The White House is finalizing details of a new free trade deal with Mexico to replace the North American Free Trade Agreement — with or without Canada.
Scrapping NAFTA was one of President Trump’s central promises during his presidential campaign. He blamed the 24-year-old trade pact for decimating the US manufacturing industry and the loss of thousands of factory jobs (NAFTA only played a small role in the decline of American manufacturing, but that’s another story). The 1994 trade deal allows North American goods to cross the US, Canadian, and Mexican borders tax-free, adding up to about $1.2 trillion in annual trade.
So far, the new United States-Mexico Trade Agreement seems a lot like NAFTA, though Canada has yet to opt in as it continues negotiations. Agricultural products would remain tariff-free under the new deal, and there is still no required renegotiation every five years (which Trump wanted). It would be harder, however, for businesses to claim harm from unfair trade practices.
But there is one striking difference from NAFTA: The new pact includes several labor rules meant to benefit workers on both sides of the border. For example, Mexico has agreed to pass a law giving workers the right to real union representation, and to adopt other labor laws that meet international standards set forth by the United Nations. American auto companies that assemble their cars in Mexico would also need to use more US-made car parts to avoid tariffs, which would help US factory workers. And about 40 percent of those cars would need to be made by workers earning at least $16 an hour — three times more than Mexico’s minimum wage.
These are much-needed reforms, and they address a lot of concerns that US labor unions had about NAFTA. The problem is that they seem impossible to enforce. It’s one thing to make trading partners adopt strict labor laws, but making sure they enforce those laws has proven much, much harder. Unless the White House comes up with a dramatically different plan to sanction Mexico if it doesn’t keep up its end of the deal, companies on both sides of the border will continue to reap all the benefits of free trade at the expense of their workers.
NAFTA was not good for low-wage workers in Mexico or the United States
First of all, it’s important to note that free trade between the United States, Canada, and Mexico has had a small, but positive, impact on all three economies. That is something most economists can agree on. The controversy over NAFTA, which was enacted in 1994, involves its impact on workers. American labor unions worried at the time that allowing goods to cross the border untaxed would give US manufacturers too much incentive to move factories and jobs to Mexico, where wages were super low and environmental standards more relaxed.
Proponents of NAFTA pushed back against that idea, saying that boosting trade would raise wages for low-skilled Mexican workers, pulling millions out of poverty and making it less attractive for companies to move factories to Mexico. That definitely didn’t happen. Competition from US farms was largely responsible for putting more than 1 million farmworkers in Mexico out of work, and the unemployment rate in Mexico is higher today than it was back then.
On top of that, wages for workers in Mexico have hardly budged. Just look at this chart:
In the United States, NAFTA didn’t lower overall US wages, as some feared, but it was linked to lower wages in some manufacturing jobs. The trade deal was also directly responsible for the loss of more than 840,000 US factory jobs, most of which were moved to Mexico. Just last year, Ford announced it was closing one of its auto factories and opening another one in Mexico.
US companies are still doing this because factory workers in Mexico are still making poverty wages. And one reason workers in Mexico are still living in poverty is because NAFTA’s labor protections have not been enforced.
NAFTA was also supposed to protect workers, but it didn’t
When NAFTA was signed, it included labor protections for workers in all three countries. Basically, each country agreed to enforce its own labor laws and follow standards set by the UN’s International Labor Organization. But labor complaints filed through the NAFTA labor dispute process have led nowhere.
About two dozen complaints of workers’ rights violations were filed against all three countries in NAFTA’s first decade — the vast majority in Mexico, according to Human Rights Watch. Companies accused of violating local labor laws include General Electric, Honeywell, Sony, General Motors, McDonald’s, Sprint, and the Washington state apple industry.
In Mexico, those complaints included allegations of retaliation against workers who tried to unionize, denial of collective bargaining rights, forced pregnancy testing, mistreatment of migrant workers, and life-threatening health and safety conditions. None have led to any type of sanctions, which workers’ rights groups say is because there are no rules about how to resolve these disputes and government mediators have chosen to take a hands-off approach.
“Our research shows that agreements on labor will never work without the active support of the countries involved. In the case of NAFTA, these three countries have actually worked to minimize the impact of the labor provisions,” the report stated.
One of the biggest complaints against Mexico right now is that labor unions are largely controlled by employers, and workers are not even part of contract negotiations. So it’s no wonder why Mexican factory workers are earning so little. The average hourly wage for factory workers in Mexico is just over $2 an hour — and the country’s minimum wage is roughly $4.15 for a full day’s work. These low wages attract US companies to operate in Mexico.
The new labor rules in Trump’s pact with Mexico are supposed to remove the incentive to keep Mexican workers living in poverty. But it’s hard to picture how those rules would ever be enforced.
Mexico can pass new labor laws, but who will enforce them?
As part of the United States-Mexico Trade Deal, Mexico has promised to pass laws that will guarantee workers the right to form unions and negotiate their own labor contracts. If Mexican workers could do this without fear of losing their jobs, they would certainly negotiate better wages and working conditions.
Right now, workers in Mexico have the right to unionize, but they are often left out of the negotiating process. US manufacturers — and most other companies — end up dictating the terms of the contract with labor unions to their own benefit. Workers have also reported retaliation from employers when they try to create a labor union.
But even if Mexico does guarantee workers more union rights, the government does not have a great track record when it comes to enforcing its own laws. Bribing government officials to look the other way is common practice — even among US companies that operate there. Government employees in Mexico often earn poverty wages themselves, so slipping them money to bend the rules is considered part of the cost of doing business, as a 2012 New York Times investigation of Walmart’s operations there showed.
That’s why another labor rule in the new trade deal also seems too good to be true. It mandates that 40 percent of a car’s parts must be made by workers who earn at least $16 an hour to avoid tariffs. That means that many Mexican factories that make parts for US car manufacturers would have to pay eight times what they currently pay the average factory worker. And the trade deal does not mention how such a rule could be enforced. It’s not clear how the Mexican government, the US government, or even an independent council would be able to keep track of wages without an army of regulators.
“I don’t think it’s plausible at all,” says Monica de Bolle, an economist at the Peterson Institute for International Economics. “At the moment, because there is no such legislation, enforceability is all but impossible.”