NAFTA Renegotiations Are No Cure-All, But They Might Slow the Bleeding

Dan DiMaggio

A protest against the North American Free Trade Agreement (NAFTA) negotiations at Reforma Avenue in Mexico City, Mexico on August 16, 2017, as the first round of negotiations started in Washington. (Photo by Manuel Velasquez/Anadolu Agency/Getty Images).

What does a rene­go­ti­at­ed NAF­TA mean for work­ers in the U.S., Cana­da, and Mex­i­co? At best, it might stem some of the bleeding.

The pres­i­dents of the U.S. and Mex­i­co announced on August 27 that they had reached a deal. A month lat­er, Cana­da is still out of the agree­ment, though nego­ti­a­tions are like­ly to con­tin­ue over the next few months. Text of the draft deal between the U.S. and Mex­i­co may be pub­lished as soon as today.

Work­ers in all three coun­tries have suf­fered under a decades-long cor­po­rate offen­sive. Unions and civ­il soci­ety groups have long pushed to amend or scrap the 24-year-old agreement.

NAF­TA is blamed for the loss of over a mil­lion man­u­fac­tur­ing jobs from the U.S. and Cana­da to low-wage Mex­i­co. It also dec­i­mat­ed Mex­i­can farm­ers and small busi­ness­es, help­ing spur migra­tion to urban areas and into the U.S.

On the cam­paign trail, now-Pres­i­dent Trump pledged to pull the U.S. out of what he termed the worst trade deal ever.” Once in office, he shift­ed to rene­go­ti­at­ing it.

New rules for cars

The ten­ta­tive pact between the U.S. and Mex­i­co would require that any vehi­cle sold in the U.S. must have 75 per­cent North Amer­i­can con­tent, or else face a 2.5 per­cent import tar­iff. That’s up from the exist­ing 62.5 per­cent requirement.

Forty to 45 per­cent of a vehi­cle would have to be built by work­ers mak­ing at least $16 an hour — mean­ing U.S. and Cana­di­an work­ers (assum­ing Cana­da is even­tu­al­ly includ­ed), although it’s pos­si­ble work done in coun­tries like Ger­many and South Korea could also be included.

Wages for Mex­i­can auto work­ers aver­aged $7.34 an hour in assem­bly and $3.41 in auto parts last year, accord­ing to the Cen­ter for Auto­mo­tive Research. Indus­try spokes­peo­ple have ruled out rais­ing them to $16.

Many ana­lysts are skep­ti­cal that these rules will add jobs in the U.S. or Cana­da. Rather than move pro­duc­tion out of Mex­i­co, com­pa­nies might just pay the tariff.

For most automak­ers, meet­ing the require­ments will take only mar­gin­al adjust­ments — one rea­son why the indus­try has react­ed rel­a­tive­ly favor­ably to the news.

Most vehi­cles sold in the U.S. are already pro­duced with North Amer­i­can con­tent well above 62.5 per­cent to avoid acci­den­tal­ly trig­ger­ing a tar­iff. The rule that 40 per­cent of a car must be made by work­ers mak­ing $16 an hour could have more of an effect, espe­cial­ly if it only counts work done in the U.S. and Cana­da. But Bloomberg esti­mates that at most, a third of Mex­i­co’s 2.3 mil­lion vehi­cle exports to the U.S. in 2017 would be affect­ed by the new rules.

Many of the union auto jobs lost” in recent decades haven’t moved over­seas at all, but to the low-wage U.S. South. “[A rene­go­ti­at­ed] NAF­TA is not going to bring South Car­oli­na jobs back to a union­ized Detroit,” said Stephanie Luce, a pro­fes­sor at the City Uni­ver­si­ty of New York’s School of Labor and Urban Studies.

The Trump admin­is­tra­tion ini­tial­ly pushed for high­er thresh­olds — 50 per­cent built in the U.S., 85 per­cent in North Amer­i­ca — but those were dropped dur­ing negotiations.

Trump is still threat­en­ing to impose 25 per­cent tar­iffs on all auto imports on grounds of nation­al secu­ri­ty,” as he’s done with steel, though it’s unclear if he will fol­low through. Pick­up truck imports already face a 25 per­cent tariff.

Mex­i­co report­ed­ly agreed to set quo­tas on its export of vehi­cles and auto parts to the U.S., above which the 25 per­cent tar­iffs could apply.

Secure a footprint

While it’s unlike­ly to bring many jobs back, the deal might slow the flight of auto pro­duc­tion for the North Amer­i­can mar­ket to Mex­i­co and to oth­er continents.

A quar­ter of cars sold in North Amer­i­ca are pro­duced else­where — a far high­er per­cent­age than the Euro­pean Union, South Korea, Japan, or Chi­na. We treat­ed this rene­go­ti­a­tion as a gen­er­a­tional oppor­tu­ni­ty to fix that,” said Ange­lo DiCaro, a researcher at Uni­for, Canada’s largest pri­vate sec­tor union.

If Cana­da is includ­ed, the deal could cre­ate a struc­ture that secures a foot­print of pro­duc­tion,” DiCaro said. Or else at some point [Cana­da] won’t have an auto indus­try, like Australia.”

Cars are still Canada’s top export. But Cana­di­an employ­ment at the Big Three auto firms has shrunk from 52,000 pre-NAF­TA to just 23,000 in 2017.

The North Amer­i­can mar­ket isn’t grow­ing that fast,” said Sam Gindin, for­mer research direc­tor at the Cana­di­an Auto Work­ers. There are not a lot of new plants on the horizon.”

While trade is often blamed for job loss, down­siz­ing due to tech­nol­o­gy and speedup has been just as, if not more, impor­tant. Adjust­ed for infla­tion, total U.S. man­u­fac­tur­ing out­put grew 63 per­cent between 1994 and 2015, accord­ing to the Brook­ings Insti­tu­tion, while man­u­fac­tur­ing employ­ment shrank by 28 per­cent dur­ing the same peri­od. In the long term, jobs in this indus­try are going to fall,” Gindin said.

Lousy con­tracts

The old NAF­TA rel­e­gates labor rights to a side agree­ment with no real enforce­ment mech­a­nism. The rene­go­ti­at­ed deal brings the labor sec­tion into its core, which should make it sub­ject to the same dis­pute set­tle­ment pro­ce­dures as the rest of the agreement.

Mex­i­co has report­ed­ly agreed to elim­i­nate so-called pro­tec­tion con­tracts” where cor­rupt union lead­ers sign off on poor wages and ben­e­fits, often years before a busi­ness hires anybody.

We have this ter­ri­ble defect in Mex­i­co — con­tracts, signed by union lead­ers behind the backs of work­ers, that pro­tect com­pa­nies from mil­i­tant work­ers,” said Bene­dic­to Mar­tinez of a union called the Authen­tic Work­ers’ Front (Frente Autén­ti­co del Trabajo).

A gen­uine crack­down on pro­tec­tion con­tracts would throw a grenade into the pro­duc­tion mod­el that has exist­ed in Mex­i­co,” DiCaro said.

Real wages in Mex­i­co have declined since NAF­TA was signed in 1994.

Mex­i­cans have real­ly been the most exploit­ed, because the jobs that have been gen­er­at­ed through NAF­TA are not enough to meet the require­ments in this coun­try,” Mar­tinez said. The aver­age nation­al salary is around 200 pesos ($10.60) a day. Who can live on that?”

Mex­i­can Pres­i­dent-Elect Andrés Manuel López Obrador has pledged to raise the country’s min­i­mum wage, cur­rent­ly 88.36 pesos ($4.70) a day. He will take office in December.

Labor law reforms wend­ing their way through the Mex­i­can Con­gress would make it eas­i­er for work­ers to form inde­pen­dent unions. That in turn could help raise wages.

We can eas­i­ly tar­get Mex­i­co for steal­ing our jobs, but they didn’t steal $35-an-hour jobs with defined-ben­e­fit pen­sion plans,” DiCaro said. They were giv­en jobs with con­tracts they nev­er vot­ed on, with unions they didn’t ask for, that kept them in poor liv­ing conditions.”

Lucy with football

Every time there’s a new free-trade agree­ment, U.S. trade reps tout its labor pro­vi­sions as the strongest yet.

Unions will use what­ev­er enforce­ment mech­a­nisms they get to put pres­sure on gov­ern­ments and employ­ers, as they have done under NAF­TA, CAF­TA, and oth­er agreements.

But enforc­ing these pro­vi­sions has gen­er­al­ly been an excru­ci­at­ing­ly slow, frus­trat­ing process. Cas­es drag on for years — and even if a gov­ern­ment is final­ly found not to be enforc­ing its own labor laws, the poten­tial penal­ty is a mere slap on the wrist.

We keep putting hopes in the [labor] agree­ments in these trade deals,” said Luce. But we have yet to see any of them yield anything.”

The only real mech­a­nism for enforc­ing labor laws is inde­pen­dent labor unions,” said Jonathan Kissam, com­mu­ni­ca­tions direc­tor with the Elec­tri­cal Work­ers (UE).

Cracks in the consensus

Six U.S. union pres­i­dents issued a joint state­ment gen­er­al­ly sup­port­ive of the deal but say­ing that more work needs to be done” to make sure it con­tains swift and cer­tain enforce­ment tools.” They’re also push­ing to include Canada.

The Trump admin­is­tra­tion has been court­ing labor’s sup­port because it hopes to win back­ing from some Con­gres­sion­al Democ­rats. It also wants to neu­tral­ize poten­tial oppo­si­tion. Unions mobi­lized hard and played an impor­tant role in the defeat of the Trans-Pacif­ic Partnership.

We appre­ci­ate U.S. Trade Rep­re­sen­ta­tive Robert Lighthizer’s close con­sul­ta­tions and will­ing­ness to con­sid­er new ideas,” read one AFL-CIO press release. But most civ­il soci­ety groups have been shut out.

Activists say the dev­il will be in the details, which will prob­a­bly include a lot of cor­po­rate giveaways.

Kissam is glad to see more con­ver­sa­tion about what poli­cies could bet­ter sup­port indus­tri­al jobs. But it seems unlike­ly that any­thing will come out of this that will actu­al­ly get passed and sig­nif­i­cant­ly improve work­ers’ lives,” he said. We’re not going to get a good trade deal until work­ers have more polit­i­cal pow­er in all three countries.”

This sto­ry furst appeared in Labor Notes.

Dan DiMag­gio is an assis­tant edi­tor at Labor Notes
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