTM tee shirts, accompanied y local police officers and the mayor. CTM won a subsequent election in November because the workers, fearing violence, boycotted it. In the meanwhile, the company fired 650 of 1,200 workers at the plant and replaced them with CTM recruits.
In 1987, Ford of Mexico laid off all 3,400 workers at its Cuautitlan assembly plant near Mexico City, terminated the labor contract, and then rehired may of the workers at greatly reduced wages. When the workers elected their own negotiating committee, Ford fired its members. Workers staged a work stoppage at the plant in December 1989 to protest a reduction in the amount of the Christmas bonus and to demand that CTM’s local representative be replaced.
One might gain the impression from this that Mexico’s union workers are among its least fortunate people. In fact, they are comparatively well off. The unions are a relic of those days when Mexican economic policy was directed toward achieving domestic prosperity. With increased debt came a shift in priorities. IMF conditions for extending further credit called for Mexico to devalue the peso and control wage increases so that Mexican goods might become more competitive. Union wages and benefits, reflecting the fruit of labor struggles over the years, represented a type of privilege that had to be cut down to size: hence,the wave of privatizations, wholesale layoffs, and terminations or adjustments of labor contracts.
An important influence in that direction has been the maquiladora program concentrated along the U.S.-Mexico order. Originally intended to absorb returning bracero workers, this program has grown into a network of plants in which foreign corporations - 90% of them U.S.-owned - could produce goods for export in an environment of cheap labor, low duties and taxes, and a lack of regulatory requirements. There has been a virtual explosion in the number of maquilas and of workers employed at such plants. From 3,000 workers employed in 1965, it first year of operation, the number of persons including administrative employees working in maquiladora facilities has increased to 459,837 in 1990.
Many large U.S. corporations participate in this program including General Motors, Ford, Chrysler, Zenith, General Electric, A.C. Nielsen, and Kimberly-Clark. the Mexican border towns and cities in which these plants are located have grown rapidly. The combined populations of Juarez, Mexicali, and Tijuana, for instance, have increased five-fold since 1960.
A common belief is that, when a First World employer opens factories in a developing country, it attracts labor by offering superior wages and benefits. In the case of the maquiladora plants, however, their prevailing wages are generally below the wages paid elsewhere in Mexican industry. Some estimates put the average wage of a unionized worker in Mexico’s domestic economy at a level three to four times higher than wages paid in the maquilas. According to the New York times, a typical starting wage for a maquiladora worker is 82,000 pesos, or $27, for a 49-hour workweek, which averages about $.55 an hour. A more experienced worker might earn 140,000 pesos, or $47 a week, and also receive a subsidized lunch.
The maquilas show a lower rate of unionization than in Mexican industry as q whole. Those in the east, south of the Texas border, tend to be more unionized than ones out west. Some plants are covered by “protection contracts” - so named because they protect employers from organizing attempts y other unions - which set wages and benefits at a level below the requirements of federal labor law. Some workers in the maquila plants are simply unaware of being covered by a union contract. The Federal Board of Conciliation and Arbitration often refuses to register independent or democratic unions, preferring the established, “charro” type.
Working conditions are such that employee turnover at some maquiladora facilities exceeds 180% per year. conditions may vary, of course. Alan Brown, who toured several plants in Juarez, returned home to report to his local newspaper: “I saw very clean factories, with gleaming cafeterias that provide subsidized, practically free meals to the workers. I saw free in-plant medical services ... Everywhere I saw an enthusiastic and happy work fore.” Jack Hedrick a UAW official from Kansas City, hold of having seen female workers in the factories who wore high-heeled shoes and expensive-looking dresses: this was apparently part of the company dress code.
While one should not dismiss the possibility of pleasant working conditions inside some plants, other reports tell of production speedups, long and tedious work, poorly ventilated or overheated work areas, and safety hazards. Jorge Carrillo and Alberto Hernandez have described the work at certain maquilas in Ciudad Juarez as being “monotonous and repetitive. A female worker in the electronics industry, for example, in one day has to solder 2,000 pieces of a size what is hardly visible. The intensity of the work has to be hard and constant in order to achieve the established production goals, which are generally based on the standards of production of the fastest workers.” Most employees there work more than the standard nine hours a day, including much overtime and some double shifts.
An article in the Wall Street Journal acknowledges the poor working conditions that exist in many maquiladora plants. It reports: “Maquilas are generally non-union, set production quotas at rates at least 10% above those in similar factories north of the border, and grant little or no extra pay for seniority ... (S)ome maquilas resemble sweatshops more than factories. They lack ventilation, and workers may pass out from the heat and fumes. Production demands can put them at risk; Edwviges Ramos Hernandez, a teacher in Juarez, worked at one factory where in a year three workers had fingers sliced off. The machines, she says, were set at a maddening pace.”
“ In Tijuana, Zenaida Ochoa ... sews garments for nine hours straight in a tin-roofed enclosure that sizzles in the summer heat. She makes $60 a week, which is higher than most - but a chicken costs a tenth of that. She is plagued by back pain from hunching over her sewing machine all day, and says, ‘My eyes burn from staring at the needle.’ A fellow worker, she relates, tried to organize a union to get better pay and working conditions - including toilet paper in the restroom- and was fired.”
A noticeable feature of employment in maquilas is the prevalence of female workers, said by some plant managers to have “more patience and manual dexterity” than male workers. Today about two thirds of such workers are female - down from 87% in the period between 1974 and 1982.
The situation of employment employing mostly women and making men economically redundant has caused some social problems in Mexico with fatherless families and delinquency. Moreover, female employees are reported to be frequent victims of sexual harassment by male supervisors. There are, reportedly, “Friday night rape parties” and weekend outings involving “use of the women workers by the supervisors and managers ... (which) ... creates divisions among the women workers themselves as they determine who went out with whom and who would not.” A Canadian, Deborah Bourque, reports that “women routines face dismissal on becoming pregnant. In some factories women are required to show proof to staff doctors that they are menstruating.”
Outside the maquiladora plants, there is abundant evidence that both nature and humanity are suffering. A Wall Street Journal article described the border region between Mexico and the United States as “a sinkhole of abysmal living conditions and environmental degradation. A huge, continuing migration of people looking for work has simply overwhelmed the already-shaky infrastructure. Shantytowns spring up overnight around border cities where there is little or no living space left; some of the 400,000 maquila workers pay more than a third of their monthly income to share a bed in one room occupied by six others.”
In Nogales, there were seven people for every available room. Some workers and their families constructed primitive huts of cardboard or cinder blocks. Some slept outdoors, huddling against each other for warmth. The home less workers scrounged for building and other materials from the refuse of the maquilas. One family kept its water supply in a 55-gallon drum with a brightly colored label warning that its former contents were fluorocarbon solvents whose vapors were fatal if inhaled.
The maquiladora communities could not provide public facilities for these people because, paradoxically, they lacked a tax base. When the Mexican government in 1988 proposed to levy a 2% tax on maquiladora wages to pay for infrastructure improvements, factory owners killed the idea. “Several say that they are in Mexico to make profits and that infrastructure is Mexico’s problem, not theirs,” the Wall Street Journal explained. The local government officials were fearful that if they pushed the tax issue, the foreign employers would pack up and leave.
The next logical step was to extend the maquiladora model of cheap wages and nonexistent regulation to a much broader area. Management consultants were busy talking up the advantages of maquiladora production in cities across Canada and the United States. Some were claiming, for instance, that each manufacturing job shifted from the United States to a maquiladora factory in Mexico saves the employer about $30,000 a year, including benefits. In addition, a handout at a seminar promoting such relocation pointed out that “operators of maquila plants do not have to carry expensive insurance to cover workers against work-related hazards.
Because congested living conditions and ecological damage inflicted upon the U.S.-Mexico border region limits future industrial growth in that area, Mexico changed its laws to allow maquiladoras to operate farther inside the country. Still, some U.S. employers felt safer close to the United States. A free-trade agreement with Mexico would ease those concerns. Not only would Mexico open up its entire country to duty-free production but it would agree to various other conditions that would comfort business officials. The Mexican government’s free-trade agenda aimed to convince international business that any investments made in Mexico are completely safe.
There was a precedent for this in the free-trade agreement which the Reagan Administration concluded with Canada in 1988. Like the unification of nations in western Europe in the European Economic Union, the free-trade agreement which the United States negotiated with Canada and later with Mexico contemplated the complete elimination of tariffs and other trade barriers for products traded internally among the member states. Unlike it, the North American agreements did not involve a common currency or a harmonized schedule of tariffs with respect to external trading partners. Neither did these agreements in North America contain a “social charter” like that of the European Community nations, featuring the right to adequate wages, the right to job training, and the right to health and safety protection in the work place. Such a charter would preclude production of goods according to the maquiladora model.
During the 1980s, conservative governments came to power in all three North American countries, replacing more liberal regimes. Ronald Reagan replaced Jimmy Carter as President of the United States. Brian Mulroney replaced Pierre Elliott Trudeau as prime minister in Canada. Miguel de la Madrid and Carlos Salinas de Gortari replaced Lopez Portillo in Mexico. Economic changes accompanied the changes in political administrations. The new leaders were much more willing to accommodate corporate and financial agendas with respect to free trade. The first fruit of this new policy was the 1988 United States-Canada Free-Trade Agreement which President Reagan described as “one of the most comprehensive agreements on trade ever negotiated between two nations. It provides for the elimination of all tariffs, reduces many non-tariff barriers, liberalizes investment practices, and covers trade in services.”
Such an agreement with Mexico would have to wait until the proteges of the American and Mexican presidents themselves came to power in the late 1980s. Reagan’s Vice President, George H.W. Bush, was elected President in 1988. Also that year, Carlos Salinas de Gortari won the presidential election in Mexico by a bare 50.1 percent of the vote over the PRD candidate, Cuauhtemoc Cardenas, thanks to computer “malfunctioning” and suspected election fraud. The unpopularity of free trade in Canada and the other two countries did not stop the newly elected Presidents from pushing for this change. To American audiences, President Salinas framed the issue of free trade in terms of a choice which Americans would have to make between importing Mexican products or Mexican people. Without free trade, he suggested to a group of U.S. newspaper editors, people would be migrating from Mexico to the United States “not by the hundreds or thousands but by the millions.” Yet, the topic of Mexican immigration remained off limits in the trade negotiations.
When President Bush and Salinas announced their intention to pursue a free-trade agreement in September 1990, they proposed an agenda for the bilateral talks. As stated in a U.S. International Trade commission report to Congress in February 1991, this agenda was as follows:
From this framework, the two nations negotiated to reach an agreement that met their particular concerns. The United States wanted tough rules of origin to ensure that its trade rivals in Asia and Europe would not use Mexico as a platform to bombard the U.S. market. It wanted adequate “legal protection for U.S. patents and technology”, elimination of Mexico’s constitutional restrictions on foreign investment, and, most importantly, access of American investors to Mexico’s undercapitalized oil industry. Mexico, in turn, wanted the United States to eliminate import quotas on textiles and steel and to open U.S. markets to certain fruits and vegetables from Mexico that were currently prohibited.
When Canada entered the trade negotiations in February 1991, the talks became trilateral. Canada wanted to press its trading partners on increased access for Canadian banks to U.S. and Mexican markets. The Canadians wanted “improved access to the U.S. government procurement market”, including removal of discriminatory barriers” such as “Buy American” provisions and set-asides favoring U.S. producers. The United States wanted Canada to repeal its laws favoring Canadian “cultural industries”. It also wanted Canada to repeal its “compulsory licensing laws” under which “a generic copy of a patented drug may be imported and sold in Canada after the drug has been on the Canadian market for ten years. The United States also wanted “to increase to 60% from 50% the North American content requirement for new cars and trucks that are traded duty-free.”
As the trade talks progressed through the session held in Seattle, it became clear that the agreement would not be ready by the end of 1991 as originally hoped. The new target was to wrap up U.S. Congressional approval of NAFTA before the November 1992 elections. Only in the area of selecting commodities for reciprocal tariff cuts had the tri-national negotiators achieved the consensus needed for an agreement.
Corn exports emerged as a principal stumbling block as the trade talks moved into December. U.S. corn growers pressed for more access to the protected Mexican market. The Mexican government was encouraging the 2.3 Mexican crown growers to diversify into other, more profitable crops. Part of its strategy involved privatizing communal forms The problem was that any such restructuring of agriculture would bring massive displacement of persons working on the farms.
The Wall Street Journal reported: “U.S. negotiators are on the horns of a dilemma. If they force Mexico to open its borders wider to overflowing U.S. corn silos, that could set off a new flood of Mexican farm laborers into the U.S., the very problem that the free-trade pact is meant to help resolve.” Research conducted by Dr. Hinojosa Ojeda of UCLA estimated that about 850,000 heads of household would leave Mexican farms if corn subsidies fell. More than 600,000 of this group might be expected to head for the United States.
The political battle over adoption of the North American Free-Trade Agreement aroused public interest and debate in the United States as no other trade-related proposal had in many a year. “We’ve never had a trade issue that has been this hot,” said Harry Freeman, a business lobbyist. Public Citizen opposed NAFTA because it would weaken pesticide and other health regulations The Child Labor Coalition was opposed to the potentially increase exploitation of Mexican children. The AFL-CIO was concerned about possible loss of U.S. jobs to cheap labor. Greenpeace and the National Wildlife Federation criticized the environmental degradation experienced in the Maquiladora border region. In March 1991, Rep. Dan Rostenkowski warned a meeting of business leaders that groups such as these were mobilizing against NAFTA. “If you want to win this thing, move your ass,” he exclaimed.
Move it they did. The Wall Street Journal reported that “corporate America (has) assembled a virtual lobbying Who’s Who, including corporate heads from American Express, Procter & Gamble, and many blue-chip firms. The business forces set up a non-stop schedule of meetings with lawmakers. In a show of bipartisan support, a business delegation led by two former U.S. trade representatives, Democrat Robert Strauss and Republican William Brock, met with President Bush. Mexico, which had not previously employed Washington lobbyists, suddenly and massively changed policy. It hired an “A-team” of Washington lawyers and lobbyists to support the free-trade pact.
The political effort was directed at persuading Congress to extend “fast-track authority” for the President to negotiate trade agreements on behalf of the country. After they are negotiated, Congress is forbidden to offer amendments to the agreement but must vote the entire package up or down. On May 23, 1991, the U.S. House of Representatives defeated a motion to deny fast-track authority by a 231-to-192 vote. The Senate approved fast-track by a 59-to-36 vote on the following day. One of the hurdles had been passed. On the other hand, the House vote approving presidential fast-track authority was followed by a vote on a non-binding resolution proposed by Rep. Richard Gephardt which conditioned approval of fast track to the President’s living up to his commitments with respect to labor, environmental, and health standards. This resolution passed by a 329-to-85 vote.
Final approval of NAFTA was complicated by the 1992 presidential elections which brought a Democrat, Bill Clinton, into the White House. During the campaign, Clinton announced that his support of NAFTA was conditioned on negotiating “side agreements” which Mexico to protect labor and the environment. As President, Clinton twisted arms in Congress to pass NAFTA as a package and succeeded.
Behind the scenes, the story of NAFTA’s passage is told in a book by Rick Mac Arthur, the publisher of Harper’s magazine, which is titled “The Selling of Free Trade: NAFTA, Washington, and the Subversion of American Democracy.” Mac Arthur told Bill Moyers that the “NAFTA campaign of the '90s ... (was) .. an attempt by the Democratic leadership -- at that time, Bill Clinton -- to raise money from Wall Street. They're trying to compete head to head with the Republicans in their own pool.”
In other words, Wall Street donors were willing to contribute money to Democratic political candidates on a rough parity with the Republicans as long as Democratic presidents supported policies of free trade. With that understanding, President Clinton was willing to give them a victory. The Democratic Party’s historic ties with organized labor meant less in a policy crunch than the prospect of a plentiful flow of funds in future election campaigns.
Note: This narrative is adapted from William McGaughey’s book, “A U.S.-Mexico-Canada Free-Trade Agreement: Do We Just Say No?”, published in 1992. Much of the material, in turn, is based on information in a then unpublished manuscript by Daniel La Botz titled “ A Strangling Embrace: State Suppression of Labor Rights in Mexico”, later published by the International Labor Rights Education and Research Fund in 1992. William McGaughey was also an international human-rights observer at a union election held at the Cuautitlan Ford plant near Mexico City in June 1991.
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