Nafta: Where's That `Giant Sucking Sound'?

Unions feel a squeeze, but so far few U.S. jobs are going south

The election was drawing near in a United Auto Workers organizing drive at three ITT Industries auto- parts plants in northern Michigan. Then, management played the NAFTA card. The company brought in workers from Mexico, America's southern partner in the North American Free Trade Agreement, to film U.S. workers as they went about their jobs. An assembly line was shut down, the equipment shrink-wrapped and stacked onto flatbed trailers marked: "Mexico Transfer Job." Assembler Karen Richardson says she was just one of many workers called into a supervisor's office and asked: "If you could buy bread here for $1.05 a loaf, or you could pay 45 cents there, where would you buy your bread?"

The ITT workers got the message and voted down the union. "The implication was, if you form a union, we will ship this stuff out to Mexico, and we can do it in a heartbeat," says Diane Ketola, a UAW organizer who helped lead the unsuccessful 1995 drive at the three ITT plants. ITT denies any efforts to discourage its workers from unionizing, and it's appealing a National Labor Relations Board finding of unfair labor practices in the incidents.

NAFTA's use by managements to keep wages down and thwart union drives will stand out as one of the most controversial parts of President Clinton's official report on NAFTA three years after the pact's signing, which is to be submitted to Congress on July 1. Mostly, the report will point to economic benefits to the U.S. and its partners, Mexico and Canada, such as expanded trade and the creation of a favorable climate for cross-border investments.

The AFL-CIO insists, however, that NAFTA has helped keep inflation-adjusted average hourly earnings of U.S. production workers flat since 1993, at just over $12, even though the U.S. economy is flourishing. When Congress debated NAFTA in 1993, opponents warned more of direct job losses--Ross Perot's "giant sucking sound"--than of its impact on U.S. wage levels and union organizing drives. But NAFTA, by locking in Mexico's free-market reforms and investment protections, has made the option of production shifts by U.S. companies to Mexico more credible.

That, in turn, has weakened the bargaining power of U.S. workers, especially in manufacturing industries. "NAFTA has created a climate that has emboldened employers to threaten workers," says Kate Bronfenbrenner, a Cornell University labor economist. In a three-year survey released in June, she found that 60% of union organizing efforts in manufacturing after NAFTA were met by management threats to close the plants, compared with 29% before NAFTA.

NAFTA has helped as well as hurt U.S. employment, however. Some jobs have been created in the U.S. to supply components to assembly lines that have been shifted from Asia to Mexico, for example, while low-wage jobs in such U.S. industries as apparel and machinery are moving south. And the U.S. trade deficit with Mexico, seen by some as an indicator of job shifts, is starting to narrow as Mexico's economy recovers from the recession triggered by the 1994 collapse of the peso (chart).

DROWNED OUT. The mixed scorecard of costs and benefits means that the debate over NAFTA will roll on. The AFL-CIO and other NAFTA critics point to the agreement's shortfalls as a reason for Congress to deny the Administration further authority for market-opening moves in the rest of Latin America. That makes the White House all the more eager to put the controversy over NAFTA to rest. "The fact of the matter is, in 1993, people were screaming that the sky was going to fall, and that hasn't happened," says Commerce Secretary William M. Daley. "We agree we haven't had some of the successes we'd hoped for, but if the purpose of NAFTA was trying to create a better relationship between the two governments, then it has worked."

Currently, the job debate is being drowned out by the roar from the U.S. economic engine, which has created 2.2 million jobs a year since NAFTA took effect. By contrast, the U.S. Labor Department has so far certified just 128,000 workers for unemployment payments and retraining under a program designed to assist workers displaced by NAFTA's impact. NAFTA opponents claim up to 400,000 jobs lost. But that's about as many as the U.S. economic expansion has been producing every 10 weeks.

Where jobs are draining away, though, is in lower-wage and lower-skilled work, particularly in the huge U.S. apparel industry. Even at $7 per hour, the 230 employees at the two jeans plants of Jay Garment Corp., in Portland, Ind., and Clarksville, Tenn., couldn't compete with Mexicans earning an average of $10 per day, including benefits. A company report to stockholders on Apr. 24 concluded that "demand for domestically produced apparel has virtually disappeared as NAFTA has been phased in." The result: Jay has closed its plants. It is shipping equipment to joint ventures in Saltillo and other locations south of the border and is moving its headquarters to Dallas, with a distribution center in El Paso.

RIPPLE EFFECT. In a number of industries, though, U.S. employment losses under NAFTA are being offset by a reverse migration of jobs across the Pacific from Asia. To see why, look at Lucent Technologies. The company set up a maquiladora plant in Guadalajara in 1991 that now employs almost 7,000 and produces 95% of Lucent's telephones and answering machines. Under NAFTA, the plant has been buying more components from U.S. suppliers while cutting back on Asian subcontractors, who bought their supplies in Asia. So Miles Press, a $2 million supplier of directory cards based in Indianapolis, has watched its orders from Lucent grow by 20% in the past few months. And St. Louis-based Berg Electronics, a $700 million maker of connectors, expects to triple sales to Lucent's Guadalajara plant next year.

A ripple effect has generated jobs in the U.S. service sector as well. Toymaker Fisher Price Inc., based in East Aurora, N.Y., shifted production from Hong Kong to a plant in Monterrey. At Celadon Trucking Inc. in Indianapolis, which moves goods for Fisher Price from its growing Mexican plant, the added business has helped create 800 new jobs.

For apparel workers now searching for other jobs, the NAFTA card turned out to be a joker. But the Clinton Administration's mixed assessment of NAFTA may turn out to be just an interim report. With Mexico's peso crisis receding and the U.S. economy still roaring, NAFTA's lasting effects aren't likely to be certain for years.

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