The Good and the (Potentially Very) Bad in Trump’s NAFTA Renegotiation

David Dayen August 30, 2018

We shouldn’t be too optimistic about the NAFTA renegotiation actually helping workers. (Getty Images)

With the Unit­ed States and Mex­i­co hav­ing both signed off on a reworked North Amer­i­can Free Trade Agree­ment (or what­ev­er Pres­i­dent Trump wants to call it), nego­tia­tors are now attempt­ing to secure a last-minute agree­ment with Cana­da by a Fri­day dead­line. The Trump admin­is­tra­tion has threat­ened auto tar­iffs on Cana­da if they don’t climb aboard. Because Mex­i­can pres­i­dent Enrique Peña Nieto’s term ends in Novem­ber, and U.S. trade law requires a 90-day wait­ing peri­od before all par­ties can sign, the final agree­ment must be com­plet­ed by August 31.

If Cana­da does sign on board, the results of the year-long nego­ti­a­tions will be decid­ed­ly mixed. Only lazy pun­dits would call the U.S./Mexico agree­ment TPP 2.0.” A num­ber of fea­tures do elim­i­nate cor­po­rate favors from pri­or trade agree­ments, and dri­ve a bet­ter bar­gain for work­ers in all part­ner coun­tries. Since this will be the tem­plate for oth­er U.S. trade deals mov­ing for­ward, that’s impor­tant. On the oth­er hand, those anti-cor­po­rate pro­vi­sions have their lim­its, par­tic­u­lar­ly because it’s unclear how they will be enforced. And Cana­di­an involve­ment means everything’s sub­ject to change. Let’s take a look at what we know.

The end of cor­po­rate shake­downs: Per­haps the best pro­vi­sion sig­nals the demise of the noto­ri­ous investor-state dis­pute set­tle­ment (ISDS) process. Under ISDS, for­eign cor­po­ra­tions can sue coun­tries for expect­ed future prof­its” when laws and reg­u­la­tions change. Extra­ju­di­cial tri­bunals com­posed of three cor­po­rate lawyers decide on the claims; some of the arbi­tra­tors simul­ta­ne­ous­ly serve as coun­sel for cor­po­ra­tions bring­ing oth­er complaints.

ISDS has led to gov­ern­ments pay­ing hun­dreds of mil­lions of dol­lars to cor­po­ra­tions. And it has increas­ing­ly become a means for rich investors to spec­u­late on law­suits, win­ning huge awards and forc­ing local tax­pay­ers to foot the bill.

Under the new agree­ment, this process is vir­tu­al­ly elim­i­nat­ed. U.S. and Cana­di­an com­pa­nies will only have access to domes­tic courts, mak­ing impos­si­ble near­ly all pre­vi­ous NAF­TA ISDS cas­es against the two coun­tries, which have func­tion­ing legal sys­tems to han­dle those com­plaints. For cas­es involv­ing Mex­i­co, domes­tic courts and admin­is­tra­tive pro­ceed­ings would have to be exhaust­ed before ISDS could be invoked. Tri­bunals could not be stocked with lawyers work­ing on ISDS claims for cor­po­ra­tions, and sev­er­al com­mon investor rights” — like demand­ing a min­i­mum stan­dard of treat­ment from a for­eign gov­ern­ment — would be revoked. Dam­ages for expect­ed future prof­its” would be elim­i­nat­ed; only con­crete dam­ages could be demanded.

A small group of U.S. investors in Mex­i­co who have con­tracts in the oil and gas sec­tor would get wider pro­tec­tions through a carve-out. This led Roo­sevelt Insti­tute fel­low and ISDS expert Todd Tuck­er to call the changes a priv­i­leged forum for Big Oil and Big Gas… hand­outs to big com­pa­nies afraid of left­ward pro­gres­sive change in Mex­i­co.” While this was appar­ent­ly the price of tak­ing down ISDS else­where, if the new NAF­TA sets a prece­dent that most cor­po­ra­tions can’t rely on a spe­cial process to hold up gov­ern­ments for cash, it might be worth it.

Auto rules: For some rea­son, the U.S.-Mexico agree­ment gets incred­i­bly detailed on auto man­u­fac­tur­ing, even though far more is trad­ed between the two coun­tries. Under the agree­ment, 75 per­cent of a car’s val­ue must be made in North Amer­i­ca, as opposed to 62.5 per­cent in the orig­i­nal NAF­TA. Close to half the vehi­cle must be made by work­ers who earn at least $16 an hour, either rais­ing wages sharply for some Mex­i­can work­ers (the cur­rent aver­age wage for auto parts work­ers is between $3.60 and $3.90 an hour) or shift­ing pro­duc­tion to high­er-wage coun­tries. This is the first wage stan­dard in a trade agreement’s rule of ori­gin” chap­ter. The deal also caps tar­iff-free imports of Mex­i­can-made cars at 2.4 mil­lion per year, which may also move production.

Glob­al trade experts are shocked that this may raise the price of cars for con­sumers, but this is a peren­ni­al com­plaint, that giv­ing work­ers a liv­ing wage is just too bur­den­some to com­pa­nies. Giv­en the spike in cor­po­rate prof­its as a share of over­all wealth, a work­er back­stop isn’t the end of the world. But only auto work­ers can access such a back­stop in the new agree­ment. Oth­er U.S. and Mex­i­can man­u­fac­tur­ing work­ers are left out in the cold.

Labor stan­dards, and the miss­ing teeth: All North Amer­i­can work­ers, how­ev­er, would ben­e­fit from the new labor chap­ter. Mex­i­can pro­tec­tion unions,” set up before any­one is hired to lock in low wages, would be effec­tive­ly banned under the agree­ment. All Mex­i­can work­ers would have access to secret-bal­lot union elec­tions for bar­gain­ing and con­tracts. Union lead­ers are excit­ed about the prospect of using the trade deal to obtain valu­able rights for work­ers in Mexico.

How­ev­er, five U.S. union lead­ers not­ed in a state­ment that there is more work that needs to be done to deliv­er the need­ed, real solu­tions to NAFTA’s deeply ingrained flaws.” Chief among their com­plaint is that the labor chap­ter doesn’t have suf­fi­cient enforce­ment mech­a­nisms to ensure work­er rights. There’s a his­to­ry of weak enforce­ment in NAF­TA when it comes to work­ers, and with­out leg­isla­tive guar­an­tees and active par­tic­i­pa­tion from all coun­tries involved, that’s bound to con­tin­ue. That makes the pret­ty words in the labor chap­ter poten­tial­ly all but irrelevant.

Odds and ends: Cor­po­rate lob­by­ists will not go home emp­ty-hand­ed in this deal. Copy­right terms have been extend­ed from 50 to 75 years, a gift to intel­lec­tu­al prop­er­ty hold­ers like music and movie com­pa­nies. The dig­i­tal chap­ter may also include legal immu­ni­ty for Inter­net com­pa­nies that host ille­gal or pirat­ed con­tent; it’s as yet unclear where that stands.

A gov­ern­ment dis­pute res­o­lu­tion mech­a­nism to pre­vent state sub­si­dies and dump­ing” of low-cost exports has been removed, and while those cas­es could still be fought at the World Trade Orga­ni­za­tion, Cana­da has pre­vi­ous­ly called the faster NAF­TA-spe­cif­ic dis­pute res­o­lu­tion vital. Nego­tia­tors have expressed will­ing­ness to end the pro­tec­tion of the Cana­di­an dairy indus­try, with its 200 – 300 per­cent tar­iffs, in exchange for retain­ing dis­pute res­o­lu­tion, though Prime Min­is­ter Justin Trudeau quick­ly walked that back.

While the Unit­ed States was seek­ing a five-year sun­set” of the entire agree­ment, the deal with Mex­i­co has a 16-year expi­ra­tion date, with the abil­i­ty to extend every six years. There’s also no men­tion of cli­mate change in the agree­ment, some­thing Cana­da deeply sought.

All in all, it’s a good heuris­tic to judge trade deals by how mad busi­ness lob­by­ists are about them, and judg­ing from the Busi­ness Roundtable’s grum­blings, the rene­go­ti­a­tion has the poten­tial to be decent. Cor­po­rate pow­er is def­i­nite­ly weak­ened in key areas of the agree­ment. But you would have to believe that the Trump admin­is­tra­tion would be unique­ly attuned to the con­di­tions of Mex­i­can labor­ers to believe that work­ers will real­ly advance in this deal. There’s not much his­to­ry to sug­gest such concern.

David Dayen is an inves­tiga­tive fel­low with In These Times’ Leonard C. Good­man Insti­tute for Inves­tiga­tive Report­ing. His book Chain of Title: How Three Ordi­nary Amer­i­cans Uncov­ered Wall Street’s Great Fore­clo­sure Fraud won the 2015 Studs and Ida Terkel Prize. He lives in Los Ange­les, where pri­or to writ­ing about pol­i­tics he had a 19-year career as a tele­vi­sion pro­duc­er and editor.
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