Lessons from NAFTA for the Trans-Pacific Partnership

Source: The Cipher Brief

There are many lessons from the North American Free Trade Agreement (NAFTA) that are relevant to the current debate over the Trans-Pacific Partnership (TPP). First, like the TPP, NAFTA was never mostly about trade and even less about free trade. In 1994, the U.S. already had low tariff barriers to Mexican goods. The agreement was much more about creating and expanding new rights and privileges for investors, mostly multinational corporations. For example, the Investor to State Dispute Settlement (ISDS) provision of NAFTA allowed corporations to sue governments directly for laws or judicial decisions that infringed upon their profits. This became a threat to environmental, food safety, public health, and other regulation. The main concern is that the sovereign laws and judicial systems of the signatories of treaties such as NAFTA could be subordinated to a tribunal established by the agreement, without the guarantees and extent of due process of, for example, the U.S. legal system, and judges who were generally more sympathetic to corporations than to the public interest.

The ISDS is one of the most important provisions of the TPP that has evoked opposition from environmental and other public interest groups. Proponents of the treaty argue that we now have ISDS in dozens of international agreements, and there have been only 13 judgments against the U.S. But, as economist Jeffrey Sachs has pointed out, corporations are just getting started with using this advantage: “In 1995, only a handful of ISDS cases had been filed; as of the end of 2014, there had been more than 600 known claims (because most arbitration can be conducted in secrecy, there may have been many more claims).”

Since NAFTA, economists have also learned that the gains from the parts of these agreements that have to do with trade are extremely small. The most widely cited estimate of the gains to the U.S. from the TPP come to about 0.4 percent of GDP after 10 years – that’s total, not annual gain. This would be barely noticeable. And worse, the likely impact of the TPP on wage inequality would wipe out these gains from most wage earners, so that most people would be worse off as a result of the agreement. Even worse, the TPP’s provisions that strengthen and lengthen patent and copyright protection, according to the drafts that have been leaked, would have even more of an impact in the upward distribution of income. It is no exaggeration when opponents of the TPP refer to the agreement as a “corporate power grab.”

Of course, Mexico did pretty badly in the 20 years following NAFTA. While Latin America as a whole did very badly in the last 20 years of the 20th century (total growth in GDP per capita was just 5.7 percent over the two decades, as compared with 91.5 percent in the previous 20 years [1960-1980]), most of the region rebounded at the turn of the century. But Mexico’s per-capita growth was just 18.6 percent for 1994-2014, about half that of the rest of the region. Mexico’s poverty rate of 52.3 percent was almost the same as in 1994, thus adding 14.3 million people to the population living below the poverty line.

The lessons from NAFTA are a big part of the reason that the Obama administration is having so much trouble getting the TPP past Congress. Of course the TPP’s proponents have also learned lessons from NAFTA:  That’s why its contents have been kept secret from the public throughout the negotiations.

Mark Weisbrot is co-Director of the Center for Economic and Policy Research in Washington, D.C., and the President of Just Foreign Policy. He is also the author of “Failed: What the ‘Experts’ Got Wrong About the Global Economy (Oxford University Press, 2015).”