It hits you from hundreds of yards away, the rich
sweet smell of fermenting wood floating through the crisp air of a Chilean
night. The scent emanates from several huge mounds of wood chip, silhouetted
against the dockside floodlights. Dwarfing the wooden houses and shops
of the southern port of Puerto Montt, the mounds steam gently as they
await loading onto the Japanese ship which rides at anchor in the bay.
Each pile contains the remnants of a different species of Chilean tree,
hauled from the country's dwindling native forest.
Along the southern coast, the wire-mesh tanks of innumerable salmon
farms dot the picturesque fjords and inlets. On the beaches, the black
strings of pelillo seaweed lie drying, before being sent to Japan for
processing into food preservative. In the ports, the fishmeal factories
grind mackerel into animal fodder. All these products will be shipped
overseas as part of the Chilean export boom, a vast enterprise which
has turned the country into the fastest-growing economy in Latin America
and the flagship of the region's shiny new neoliberal model of development.
The phenomenon is being repeated across the region. On the runway at
Guatemala City airport, a forklift truck loads boxes of leaves into
a cargo plane. Within hours the lush tropical foliage will arrive in
Miami, for use in the next day's flower arrangements throughout Florida.
In Colombia thousands of women toil, drenched in pesticides and fertilisers,
among extraordinary swathes of colour.
They are growing carnations for sale by the florists
of Europe. Other, less palatable entrepreneurs have also got in on the
act; one drug kingpin of Colombia's Cali cartel was convicted after
22 tons of cocaine was found hidden in consignments of frozen broccoli
bound for the US.
These burgeoning 'non-traditional exports' are part of Latin America's
new thrust for export-led growth, cashing in on improved transport and
packing technologies to diversify the kind of primary products which
have traditionally dominated Latin American exports. The other side
of the export drive is an attempt to increase the exports of manufactured
goods, usually low-tech products such as shoes or textiles, or the output
of assembly plants, such as the maquiladoras strung along the US-Mexican
border, where imported components are assembled by cheap Latin American
The export drive lies at the heart of an ideological U-turn which has
swept across Latin America, a 'Silent Revolution' which has seen market
forces enthroned as the saviours of the region's economy, and the state
reviled as inherently corrupt and inefficient. The revolution took off
in August 1982, when Mexico slid into a debt crisis, swiftly followed
by the rest of Latin America. The search for debt relief pushed the
region into the arms of the IMF, which used its new-found influence
to pressure governments into introducing radical market-led solutions,
sometimes jokingly referred to as Thatcherismo.
The debt crisis marked the end of a 50-year experiment in 'import substitution,
during which governments concentrated on building up local industries
and supplying their domestic markets, and largely turned their backs
on world trade. As in Eastern Europe and other parts of the South, state
ownership failed to produce competitive industries, and by the 1970s,
import substitution was fast running out of steam. Governments staved
off collapse by running up huge debts, but when the crash finally came,
the debt burden merely made the ensuing 'adjustment' all the more painful.
The Silent Revolution has entailed huge social costs in the shape of
escalating poverty and inequality, while bringing meagre macro-economic
rewards. Its supporters still promise that take-off is just around the
corner but doubts are growing across the region. In trade terms, the
trip to market seems to have trapped the region in a backwater of world
trade as a producer of cheap raw materials for the powerful industrialised
Statistics and ideological debate, as always, only tell half the story.
Orchards fill the Aconcagua valley north-east of Santiago de Chile.
Parallel rows of peach trees stretch off to infinity, playing tricks
with the eye. The monotony is punctuated by the occasional fat-trunked
palm tree or weeping willow, shining with new leaf on a cold and dusty
Carlos Vidal is a union leader, president of the local temporeros, the
temporary farm labourers who plant, pick and pack the peaches, kiwi
fruit and grapes for the tables of Europe, Asia and North America. A
shock of black curls streaked with grey fringe his round, gap-toothed
face. A freezing wind off the nearby Andes blows across the vineyards
as Carlos tells his story.
On this land there were 48 families who got land under [former President]
Allende. We grew vegetables, maize and beans together, as an asentamiento
[farming cooperative]. There were a few fruit farms then, but we planned
them. After the coup the land was divided up between 38 families - the
others had to leave. Then it started to get difficult, we got the land
but nothing else -the military auctioned off the machinery.
Then the empresarios started to arrive, especially an Argentine guy
called Meliton Moreno. The bank started taking people's land - foreclosing
on loans -and Moreno bought it up. Three companeros committed suicide
here because they lost their farms. Meliton got bank loans and bought
yet more land and machinery. He planted nothing but fruit - grapes at
first, then others.
My father was a leader of the asentamiento. The first year after the
coup we were hungry, lunch was a sad time. We began to sell everything
in the house, then we looked for a patron to sell us seeds and plough
our land for us, and we paid him with part of the harvest. Next year
we got a bank loan and managed to pay it off, but the following year
they sold us bad seed. We lost all the maize and the whole thing collapsed.
We had to sell the land and Meliton Moreno bought it.
Of the 38 families, most are now temporeros. We all sold our land but
kept our houses and a small garden to grow food. Trouble is, even the
gardens are no good, the water's full of pesticides from the fruit.
This area used to be famous for water melons and now they don't grow
properly any more. They chuck fertiliser and pesticide everywhere, it
doesn't matter that the earth is dead because the fruit trees live artificially.
No-one grows potatoes or maize any more - it's cheaper to buy the imported
ones from Argentina.
Life is hard for the temporeros, most of them women. 'They work you
like a slave here, squeeze you dry then throw you out', says Roxana,
a smartly dressed 30-year-old. She can only find work during the harvest
and packing seasons, seven months in the year. The few permanent jobs
all go to men, she complains. Roxana's house is a wooden hut with a
tin roof, a few sticks of furniture, no heating and no glass in the
windows. The family bakes in summer and freezes in winter. Cold poverty
is not as blatant or exotic as the tropical poverty of Haiti or Nicaragua,
but the runny-nosed children are pale and bronchitic and the cold cuts
to the bone.
Carlos' allegations about pesticides have been confirmed by a series
of horrific birth defects. In the regional hospital at Rancagua, investigations
showed that every one of 90 babies bom with a range of neural tube defects
in the first nine months of 1993 was the child of a temporera working
on the fruit farms. The Rancagua figure is three times the national
average. Pesticide poisoning is a feature of non-traditional agriculture
throughout the region. Women in the Colombian flower industry report
miscarriages, premature births and respiratory and neurological problems,
while in Ecuador 62 per cent of workers in one survey said they had
suffered health disorders from exposure to pesticides at work.
The ownership of farms producing non-traditional exports varies widely.
In Chile or Colombia, many are in the hands of wealthy local growers,
while foreign ownership is widespread in Costa Rica. Of the 14 largest
flower growers there, only two are Costa Rican. The degree of foreign
control also varies according to the crop; Del Monte in Costa Rica and
Dole in Honduras produce the majority of pineapples and bananas respectively,
and control virtually all the transport and marketing (often the most
lucrative parts of the production chain).
Ownership tends to be in the hands of rich farmers, whether local or
foreign. Peasant farmers rarely have the access to technology or capital
required; flower plantations, for example, require a capital investment
of $80,000 per acre and few banks are prepared to lend such sums to
poor farmers. When small farmers do manage to scramble aboard the export
bandwagon, they run serious risks. Costa Rica's countryside is littered
with failures like that of Norberto Fernandez, a small farmer in the
north. Norberto received a loan in 1990 to switch from growing corn
for the domestic market to red peppers for export. He says that a non-traditional
promoter passed through his village 'promising riches, a new car, a
better house, education for my children,' if he switched crops. When
his crop of red peppers came in, Norberto was told they did not meet
export quality control standards. He had to sell his 30 cows to repay
There are other drawbacks to the non-traditional
craze. As more and more developing countries leap aboard the bandwagon,
the increased competition floods the market. As one author asked 'how
many macadamia nuts or mangoes can North Americans be expected to eat,
even at lower prices?' In the Aconcagua valley, growers are hacking
hectares of kiwi fruit trees because of a world glut. Chile's apple
growers suffered a different kind of setback in 1993 when they triggered
off a bout of first world protectionism by competing with EU producers
- the EU responded to a bumper apple crop at home by virtually closing
its doors to Chilean apples. This is little more than a new twist to
Latin America's historical travails with the terms of trade.
The silent revolution has done little to reduce the region's traditional
reliance on the commodity trade; two thirds of Latin America's exports
still stem from agriculture or mining. With each passing year the region
has had to export more and more raw materials to import the same amount
of manufactured goods. One study showed that some $75bn out of the $179bn
of debt accumulated by Latin America between 1980 and 1988, or 42 per
cent of the total, was accounted for by the deteriorating terms of trade.
The neoliberal response to falling prices resembles a hamster on a treadmill,
churning out ever greater quantities of raw materials to compensate.
Consumers in the northern countries reap the benefits of cheaper broccoli,
fresh strawberries at Christmas or exotic tropical leaves for their
winter flower arrangements, but in developmental terms, it is a strategy
with no future.
One of Thatcherismo's other favourites - privatisation - helped pushed
Latin America along the commodity trail, as foreign companies scooped
up controlling interests in newly opened up mining sectors and rapidly
boosted mineral exports.
In Chile, government economists acknowledge these limitations, and argue
for a new kind of industrialisation, based on natural resources and
destined for export rather than import-substitution. Chile should export
wine, not grapes, and furniture instead of wood chip. By processing
natural resources before selling them, Chile would capture more of the
final selling price of the finished product, made up of the price of
the original commodity, plus the 'value added' in turning it into something
fit for a supermarket shelf. In the longer term, it should try and mimic
Finland, which successfully found a niche in the
world market when it developed timber processing and paper machinery
on the foundations of its forestry sector.
To date, however, the Chilean government has failed to shake off its
neoliberal inferiority complex, believing that the state can only harm
the economy by stepping in to protect and nurture this process. There
has been sharp growth in a few areas (wine exports have grown at over
50 per cent a year for the last five years), but without a concerted
government industrial policy, the leap to a broader resource -based
industrialisation will never happen, even in a country as uniquely endowed
with natural riches as Chile.
A step across the 2000-mile US-Mexican border takes US companies into
a corporate paradise of cheap labour, compliant unions, and lax environmental,
health and safety regulations. Hundreds of factories have moved there
from the US since the border strip was turned into a long snaking free
trade zone in 1965. Since 1994 that border strip has effectively been
extended to the whole of Mexico by the North American Free Trade Agreement
The Border Industrialisation Program allowed export-onented assembly
plants to set up within 12.5 miles of the border. The plants paid no
duties on imported parts, which they then assembled into the finished
product, packaged and sold back to the US. The result by 1994 was a
chain of 2,056 factories employing around 580,000 people, and a massive
boost in 'Mexican' manufactured exports. In terms of the net value added
(i.e. the difference in value between the imported parts and the exported
final product), maquila exports rose from $454m in 1975 to an estimated
$7bn in 1994. The 1982 debt crisis was a watershed for the maquila industry.
When Mexico was forced to devalue the peso in 1982, the dollar value
of wages fell from $1.69 an hour in 1982 to just 60 cents by 1986. This
was one third of Taiwanese wage levels, and foreign investment flooded
in. The 40 per cent devaluation of the Mexican peso in early 1995 brought
another boom for the maquiladoras, which promptly increased their exports
by 20 per cent in 1995.
The arguments over who wins and loses from the maquiladoras are heated,
and central to the debate over the North American Free Trade Agreement
and the rapid spread of free trade zones (also known as export processing
zones) throughout Central America and the Caribbean. 'New duty-free
trading zones are emerging from North America to the Southern Cone,
creating opportunities for both established and emerging transnational
corporations to lower production costs', gushes a brochure from the
Economist Intelligence Unit, advertising its Seizing Free Trade Opportunities
in the Americas publication, a snip at just £210 ($300) a copy.
Jobs in the zones, which usually resemble industrial parks, include
everything from making clothes and assembling TVs and computers to data
input; doing the electronic drudgery for US supermarket chains and credit
card companies. In return for setting up there, companies are allowed
to import goods for final assembly and then re-export them free of taxes
or restnctions on profit repatriation. The only value that accrues to
the host country is that of the jobs generated in the zone and the usually
low level of 'linkage' with the local economy in the form of local materials
For their employees and local people in the border zone, the experience
of the maquiladoras and other free trade zones offers pointers to what
can be expected under NAFTA. Local residents have complained at the
pollution created by maquiladoras, which are often run by 'dirty industries'
fleeing the US to avoid its expensive environmental protection legislation.
Individual workers complain at the low wages, ailments stemming from
overwork and poor health and safety standards, minimal job security
and frequent industrial injuries. But protests over such abuses have
been largely ineffective, since most trade unions are in the pocket
of the Mexican government, which is determined to avoid rocking the
maquiladora boat by enforcing environmental legislation or antagonising
employers. In any case, most unemployed Mexicans would jump at a job
in a maquiladora, where conditions, although bad by first world standards,
are often better than those in nationally-owned factories.
In the US, the maquiladoras have been used by US business to depress
wages and cut costs, either by relocating to Mexico, or threatening
to do so during negotiations with US employees. In the mid-1980s, General
Motors' Packard Electric Division gave its employees in Cleveland Ohio
a taste of things to come, when it threatened to move their jobs to
Mexico unless they accepted a 62 per cent pay cut for all future employees.
Since GM already had tens of thousands of workers in Mexico, it was
no idle threat. Negotiations eventually reduced the cut to 43 per cent.
In Centralia, Ontario, Fleck Manufacturing's employees refused to be
bullied by similar threats and went on strike; hours later the plant
shut down and moved to Ciudad Juarez, Mexico.
Wages in free trade zones elsewhere in the region are even lower. In
Nicaragua's Las Mercedes Industrial Free Zone, Korean and US textile
companies were paying 58 cents an hour in 1993, including vacations
and social security. In the Dominican Republic, hourly wages in 1990
were a mere 35 cents.
Latin American trade since 1982
Since the onset of the debt crisis in 1982, new primary products and
maquikdora-produced manufactured goods have led the drive for the neoliberal
goal of export-led growth, yet results to date have been patchy. The
regional ratio of exports to GDP, often used as a guide to the importance
of trade to an economy, rose from 14 per cent to 22 per cent between
1980-92, but this was partly because GDP performed so badly. Exports
which had shot up seven-fold in value between 1970 and 1980 rose by
just 32 per cent from 1980-93, although rebounding world commodity prices
greatly improved the picture in 1994 and 95. Yet over the same period,
world trade almost doubled, and Asian exports quadrupled. Latin America
has continued to slide down the global pecking order as its share of
world trade slipped further from 5.7 per cent to 4-0 per cent. Export-led
growth is barely getting off the ground.
In the early years of the debt crisis, the IMF's standard recipe of
severe devaluation and import controls in Mexico and Brazil (hardly
part of the neoliberal panacea, but sins to which the IMF turned a blind
eye) not only made Latin American goods more competitive on the world
market, but also made imports from abroad prohibitively expensive. The
result was a slump in imports and a large trade surplus, used to pay
off vast sums in debt service rather than in productive investment.
From the late 1980s, under pressure from the international financial
institutions, Latin America began to liberalise imports at a breakneck
rate, despite the lack of any reciprocal opening from US or European
governments. In all the major economies, maximum import tariffs which
had typically exceeded 100 per cent were reduced to 35 per cent or less.
Neoliberals argue that liberalising imports improves economic efficiency
and benefits everyone. Local factories can import the best available
machinery and other inputs to improve their productivity, while consumers
can shop around, rather than be forced to buy shoddy home-produced goods.
Competition from abroad will force local factories either to close,
or to improve their products until they become competitive with other
countries' goods, paving the way for increased manufactured exports.
In practice, import liberalisation unleashed a brief consumer boom,
as Latin Americans flocked to snap up imported goods at bargain prices,
with a drastic impact on the region's trade balance. In the early 1990s,
Mexico and Argentina ran up huge trade deficits as import bills rocketed
- in Argentina imports quintupled between 1990 and 1994. Then it all
came crashing down as foreign investors pulled the plug on the Mexican
economy, prompting a region-wide stampede branded as the 'tequila effect'.
Without foreign capital to plug the trade gap, Mexico and Argentina
in particular were forced to clamp down on imports by triggering a recession,
in Mexico's case coupled with a massive devaluation.
As in many other areas, the neoliberal revolution has increased inequality
between countries, as the largest economies have strengthened their
position and the weaker ones have fallen behind. Between 1982 and 1992
the largest economies, Brazil, Mexico and Argentina (a distant third),
increased their share of Latin America's exports from 49 per cent to
61 per cent, with a similar rise in their share of imports. All countries
increased their exports of low-tech manufactured goods such as furniture
or footwear, but only the largest economies moved into high-tech exports
such as cars, steel or electronics.
Agreeing to trade
Everybody's doing it. Since the late 1980s, Latin America's economists
have been spending a large slice of their waking hours negotiating a
bewildering variety of bilateral, trilateral and multilateral regional
trade agreements (RTAs) with each other. By mid-1994, Latin America
could boast 22 bilateral accords and several sub-regional pacts. However,
the best known (and most controversial) is the only RTA between first
and third worlds. The North American Free Trade Agreement, between the
US, Canada and Mexico, came into force in 1994 despite fierce opposition
within the US from an unlikely opposition movement including Ross Perot,
the US trade union establishment and grassroots environmentalists.
RTAs enshrine comparative advantage at the heart of the economic relationship
between nations. If each country sticks to what it does best, goes the
argument, and imports everything else it needs, everyone will be better
off. In the case of NAFTA, Mexican and US exporters and investors will
obtain guaranteed access to each other's economies; Mexican consumers
can enjoy the benefits of cheap food imports, the latest computer technology,
and even experience the joy of an invasion of US fast food chains. According
to the comparative advantage school of thought, the best option would
be a free trade world, but an RTA can be a step towards it.
When signing RTAs, governments typically agree to phase out, or drastically
reduce, tariff barriers between RTA members and eliminate non-tariff
barriers such as import quotas. Over time, RTAs may lead to deeper forms
of integration such as a customs union, which charges a common external
tariff on imports from outside the RTA, a common market which allows
free movement of labour and capital between members, or even a monetary
union as agreed by the European Union in the Maastricht Treaty.
Within Latin America, the upsurge in RTAs has involved reviving and
strengthening moribund agreements from the previous round of free trade
areas in the 1960s and 1970s, such as the Andean Pact (originally made
up of Bolivia, Chile, Colombia, Ecuador, Peru and Venezuela). This first
generation of agreements sprang up in the 1960s in response to the difficulties
experienced under import substitution, principally the limited size
of domestic markets for locally-produced goods. The aim was to nurture
import substitution's 'fledgling industries' by providing a large captive
market for their goods (in essence an extension of import substitution's
protectionism to a wider geographical area).
The early RTAs floundered and eventually collapsed at the onset of the
debt crisis. Such organisations never solved import substitution's basic
problem of the shortage of hard currency; Peru needed dollars, not Bolivian
pesos, to buy manufactured goods and to pay its debt service. In addition,
within each RTA the stronger economies tended to swamp the weak; El
Salvador's industry boomed as it exported to the more backward Honduran
and Nicaraguan economies, which ran up large and unpaid debts.
So why have Latin Americans turned again to RTAs as part of the solution
to their troubles? Supporters of the new RTAs argue that they share
a fundamentally different purpose from their forebears. The new generation
of agreements aims to reap the benefits of an expanded domestic market
in order to increase exports to the world outside. Where once they were
merely a defensive laager of uncompetitive nations, RTAs are now portrayed
as an 'export platform' from which to sell goods to outside markets,
principally the US. Optimists also see them as a stepping stone to ever
broader integration, as the different areas join up to form a single
hemispheric or preferably world free trade area, such as that envisaged
by the World Trade Organisation. Tariff reductions within the RTAs are
merely complementary to (and slightly greater than) the general tariff
reductions taking place under structural adjustment.
In the face of recession and rising protectionism from the industrialised
economies against Latin America's manufactured exports, and low commodity
prices for their primary exports, RTAs within the region have several
advantages. The outside world's main interest in trading with Latin
America is to gain access to its raw materials, but when Latin American
countries trade with each other, there is usually a much higher proportion
of manufactured goods involved. In 1992,56 per cent of intra-regional
trade was in manufactured goods, compared to barely a third of its trade
with the outside world. RTAs can therefore help stimulate the industrialisation
In addition to reviving existing, but moribund, RTAs, numerous new ones
have been created, notably the giant of Latin American integration,
Mercosur (El Mercado Comun del Sur), bringing together two big fish
- Brazil and Argentina -and two minnows - Uruguay and Paraguay. Established
by the Treaty of Asuncion in March 1991, Mercosur introduced a common
market between all four members by 1996.
Thanks to a combination of RTAs and the recovering regional economy,
intra-regional trade more than doubled between 1987 and 1992, to reach
$24.5bn, representing 15 per cent of the region's total trade. As a
proportion of total trade, however, the recovery only restored intra-regional
trade to the levels that Latin America had enjoyed on the eve of the
debt crisis. By 1994 the figure was up to 19 per cent and rising.
On New Year's day 1994, NAFTA came in with a bang. Unfortunately for
the Mexican government's public relations team, it was the sound of
gunfire in the southern state of Chiapas, as 2000 fighters of the previously
unknown Zapatista National Liberation Army rose in rebellion against
the oldest one-party state in the world. The uprising was an extraordinary
hybrid of ancient and modern. Exhausted Indian fighters speaking little
Spanish slumped next to their barricades in San Cristobal de las Casas
while a few yards away, tourists queued up to take cash out of the automatic
teller machine. The largely indigenous rebels were protesting age-old
grievances such as the discrimination against Mexico's large Indian
minority, but the trigger for the uprising was the silent revolution:
the government's reversal of their constitutional right to communal
land, and NAFTA, which they described as a 'death certificate for the
NAFTA is a very different entity from the proliferating Latin American
RTAs. It is the first ever RTA between a first and third world economy
and, in the words of one writer, 'a crucible in which advanced technology,
subsistence farming, global finance capital, massive underemployment
and contrasting legal and political systems are mixed for the first
time'. Whereas Latin American RTAs are, at least to some degree, a marriage
between equals, the disparities within NAFTA are stark. The US economy
is over 20 times larger than Mexico's and the technological gulf is
NAFTA gradually eliminates almost all trade and investment restrictions
between the US, Canada and Mexico over 15 years. Side agreements, concluded
in August 1993, require the enforcement of some environmental and labour
laws, under penalty of fines or sanctions. At its heart lies the growing
incompatibility between nation states and the workings of international
companies. In many ways NAFTA is a misnomer, since the bulk of the text
concerns investment rather than trade, and in almost every case, it
concerns Mexico, rather than the US or Canada. NAFTA opens up formerly
protected areas such as mining and (partially) petroleum, it binds Mexico
into strict new patent rules for pharmaceuticals and computer software
and prevents Mexico from trying to delay or obstruct the repatriation
of profits by transnational companies. In short, Mexican law will have
to treat US and Canadian businesses exactly like Mexican companies.
Mexico's 2000-mile border with the US ceases to exist for investors,
though not for Mexico's would-be migrant workers, who if anything will
find it harder than ever to get across.
In addition to its growing role as a cheap labour 'export platform'
from which transnational corporations can export their products back
to the US, Mexico also constituted an attractively large and willing
market for US companies. By 1993, the average Mexican already spent
$450 a year buying US products, four times more than Japanese consumers.
Unfortunately for Washington, the Mexican crash of 1995 wiped out their
market, as domestic recession hit demand for imports, turning Mexico's
huge trade deficit rapidly into surplus. US exporters watched as their
markets withered away.
NAFTA was the brainchild of Mexico's President Carlos Salinas de Gortari,
who promptly became a darling of the US and international financial
establishment, before going into an equally swift decline after leaving
office. By mid-1996 his brother was under house arrest on suspicion
of laundering drug money and Salinas was nowhere to be seen, but was
rumoured to be keeping his head down somewhere in the US.
Although Salinas and his predecessor Miguel de la Madrid had pushed
through a free market/ free trade transformation of the Mexican economy
since the debt crisis hit in 1982, there was as yet nothing to stop
future presidents reversing the process. Now, NAFTA will 'lock in Mexico
to an agreement with the US by making it much more costly to revert
to statist or protectionist models. It also locks in the US at a time
of rising protectionist sentiment in Washington, thereby ensuring that
Mexico will be inside the fold should the US ever return to its isolationist
past. With each year that passes under NAFTA, the three economies will
become more integrated, and the economic and political price of prising
them loose will rise ever higher.
Salinas hoped that locking in neoliberal reforms via NAFTA would make
Mexico a far safer prospect for foreign investors deciding where to
locate their factories and banks, or whether to make loans or buy shares
in Mexican companies. But his hopes proved short-lived when the Achilles
heel of Mexico's adjustment programme - its huge trade deficit, plugged
with short term foreign investment - finally proved its undoing. As
the Mexican economy went into free fall in 1995, two million Mexicans
lost their jobs, and foreign investors saw local demand disappear in
the recession. Their loss proved the maquiladoras' gain, since Mexico's
devaluation once again sent the dollar value of Mexican wages crashing.
The factories created 150,000 new jobs during 1995, taking total employment
up to 700,000, but barely denting the two million jobs lost in the recession
over the year.
The rest of Latin America has watched the coming of NAFTA with anxiety.
Although the US has always stressed its intention that the agreement
should be but the first step on the road to creating a free trade area
'from Alaska to Tierra del Fuego', the initial impact on other countries
in the region was negative. Governments in Central America and the Caribbean
are particularly vulnerable. Within months of NAFTA coming into effect,
they had seen textile factories, which formed a crucial part of their
drive for non-traditional exports in the 1980s, relocating to Mexico.
Those hoping to extend NAFTA to the rest of the region received a boost
in December 1994, when President Clinton went to Miami to host the 'Summit
of the Americas' with every Latin American head of state bar Fidel Castro.
Despite earlier fears that rising protectionism within the US might
prevent any further agreements, the summit agreed to establish a 'Free
Trade Area of the Americas' by the year 2006. In a separate announcement,
the NAFTA members also announced the beginning of talks with Chile over
its accession to the agreement. Clinton predicted that at current trends,
the hemispheric RTA would by then 'be the world's largest market - more
than 850 million consumers buying $13 trillion of goods and services'.
Despite the statements made in Miami, however, the 2005 deadline for
the completion of negotiations is not binding, and the fate of the Free
Trade Area of the Americas is bound to be hostage to political developments
in the intervening years. Already the Mexican crash has prompted growing
doubts about the merits of NAFTA, and protectionism is once again on
the rise within the US Congress.
Winners and losers under NAFTA
Politicians and pressure groups have conducted the heated debate over
NAFTA in terms of which countries will win or lose from the deal, but
in fact all three countries contain both winners and losers. Assessments
of NAFTA are more about positions in the economic pecking order than
about nationality. Opponents have dubbed the agreement a corporate bill
of rights which seeks to maximise business profits by setting worker
Chief among the beneficiaries are the US corporations who can cut costs
by relocating to Mexico, or move in to supply the Mexican market. US
consumers will also benefit from cheaper agricultural imports from Mexico.
In Mexico the maquiladoras will generate jobs and the larger Mexican
companies will be able to take advantage of guaranteed access to the
US market. Mexican consumers will be able to buy cheap US grain for
The greatest losers in terms of numbers are the Mexican peasantry, two
million of whom will find their home-grown maize undercut by US agribusiness.
Smaller producers elsewhere in the economy are also likely to be wiped
out by cheap US imports. North of the border, unions will face an acceleration
in the southwards flight of jobs.
Any shift of the magnitude of Latin America's silent revolution is bound
to create winners and losers. In macroeconomic terms, the region has
seen meagre gains in the form of renewed, if sluggish growth. But this
has been bought at the cost of enormous increases in poverty and inequality
in a region that was already the most unequal in the world. In the longer
term, seduction by the siren calls of comparative advantage has led
Latin America away from the road to admittedly flawed industrialisation,
and back into a position in the world economy based on exporting its
raw materials and cheap labour. It is a position it has occupied since
the Spanish Conquest, and which history suggests is unlikely to lead
the region towards the golden future of prosperity and equality promised
by the apostles of the market.