U.S. Reaps Bittersweet Fruit of Merger

WATSONVILLE, Calif. —  After Green Giant closed its vegetable processing plant here and moved her job to Mexico in the early 1990s, Yolanda Navarro turned her experience into a crusade against globalization. She crisscrossed the country with a plea: Don’t support the North American Free Trade Agreement, or thousands more jobs will be lost.

A decade after Congress narrowly approved the agreement opening the borders between Mexico, the United States and Canada, the 47-year-old Mexican immigrant has seen her fears realized. Four more of this farm community’s food processing plants have closed, eliminating nearly 2,000 jobs.

“There are a lot of things wrong with our economy, but one of the big things is NAFTA,” said Navarro, a naturalized U.S. citizen who worked at the Green Giant plant with her husband, Lauro, for more than 20 years.

Nearly 400 miles south at the California border, Stephen Gross has a different view of NAFTA. The trade pact enabled him to build a thriving business ferrying goods between Mexican border factories, or maquiladoras, and stores and plants in the United States. His 150-employee company, Border Trade Services, handled about $600 million worth of auto parts, electronic components and other cargo last year.

“There are estimates that 10,000 to 15,000 people work in the maquiladoras, but live in San Diego,” Gross said. “All those people are contributing to the San Diego economy one way or another.”

The experiences of these two cities show that NAFTA’s impact on the U.S. economy has varied dramatically from place to place and industry to industry. Consumers enjoy lower prices for many goods. Border regions have seen a boom in transportation and trade-related jobs. But others have suffered as NAFTA made it easier for U.S. automakers, food processors and apparel makers to shift low-margin, labor-intensive work to Mexico.

Continuing controversy over NAFTA reflects the uncertainty over America’s future in an increasingly globalized economy. On the presidential campaign trail, Democrats mindful of the dwindling U.S. manufacturing base have attacked NAFTA for failing to adequately protect American workers and the environment.

NAFTA, which took effect Jan. 1, 1994, created the world’s largest free trade zone, with a current combined gross domestic product of $11.4 trillion. To encourage the flow of capital and goods across borders, the agreement drastically reduced tariffs and other trade barriers, eased restrictions on investment and strengthened legal protections.

Critics argue that the pact failed to address problems created by massive industrialization along the U.S.-Mexico border, which has some of the region’s most polluted rivers and air. The treaty also has done little to stem the flow of illegal immigrants northward. Bitter trade disputes over trucking, sugar and timber remain unresolved.

But there is no question that NAFTA hastened the economic integration of the United States and its neighbors. Billions of dollars have flowed from U.S. and Canadian investors to Mexican factories, stores and banks, along with raw materials and components for manufacturing. A steady stream of northbound trucks clogs the highways, carrying automobiles, televisions and vegetables to U.S. and Canadian customers.

“Is NAFTA, with all its warts, better than not having NAFTA?” asked Jeffrey Davidow, a former U.S. ambassador to Mexico who now heads the Institute of the Americas at UC San Diego. “My answer is yes, we’re very much better off.”

Trade with Canada and Mexico now accounts for one-third of the U.S. total, up from one-quarter in 1989.

California’s trade with Mexico and Canada also has boomed. Exports to Mexico and Canada jumped from $12 billion in 1993 to $26 billion in 2002. In 1999, Mexico overtook Japan as the state’s leading export destination and now accounts for more than 17% of the state’s exports.

Canada, which sent $9.6 billion worth of autos and parts to California last year, sells more to the Golden State than to the European Union, South Korea, China, Hong Kong and Norway combined, according to Colin Robertson, the Canadian consul general in Los Angeles.

It is harder to measure NAFTA’s impact on jobs.

Two years ago, U.S. Trade Representative Robert B. Zoellick said NAFTA-related exports supported 2.9 million jobs in the United States, paying 13% to 18% more than the average U.S. wage. Offsetting such gains are the 524,521 workers certified by the U.S. government as having lost their jobs or having had their hours or wages reduced because of NAFTA.

Critics argue the damage to the U.S. job base cuts much deeper than those figures suggest, affecting suppliers, retailers and others. Economist Robert E. Scott of the Economic Policy Institute, a liberal Washington think tank, says the U.S. has lost at least 879,280 jobs since 1994 because of NAFTA.

In NAFTA’s lottery of winners and losers, the San Diego area has been a clear winner.

Thousands of new jobs in trucking, immigration law, business consulting and other areas have buoyed the economy. Trade between San Diego and Mexico nearly tripled, from $11.5 billion in 1994 to $30.1 billion in 2002.

San Diego’s balmy weather and oceanfront real estate made it a popular destination for foreign firms such as Sony, Samsung and Kyocera Corp. Their managers, designers and salespeople lived on the U.S. side, while the labor-intensive factories were in Mexico.

The same pattern has played out with other companies. Graphite Design International, a Japanese producer of graphite golf club shafts and hockey sticks, shut a 300-employee manufacturing facility in Otay Mesa, near San Diego, last year and moved production 17 miles south to Tijuana.

There, it hired twice as many people and paid them $2.40 to $2.50 an hour, about one-quarter of its U.S. wages. The company’s managers and its design and sales staff stayed in the U.S. office, just a half-hour drive away.

“We wanted to keep all the higher-paying jobs here,” said Wayne Ogeno, a Graphite executive.

NAFTA supporters say the trade-off is in the city’s long-term interest, because the high-skill, high-wage jobs remain on the U.S. side. Employment in electronic manufacturing in San Diego fell from 13,300 in 1994 to 6,900 in 2002, but jobs in research and development increased from 7,500 to 14,100, according to the San Diego Chamber of Commerce.

Meanwhile, Tijuana residents make 1.5 million trips a month into the San Diego area, mostly to shop, according to a 2002 report by the U.S. General Accounting Office.

Now, U.S. firms are worried about the threat China’s low-cost labor force poses to Mexican border factories.

One of the customers of Stephen Gross’ Border Trade Services produces electrical transformers in Tijuana. Gross helps transport raw materials to the plant from more than 100 suppliers, mostly in the Midwest.

“If that product moves overseas,” Gross said, “all those suppliers in the U.S. are going to lose that business.”

The insecurity of a global economy is all too familiar in Watsonville, a community of 44,000 that is more than 75% Latino.

In the 1980s, it was home to seven large fruit and vegetable processing plants that employed 7,000 unionized workers. But as demand for frozen foods waned and the United States opened its borders to imports, U.S. processors began moving production to Mexico, a trend that intensified under NAFTA.

Earlier this year, the J.M. Smucker Co. announced that it was closing three U.S. plants, including a fruit processing facility in Watsonville that employed 550 people at peak season.

“If we were exporting the jobs of lawyers or teachers to Mexico, the outcry would be deafening,” said P.J. Mecozzi, president of Del Mar Food Products Corp., one of two unionized fruit and vegetable processors still operating in Watsonville. “We were part of the sacrifice.”

The loss of the food processing industry has torn a huge hole in the local economy. Though the work was demanding and monotonous, the steady paycheck and medical benefits offered farmworkers a chance to buy homes and send their children to college. Three of Watsonville’s City Council members are the children of cannery workers.

Watsonville, which has an unemployment rate of 13.4%, has become a bedroom community for Santa Cruz and San Jose, just over the mountains. Farmland has been replaced by strip malls and housing developments, triggering a steep rise in housing prices.

“What I see in people’s faces today is a blankness,” said Joe Fahey, outgoing president of Teamsters Local 912, which has lost more than 80% of its members in Santa Cruz County in the last two decades. “It’s not just having lost hope for themselves. It’s losing hope for their children.”

During the debate over NAFTA, the Clinton administration promised expanded unemployment benefits and retraining assistance for people who lost their jobs because of freer international trade.

Cecilia Espinola, employment training director for Santa Cruz County, said the retraining assistance wasn’t flexible enough to help many of the laid-off factory workers, who were mostly middle-aged immigrant women with third- or fourth-grade educations. Many dropped out because they needed to pay their bills and ended up as hotel maids or store clerks.

The government also set up a community assistance program through the North American Development Bank, a San Antonio-based institution funded by the U.S. and Mexico that provided loans and grants to communities that suffered large job losses because of NAFTA.

Carlos Palacios, Watsonville city manager, sought help from the agency, known as NADBank, for a food processing company that wanted to upgrade its production line to make prepackaged institutional food. He said he was directed to a U.S. Department of Agriculture program that had such strict lending conditions that the company decided to move elsewhere.

NADBank ultimately provided low-cost financing for three projects in Watsonville: a cut flower nursery, an organic produce mail order business and a motel. Last year, Congress decided not to continue the grant portion of the program, which has distributed $12.6 million to 39 projects in 19 states.

Lisha Garcia, director of the grant program, defended her agency’s efforts, given its limited funding. But she said it was regrettable that U.S. trade officials allocate hundreds of millions of dollars a year to help foreign governments upgrade their ports and train their workers but won’t spend more on the U.S. communities that have borne the brunt of open borders.

“I’m a free trader,” Garcia said. “But if we are spending money to build trade capacity for U.S. interests overseas, I also think it’s important that we not lose our competitive edge ... at home.”

Failure to do more to help U.S. workers could undermine the Bush administration’s efforts to push forward with trade liberalization, said Robert D. Atkinson, a vice president with the Washington-based Progressive Policy Institute.

“We’ve put in place policies to create a dynamic economy, but we haven’t put in place matching policies to help workers adjust to that,” he said. “I worry that people have just lost faith that we’re serious about doing this. The default position is to say, ‘No, let’s just not go forward with this anymore.’ ”

That’s the overwhelming sentiment in the Pajaro Valley around Watsonville.

For three generations, Steve Bontadelli’s family, Swiss-Irish immigrants, have farmed the lush, foggy valley, starting with potatoes and artichokes and later becoming the nation’s largest processor of Brussels sprouts.

But Bontadelli’s production has fallen to 60% of its pre-NAFTA level. One factor: soaring imports of Mexican Brussels sprouts. Bontadelli insists he doesn’t oppose international trade. After all, he sells about 10% of his production to Canada. But he said the United States must ensure that its trade policies don’t destroy America’s ability to provide for itself.

“It’s not just me and our growers,” he said. “It’s the guys who work on our farms, the guys that sell us our fertilizer and our tractors.”

Navarro, the former Green Giant worker, sees herself sliding backward.

She has a temporary position with Del Mar Foods, which has a Green Giant contract, making $9.50 an hour. When the orders stop flowing, she expects to be jobless again, at least until the next growing season.

“I don’t want to work the rest of my life in canneries,” said Navarro, who lives with her husband and four children in a small trailer on the outskirts of Watsonville. “It’s not secure. You always worry that you are going to lose your job.”

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This is the last in a series of occasional articles on the impact of the North American Free Trade Agreement, which took effect 10 years ago.