NAFTA 4 EVER!
The Democratic Party and the AFL-CIO might as well put this on a T-shirt after their jubilant unveiling of the United States-Mexico-Canada Agreement (USMCA) this week. House Ways and Means Committee chair Richard E. Neal hailed the trade deal as “a triumph for workers everywhere.” AFL-CIO president Richard Trumka tweeted: “Working people have created a new standard for future trade negotiations.”
NAFTA 2.0 has the Republicans in good spirits as well, despite the impending presidential impeachment trial. Iowa senator Chuck Grassley said that while Republicans didn’t get everything they wanted in the new agreement, “the overall thing is very, very good. We may lose some Republicans . . . but it’s going to get through the United States Senate.”
Have we finally fixed NAFTA?
Well, from the perspective of mainstream politicians and big businesses, NAFTA 1.0 wasn’t broken — it was already a dream come true. Since 1994 manufacturers and agricultural companies have invested billions in production networks that stretch from Mexico to Canada, fine-tuned for maximum profitability. Trump’s campaign promise to blow the whole thing up in a bid to reduce the US-Mexico trade deficit and create jobs for workers in the United States created intense anxiety among investors and business owners, even after the three countries reached a tentative agreement last September.
This week’s announcement triggered a sigh of relief across all three countries among politicians and most big corporations. Most but not all. Pharmaceutical companies are peeved that Democrats managed to jettison a clause granting drug manufacturers protection from generics on certain types of medicine. The Canadian dairy industry will face heightened competition as US farmers gain increased access. Mexican business’s only sweetener seems to be continued tariff-free access to the US domestic market.
More broadly, the investor-state dispute settlement mechanism was nixed, meaning companies have also lost the ability to sue countries for passing legislation (such as environmental restrictions or health and safety ordinances) that hurts their bottom line.
Nonetheless, experts say the USMCA is 90 percent NAFTA. The country-to-country dispute mechanisms that Canada desperately wanted to preserve remain in place. Neither Canada nor Mexico faces any dramatic new import quotas. And the United States hasn’t mandated job creation in sectors hit by NAFTA or domestic content restrictions that would spur additional US production.
Changes fall mostly in the range of neutral to friendly to corporations. US tech companies, for example, are happy about new language that “defends companies’ ability to move data freely across borders.” Digital marketplaces like Amazon will also benefit from a hike on de minimis levels in Canada and Mexico, which will make it cheaper for consumers in those countries to order goods online from the United States.
Overall, the twenty-five-year-old free-trade zone — which has afforded North American corporations unprecedented mobility and flexibility — has been preserved. So why are some hailing NAFTA 2.0 as a victory for working people? Short answer: our expectations have hit rock bottom, and the USMCA is slightly better than NAFTA for workers and the environment.
On the environment, the USMCA ends subsidies that contribute to overfishing; maintains the role for the Commission for Environmental Cooperation (an organization designed to promote public participation around conservation issues); and establishes a potentially wide scope for trilateral collaboration on conservation, pollution reduction, and sustainable development. Scrapping the investor-state dispute settlement machinery will also help on the environmental front by making pro-environment legislation less vulnerable to corporate attack. Bigger strides, however — such as aligning the USMCA with the Paris Accord — were apparently off the table.
As for workers’ rights, the main improvement is that Mexico has promised to implement new labor laws. The legislation — which Mexico’s Chamber of Deputies passed in April — establishes independent labor courts, adds new protections for union organizing drives, weakens company unions, and includes measures to protect workers from employer abuse and discrimination.
Per the USMCA, Mexico’s enforcement of these new rules will be subject to monitoring by an “inter-agency committee,” informed by watchdog “labor attachés.” If it appears Mexico isn’t following through on its end of the deal, “enforcement action” could kick in, though it’s unclear what that would look like. The idea is that boosting working conditions in Mexico will stop the “race to the bottom” in North America.
That’s certainly a laudable goal, and Mexico’s labor reforms probably wouldn’t have been passed without the threat of losing access to the US market. It must be said, however, that working conditions in Mexico have deteriorated as a direct result of NAFTA — US companies (as well as firms from Canada, Europe, and Asia) have facilitated and reproduced Mexico’s dreadful labor environment. If the lives of Mexican workers are to improve, corporations’ abusive relationships with their suppliers must also be addressed.
The second major improvement supporters are touting relates to changes in auto industry regulation. When Trump vowed to get rid of NAFTA, he bemoaned America’s trade deficit with Mexico, the vast majority of which comes from the automotive sector. He promised to renegotiate NAFTA to bring auto jobs and investment back to the United States.
The USMCA raises the North American content requirements for cars and parts from 62.5 percent to 75 percent and mandates that roughly 40 percent of vehicle contents originate in factories where workers are paid an average of $16 an hour (or risk a 2.5 percent tariff).
Unfortunately, these mandates are unlikely to boost auto jobs in the United States. As Sam Gindin explains:
Most of the assembly plants that operate under NAFTA (now USMCA) are close to the 75 percent target, and, though this may increase parts purchases in North America somewhat, it will not dramatically change industry employment numbers. Moreover, the additional content under this rule doesn’t have to be in the United States; it can locate in Mexico or Canada.
In addition, because North American supply chains are highly integrated, most of the vehicles coming from Mexico already meet the 40 percent requirement since many of their parts originated in the United States and Canada. And even if they don’t clear the new hurdle, it will be cheaper for the assemblers to pay the 2.5 percent penalty than hike wages in Mexico.
It’s not just auto. Despite this week’s intensive back-patting, the truth is that the manufacturing jobs that have been lost to both trade and technological advancements over the past few decades won’t be brought back by trickle-down trade agreements, whether with Mexico and Canada, China, or the European Union.
Small gains aside, the primary upshot of the Democrats’ and labor executives’ eagerness to take ownership of USMCA is to cement the status quo — to give their seal of approval to a pro-corporate framework that will continue to hurt working people in Mexico, Canada, and the United States.