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The first decade of free trade

Greeted with disgust and delight at its inception, the North American Free Trade Agreement will mark its 10th birthday in much the same fashion.

The unemployed continue to utter the word NAFTA like it’s a lurking disease. Investors, exporters and economists pronounce it the forebear of a world without trade restrictions.

The Economic Policy Institute, a nonprofit, nonpartisan think tank, estimates West Virginia lost more than 2,600 NAFTA-related jobs between 1993 and 2000. The trade agreement took effect Jan. 1, 1994.

Compared to states such as North Carolina, NAFTA has treated West Virginia with kid gloves. Then again, in a struggling state, every job — particularly every manufacturing job — is sacred.

Unlike years past, newly laid-off West Virginians might not be so quick to head down the “Hillbilly Highway” to North Carolina in search of factory jobs. That state has lost more jobs as a result of free-trade laws than any other state in the nation.

Clothing, textile and furniture workers in North Carolina — about 150,000 of them — have watched during the past decade as their jobs left for Mexico or overseas.

Nationwide, more than a half-million workers have petitioned their state governments for special unemployment benefits available to those displaced by NAFTA.

Late last year, the NAFTA benefit was lumped in with the more general Trade Adjustment Assistance program, making it more difficult to determine NAFTA’s direct effect on the work force.

While the U.S. Department of Labor has approved only 13 West Virginia companies for the NAFTA benefit, TAA applications are coming into the state at a much faster clip.

“We’re working on those every day,” said James Osborne of the state’s Bureau of Employment Programs.

Those approved for NAFTA or TAA benefits receive extended unemployment compensation and qualify for retraining.

Since 1998, workers from 65 companies operating in West Virginia have filed for TAA benefits. Twenty-nine companies were approved, and three applications are pending.

To receive the NAFTA benefit, applicants had to prove their jobs were lost as a direct effect of trade competition by Mexico or Canada, which, along with the United States, make up the NAFTA bloc.

The more general TAA benefit requires fewer specifics, only that free-trade competition (imports) from any nation, was the culprit for the job loss.

When the two benefit programs combined, it made an astonishing list of belly-up companies. The latest list reported to the Labor Department ranges from fishing boats in Alaska to a garment factory in West Virginia.

North Carolina lists 34 companies applying for trade-related unemployment during the month of September alone.

As free-trade barriers continue to fall — witness the acceptance of China into the World Trade Organization — NAFTA is getting less and less finger-pointing.

Longtime NAFTA critics are calling the opening of the Asian markets a bigger threat to U.S. jobs than NAFTA ever dreamed of being.

Already, North Carolina furniture makers are feeling the pinch, and in some cases closing down, because of a flood of imports of cheaply made Chinese furniture.

China is importing hardwood from places such as West Virginia, turning it into furniture at a fraction of the labor cost, then shipping it back to U.S. consumers.

Opportunities for exports

It’s been said that all economic growth is derived from trade. It’s also been said that exports create jobs, and imports destroy jobs.

If this is the case, then the state Development Office’s Stephen Spence is fighting the good fight.

The Development Office first started dabbling in export assistance in the early 1980s. Spence started in his current job as director of the international division in 1985, and since then has been instrumental in opening West Virginia trade offices in places such as Nagoya, Japan.

Spence is not going to say whether he approves of free-trade agreements, but he understands the stigma attached to them.

“When people think of NAFTA, they often think of job loss,” he said. “But we look at what we can do to benefit from [the agreement].”

West Virginia’s exports to Canada and Mexico are up 186 percent and 122 percent, respectively, since 1993. The state sent $739 million worth of commodities to Canada and $76 million worth to Mexico last year.

Spence works with small- to medium-sized companies, such as the 10 mining-machinery suppliers who recently attended a Development Office-facilitated trip to China.

“Our exports to Europe are falling, but exports to Asia are increasing,” Spence said. “Everybody talks about imports from China, but there’s a lot of opportunities for exports.”

Exports to China from the Mountain State are up 20 percent since 1999. It now ranks No. 4 on the list of nations buying the most from West Virginia companies.

There are no reliable figures on how many jobs were created in West Virginia as a result of NAFTA stimulating exports.

The majority — about 75 percent — of West Virginia’s exports are coal and chemicals produced by large out-of-state corporations.

Each of those sectors has eliminated jobs since NAFTA was enacted.

Coal mining employed 23,000 West Virginians in 1994, and 15,100 as of last September, according to the state Bureau of Employment Programs. Chemical employment dropped from 15,630 jobs in 1995 to 11,800 as of September.


Short-term pain

Most economists love NAFTA, love free trade. Michael Hicks, a Marshall University economist, will be the first to tell you that.

Hicks takes a “no pain, no gain” approach to the issue.

“In the long run, I don’t know anybody — no serious thinker — who doesn’t think free trade will allow wages to rise, bring nations out of poverty and allow the environment to be better,” Hicks said. “The problem is the long run may be so far away, a lot of people might not be willing to bear the short-run displacement.”

Hicks looks differently at state job figures for the past decade. Between 1994 and 2000, overall manufacturing employment remained stable, at about 82,500. It didn’t fall until the economy started to falter in late 2000, and now stands at about 72,500.

“This was not NAFTA, because it would have been felt by then, like it was with the textile industry in Tennessee,” he said. Instead, he blamed the job loss largely on increasing worldwide productivity, “a simple story that means we need fewer and fewer workers to make more manufactured goods.”

Hicks said he sympathizes with one argument promoted by free-trade opponents: U.S. companies could flee the country in order to set up in nations with more lax environmental laws.

“Then again, a generation ago, nobody in India gave one whit about the environment. But that’s no longer the case,” he said. “It’s taken a generation for incomes to rise enough for the people to care about it.”

Why should American workers, faced with the threat of foreign competition, care about the quality of life in other countries?

“A very clear self-interest response would be: Because they’re going to be consumers of our goods very soon, if we can make them more wealthy.”

Since NAFTA’s inception, the U.S. trade balance has plunged like never before. The balance, based on imports vs. exports, now shows a deficit of more than $400 billion. The deficit was $69 billion in 1993. A trade deficit means the United States is buying more than it’s selling.

“The North American Free Trade Agreement was supposed to result in big benefits to the U.S. economy. According to those in favor of free trade, there were no downsides to NAFTA,” Sen. Robert C. Byrd, D-W.Va., said last year. “The U.S. could only gain from expanded trade with Canada and Mexico.

“Exactly the opposite has happened. NAFTA encouraged large U.S. investors to move production, capital and jobs south of the border to exploit cheap labor and lax environmental standards.

“These new factories then exported their products back to the U.S.,” said Byrd, who voted against NAFTA in 1993. “By 1999, the United States was running a trade deficit with Mexico of $23 billion, and that trade deficit continues to grow.”

As of August, the deficit with Mexico stood at nearly $28 billion, up from a positive balance of $1.7 billion in 1993. The Canadian figures are not as drastic: an $11 billion deficit in 1993 vs. $35.5 billion in August.

Hicks described the trade deficit as “small, and not too important.”

“During the last two decades, the U.S. has had remarkable growth, and we had a trade deficit all along,” he said. “The dollar value of the deficit is scary, but the percentage total of goods and services we’re producing is about the same.”

Economists are quick to point out that, unlike a budget deficit, the trade deficit is only a gauge, and does not have to be paid back.


“When is ‘eventually?’”

Robert Scott has been immersed in NAFTA for several years. As an international economist with the nonprofit, nonpartisan Economic Policy Institute in Washington, D.C., Scott detailed “NAFTA at Seven” in 2000, and is ready to release “NAFTA at 10” later this month as the agreement reaches its first decade of existence.

In his first nationwide study, Scott found that NAFTA was responsible for 2,624 lost jobs in West Virginia by 2000. Overall, trade-related job loss accounted for 14,458 lost jobs in West Virginia during the same time period.

Scott’s numbers are highly contested by other economists.

“I tend to disagree with most of the economics profession,” he said. “For them, free trade is akin to a religious belief, and not based on careful analysis of what’s happening... Economists like to say there will eventually be benefits, but when is ‘eventually?’”

Scott’s 2000 report details how NAFTA has been successful for some in the United States, Canada and Mexico — “investors and financiers ... who search for cheaper labor and production costs.”

Scott also traces a pattern of non-college-educated workers dropped from the manufacturing sector and into lower-paying service jobs.

Also, “within manufacturing, the threat of employers to move production to Mexico proved a powerful weapon for undercutting workers’ bargaining power,” the introduction to Scott’s study states.

Scott said NAFTA proponents’ promise that the agreement would help Mexican workers is not coming true. A slight increase in wages along the border area, where many U.S. companies have set up shop, is reversing because of growing competition with China, he said.

While export statistics, for the nation or individual states, are widely available, import numbers are scarce.

A U.S. Department of Commerce report from 2001 details exports from each state, promotes free trade and lauds NAFTA.

The last paragraph of the four-page report is titled “Imports Also Important to West Virginia.” The paragraph is the same for each of the state reports, with only the state’s name changed.

“Although many often equate imports with ‘lost’ jobs, the reality is usually much more complex,” the report states. It goes on to say that imports provide companies with vital materials that are scarce locally and provide a wider choice for consumers in the marketplace.

“There’s no data on imports,” Scott said. “The administration likes to talk only about exports and act like imports don’t exist... It’s like trying to balance a checkbook by counting only deposits and not withdrawals.

“If you do that, you’re going to bounce a lot of checks.”

To contact staff writer Robert J. Byers, use e-mail or call 348-1236.

Coming Monday in The Charleston Gazette: The effects of NAFTA on West Virginia’s garment industry.


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