Nafta//mike1st/mark2nd

By JASON BOOTH

Staff Reporter

The North American Free Trade Agreement marks its five-year anniversary this month, and despite fears that the pact would spark an exodus of working-class jobs from Los Angeles, its impact so far has been beneficial.

Some local jobs indeed have been lost, and there is anecdotal evidence that wages in certain industries may have been depressed by the trade agreement, which lowers tariffs on goods being shipped between the United States, Mexico and Canada. But the rapid growth in trade spurred by the agreement has benefited the local economy, resulting in a net increase in jobs.

“Overall, the effect of Nafta has been salutary,” said Alex Capri, Nafta coordinator for the L.A. Customs District and a professor of economics at Pepperdine University. “Those predictions of a giant sucking sound of jobs leaving the city have turned out to be false.”

In the five years since its enactment, Nafta has created 15,000 jobs in Los Angeles and eliminated 10,000 jobs, according to Raul Hinojosa, research director for the North American Integration and Development Center at UCLA.

“The first few years of Nafta were rocky due to the peso crisis. At that time, in terms of Los Angeles, it was a slight negative,” said Hinojosa. “But the last few years we have seen the Mexican economy pick up and mature, and you are getting a much stronger net positive effect.”

Products originating in L.A. that were exported to Mexico increased from $1.17 billion in 1993 to $2.12 billion in 1997 (the most recent year available), an increase of 81 percent, according to the U.S. Department of Commerce.

Similarly, products originating in Los Angeles that were exported to Canada over the same period increased from $1.77 billion to $2.83 billion, up 60 percent.

Those export figures are considered better barometers of the local impact than the Customs Bureau figures, which include exports passing through L.A. but originating elsewhere in the United States.

Meanwhile, valuing the flow of imports into L.A. from Mexico and Canada is more difficult because most imports to Los Angeles are not tracked to their final destination after they go through customs.

But through a comparison of local and national import patterns, NAID estimates that in the last five years, Mexican imports to L.A. County destinations have increased from $1.3 billion to $2.4 billion, a gain of 84 percent. Canadian imports to L.A. County destinations rose 58 percent, to around $3 billion.

Capri pointed out that, while imports, especially low-priced ones, are often viewed as a threat to U.S. prosperity, that view is flawed. “The truth is that if you buy something from another country, they take that money, turn around and buy something from you,” Capri said.

He pointed out that the jobs created by the growth of exports to Mexico are producing higher-skilled, higher-paying jobs than those lost due to increased imports.

L.A.’s leading exports to Mexico and Canada include machinery, transportation equipment, electronics and chemicals. Imports coming into Los Angeles from those countries include agricultural goods, shoes and apparel.

Even with the growth of imports, Nafta does not appear to have taken a toll on employment in these industries. L.A. remains a major apparel capital, accounting for more than 12 percent of the nation’s total employment in that industry. With its dependence on low-cost, low-skilled labor, apparel was the sector most likely to suffer employment losses due to Nafta. But between 1993 and 1998, apparel-industry employment in L.A. County actually increased from 92,500 to just over 122,000, according to the California Employment Development Department.

Furniture manufacturing is another L.A. industry that competes directly against Mexico. However, between 1993 and 1998 local employment in that sector also increased, from 13,600 to 18,000.

Employment in L.A.’s metal products sector has remained flat at 48,000, which may be encouraging considering that sector had suffered a 15 percent drop in employment in the 10 years prior to the Nafta accord.

One of the ironies of the trade pact is that the people most at risk of being hurt are recent immigrants from Mexico. With limited technical skills and language ability, these workers usually are not qualified for the higher-paying jobs that are resulting from Nafta.

Nafta may also be stunting wage growth in the jobs low-skilled workers can get in Los Angeles. The trade pact is regularly used by factory owners as a bargaining chip in wage negotiations.

“I call it the chilling effect,” said Goetz Wolff, a professor of public policy at UCLA. “It has become a threat, a way to dissuade workers from pressing for higher wages.”

Nonetheless, average weekly wages in the local apparel, furniture and metal industries rose by about 11 percent between 1995 and 1997, roughly in line with the countywide average for all industries.

Another indication that suggests Nafta’s modest consequences on Los Angeles is the number of local companies that have sought federal help.

Since early 1994, the U.S. Department of Labor has been offering economic assistance known as Trade Adjustment Assistance, or TAA to companies able to demonstrate that they have been hurt by Nafta.

Only 57 L.A. County companies have received TAA to date, about two-hundreths of 1 percent of the county’s total 215,591 businesses. The 57 companies represent about 40 percent of the statewide total roughly in line with L.A.’s role as the state’s manufacturing center.

Economists caution that TAA figures may underestimate the effect of Nafta by as much as 60 percent, because many smaller companies, which are the ones most likely to compete against cheap imports, are unaware of the assistance program.

Despite being in place for five years, Nafta’s full impact has not yet been felt.

So far, the United States has enacted only around 60 percent of the trade liberalization measures specified in the agreement. Mexico is further behind, with only around 35 percent of its liberalization schedule completed.

And both countries have generally left the liberalization of their more sensitive sectors until last. “We anticipate that further rounds of liberalization will have more of an impact on low-skill, labor-intensive sectors,” said Hinojosa.

Important local industries that he expects will see more pressure in the coming years are furniture manufacturing, plastics, metal work, electronic components and food processing.

While official employment figures do not yet show it, several economists and labor representatives say the apparel industry has recently been feeling increased pressure from cut-price imports.

The hope is that the fallout from such pressure would be counterbalanced by an increase in demand for U.S. exports, particularly from Los Angeles.