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This paper, “Unprecedented Disparities, Unparalleled Adjustment Needs: Winners and Losers on the NAFTA ‘Fast Track’,” by Michael E. Conroy and Amy K. Glasmeier (August 15, 1992), raises concerns about the distribution of benefits and the magnitude of adjustment costs associated with the proposed North American Free Trade Agreement (NAFTA). The authors argue that the disparities among the U.S., Mexico, and Canada are greater than in any prior successful free trade experiences, notably the European Community (EC). They highlight that the EC’s integration was supported by “massive region-wide compensation and adjustment programs” (page 2), which are absent in the NAFTA proposal. The paper provides evidence from Canada’s experience with its free trade agreement with the U.S., illustrating “severe dislocation, loss of jobs, and resulting political turmoil” (page 2). It characterizes the probable “winners” and “losers” under NAFTA, suggesting that losers are likely to outnumber winners. Key arguments and findings include:
- Disparities between U.S. and Mexico vs. Portugal/West Germany: The paper refutes claims that the U.S.-Mexico disparity is comparable to that of Portugal and West Germany upon Portugal’s entry into the EC. It shows that Mexico’s relative income to the U.S. was lower and declined after 1981, and its population size relative to the U.S. was significantly larger than Portugal’s relative to the EC (pages 4-7).
- European Compensation and Adjustment Programs: The EC implemented substantial programs like the European Regional Development Fund (ERDF) and the European Social Fund (ESF) to mitigate negative impacts of integration, allocating billions annually for regional development and worker retraining. No such comparable programs are contemplated for NAFTA (pages 8-10).
- Canadian Experience (1989-1991): Canada experienced significant manufacturing job losses (over 460,000 in three years) and negative impacts on innovative service industries after its free trade agreement with the U.S. There is a strong perception in Canada that the FTA caused these economic difficulties (pages 11-13).
- Likely Winners and Losers under NAFTA:
- Winners: Multinational businesses in all three countries, high-tech sectors in the U.S. (e.g., aircraft, aerospace, optical instruments, computer software), labor-intensive manufacturing in Mexico (especially textiles and apparel, and potentially auto and electronic components), and certain agricultural sectors (U.S. grain producers, Mexican sugar, fruit, and vegetable producers) (pages 16-20).
- Losers: Workers in certain low-wage, low-productivity sectors in the U.S. (especially in rural areas), some U.S. farmers (e.g., dairy, sugar, specialty crops), and consumers of social services. In Mexico, basic grain producers are expected to be severely impacted, potentially leading to mass migration. The paper also suggests that general wage levels in Mexico might surprisingly decrease (pages 15, 20-21).
- Impact on U.S. Textile and Apparel Industries and Rural America: These sectors, characterized by a high proportion of women, minorities, and less-educated workers, are projected to face significant job losses as production shifts to Mexico due to lower wages and changing trade rules (pages 21-27). Rural communities, heavily reliant on these industries, are particularly vulnerable.
- Alternatives to the ‘Fast Track’ NAFTA: The authors advocate for a slower, more deliberate process of economic integration, with open negotiation and debate. They stress the need for “well-planned, carefully-created, and fully-funded multilateral (and national) programs for job retraining, regional impact alleviation, subsidies to labor mobility, and other transitional programs” to manage the inevitable adjustment costs (pages 27-28).
