Decades Late, NAFTA’s Promise on Workers’ Rights Comes Good
from Renewing America and Greenberg Center for Geoeconomic Studies

Decades Late, NAFTA’s Promise on Workers’ Rights Comes Good

Originally published at Foreign Policy

Last updated February 8, 2022 11:47 am (EST)

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Current political and economic issues succinctly explained.

In 1993, then-U.S. President Bill Clinton unveiled a revolutionary deal that would require Mexico to strengthen workers’ rights as part of the pending North American Free Trade Agreement (NAFTA). Previous trade agreements had been all about expanding trade; labor issues, such as wages and workers’ rights, were considered a domestic matter for every country to decide on its own. But during the 1992 U.S. presidential election campaign, Clinton had insisted on adding so-called side accords to address the trade pact’s critics—including many in his own Democratic Party—who feared NAFTA would trigger an exodus of U.S. jobs as companies fled to take advantage of lower wages and weaker regulations in Mexico. The side accord on labor practices, Clinton promised, would ensure that NAFTA was “a force for social progress as well as economic growth.”

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For three decades, however, those promises have been hollow. Trade between the United States and Mexico grew rapidly as tariffs disappeared; since 1994, U.S. trade with Mexico has more than tripled, outpacing the growth of U.S. trade with the rest of the world. But Mexican living standards have not risen at anything like the same pace, and the gap separating U.S. and Mexican wages is actually larger today than when NAFTA was launched. That’s one reason the U.S. trade deficit in manufactured goods with Mexico has grown to more than $100 billion per year.

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Last week, however, this script may have flipped. A historic vote by workers at a General Motors (GM) plant in Silao, around 200 miles north of Mexico City, could be the first step toward fulfilling Clinton’s promise: that Mexico would have to stick to its labor commitments. The plant’s 6,300 workers, who assemble the Chevrolet Silverado and GMC Sierra for export to the United States, voted 78 percent to be represented by an independent union. They kicked out the Confederation of Mexican Workers, which has worked closely with Mexico’s political and business elite to keep wages low in the auto sector.

The vote at the General Motors plant happened only because the United States finally got serious about using trade threats—potentially tens of millions of dollars in punitive tariffs—to support efforts by Mexican workers to freely choose a union. It wasn’t just a victory for GM’s Mexican workers but also a huge win for U.S. labor unions, which have long argued that trade could be a powerful lever to lift up wages and workers’ rights if only the government was willing to use it. The case is a breakthrough, all but guaranteeing that Washington will push for similarly robust measures on workers’ rights and labor rules in any future trade deals.

Now, finally, the United States has a big club to wield—and a president willing to use it.

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Although the Silao plant is competitive with the best facilities in the world, workers there start out at a wage of just over $9 per day, barely above Mexico’s minimum wage. Jerry Dias, who heads the Canadian auto union Unifor, pointed out that the typical U.S. and Canadian autoworker could buy the cars they build with about five months’ wages. “A Mexican worker in five months can only buy four tires and a steering wheel,” he said. The top wage, $33 a day, is roughly what unionized U.S. autoworkers earn in one hour.

The vote at Silao came only after the U.S. government exerted the most aggressive pressure it has ever mounted against a foreign country over labor rights. Under the new U.S.-Mexico-Canada Agreement (USMCA), the result of a bruising renegotiation of NAFTA launched by former U.S. President Donald Trump, Mexico agreed to a historic reform of its labor laws, giving Mexican workers the right to organize freely and bargain collectively for better wages. Congressional Democrats—whose votes were needed for ratification—went further by insisting on a rapid response mechanism to address allegations of labor rights violations. For the first time, the USMCA gives the United States the authority to target a single plant with punitive export tariffs if its workers are prevented from organizing and bargaining freely.

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NAFTA’s failure to produce the convergence in wages that free trade advocates had predicted was a big reason why Americans grew increasingly skeptical of global trade, which in turn played a substantial part in why Trump was elected president in 2016. The reasons why Mexico failed to live up to those hopes are complicated; they include two major financial crises and growing competition from China that reduced Mexico’s advantages in exporting manufactured goods.

But a big reason Mexico did not do more to help its own workers is that, despite Clinton’s lofty promises, the United States never pushed very hard. The most powerful Mexican unions are closely allied with the government and big companies; workers who tried to organize and join independent unions to fight for better wages and working conditions were suppressed, sometimes violently. For a long time, U.S. administrations looked the other way. Republican presidents opposed the idea of linking labor rights with trade, whereas Democrats were torn between their corporate and union backers. Although some two dozen cases were investigated under the old NAFTA mechanism, many of which alleged serious workers’ rights violations, not a single punitive tariff, fine, or other sanction was ever imposed against Mexico.

Now, finally, the United States has a big club to wield—and a president willing to use it. U.S. President Joe Biden’s trade representative, Katherine Tai, launched the Silao case in May 2021 after allegations that workers at the factory had been prevented from exercising their collective bargaining rights. In response, the United States temporarily suspended GM’s ability to export trucks from the plant duty free; failure to resolve the case could have resulted in a 25 percent punitive tariff on every truck exported from the plant to the United States, potentially adding up to tens of millions of dollars. That massive threat quickly led to an agreement between the Biden administration and the Mexican government, which ordered the GM plant to permit new votes on union representation by the workers without tampering or interference.

The rest of the world will be closely watching the case. Few countries have shared the United States’ enthusiasm for marrying trade and labor rights; most developing countries see the initiatives as disguised protectionism designed to weaken one of their most important competitive advantages. And there are legitimate charges of hypocrisy. The United States, especially its southern states, is mostly hostile to union organizing; workers at an Amazon warehouse near Birmingham, Alabama, are currently holding a second vote on whether to unionize after Washington ruled that Amazon had illegally tampered with a similar vote last year.

But there is also a desire, especially in Asia, to bring the United States back to trade negotiations as an economic counterweight to China. Trump pulled out of the Trans-Pacific Partnership trade deal with Pacific Rim countries in 2017, responding in part to union complaints that the pact’s labor provisions were too weak. Since then, labor rights have become ever more central to the U.S. trade agenda. The USMCA, for which Trump administration officials worked closely with Democrats on Mexican labor provisions, passed the House of Representatives in an overwhelming 385-41 vote just before Trump left office. Clinton’s original NAFTA, in contrast, barely squeaked through the House on a 234-200 vote.

After three decades of failure, the United States may have found a way to make good on its long-standing promise of using trade agreements to improve wages and working conditions around the world. By showing how it can be done and setting a new trend, the Silao case could have profound effects. The case is likely to be the first of many in Mexico’s export industry; another case involving workers’ rights at Tridonex, which makes auto parts, was also resolved quickly. This will encourage further actions. The Biden administration is also set to unveil new plans for reengaging on trade in the Asia-Pacific region and has made it clear it wants stronger labor rights on the agenda. Whether other countries like it or not, linking trade to workers’ rights is no longer just a good intention.

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