Confused About the Status of NAFTA Renegotiations? Join the Club

(AP Photo/Marco Ugarte)

On August 31, the administration sent a formal notification to Congress that starts the countdown to a vote on an agreement that could replace the 1994 North American Free Trade Agreement (NAFTA).

After a 90-day waiting period required by the “fast-track” procedure, an agreement could be signed on November 30, not coincidentally the last day in office for the current Mexican president. This would set up a U.S. congressional vote in the first half of 2019.

Much of the media coverage since the notice has focused on the legal and political uncertainties related to the fact that, so far, the United States has only concluded a deal with Mexico. Indeed, the formal notice indicated “intent to sign a trade agreement with Mexico—and Canada, if it is willing—90 days from now.”

Negotiations with Canada continue this very day, Wednesday, in Washington, D.C. Canada rejoined talks last week after disengaging in May over opposition to U.S. demands that a new deal include a sunset clause. Canada has relied on a misguided notion, peddled by the U.S. corporate lobby, that a U.S. president does not have unilateral authority to terminate NAFTA, and thus the choice is between the status quo and a new deal with changes that Canada inexplicably opposes, including elimination of NAFTA’s outrageous corporate investor-state dispute settlement (ISDS) tribunals. When the United States and Mexico continued negotiating and reached a deal, Canada rushed back to the table.

As a practical matter, the deadline for a deal with Canada is October 1, which is when the text of a new agreement must be made public. The range of scenarios for what happens if a deal with Canada is not reached by then are so varied and uncertain that even informed speculation is impossible.

But what terms are included in a renegotiated NAFTA are perhaps even more important than what countries are.

Press statements about the notice by unions, progressive senators and representatives, and Public Citizen, where I work, reflect the reality that, improbably, progress has been made on some essential NAFTA changes that progressives have long sought. But also that more work remains to achieve an agreement that can stop NAFTA’s serious ongoing damage.

Thanks to the closed-door process of the negotiations, no one will have the information needed to make a full judgment on a deal until a final text is made public and can be carefully scrutinized. 

But, from detailed briefings and review of available text by those with clearance, what is clear is that the most serious shortcoming—and it falls into the category of “Besides that, how was the play, Mrs. Lincoln”—is the lack of swift and certain enforcement of what are markedly improved labor standards.

The new labor standards would require Mexico to guarantee workers the right to secret ballot votes on their own unions and contracts, among other improvements relative to the labor rights terms in any past U.S. trade agreement or the Trans-Pacific Partnership (TPP). The secret-ballot vote requirement could help end the scourge of Mexico’s endemic fake “protection” unions that approve low-wage contracts before the first worker even starts at a new plant. When workers protest the $2 per hour wages at a new high-tech plant—one that is the southern clone of a U.S. plant paying workers $20 to $25 per hour to make the same product—they are fired for violating their “contract,” as occurred recently at a Goodyear tire plant in San Luis Potosi.

This scam has greatly contributed to the shameful reality that Mexican wages are lower today in real terms than they were before NAFTA, and are now lower than wages paid to manufacturing workers in coastal China. Despite promises in 1994 that NAFTA would raise Mexican wages, today Mexican auto workers make 9.1 times less than their U.S. counterparts relative to a 5.4 differential when NAFTA began, according to a study by the Colegio de Mexico.

Even the best labor standards in a new deal will not change conditions on the ground unless they are subject to swift and certain enforcement. And absent that, U.S. corporations will keep outsourcing jobs to Mexico to pay workers a pittance, to dump toxins, and to import products back for sale here.

The U.S.-Mexico deal, which includes significant portions of text on which Canada has also agreed, contains some real improvements relative to the current NAFTA.

Jared Bernstein, who served as chief economist for Vice President Joe Biden, provided a good overview in a recent Washington Post piece. Improvements include razing NAFTA’s ISDS tribunals, where multinational corporations have grabbed $392 million in compensation from taxpayers after attacking environmental and health policies that they claim undermine their expansive NAFTA investor rights.

These investor protections also create a powerful push factor that incentivizes outsourcing. ISDS  eliminates many risks normally associated with relocating production to a developing country and, with the prospect of unlimited taxpayer-funded compensation being ordered by tribunals of three corporate lawyers under the ISDS regime, provides the equivalent of risk insurance at no cost to a multinational corporation.

The U.S.-Mexico deal also raises the total share of a good’s value that must be made in North America to 75 percent from the current 62.5 percent, a rule of origin widely criticized as allowing NAFTA benefits for goods comprised of parts made in China and other countries outside of North America.

Also included is a first-time innovation that would require workers making $16 per hour or more to produce set portions of autos and auto parts in order for the finished product to qualify for NAFTA’s duty-free trade treatment. If these provisions are properly structured, they could create incentives to raise wages in Mexico and also would ensure that a share of the increased North American value was contributed by workers in the United States and Canada.

Another significant improvement is the elimination of the natural resources “proportional” sharing rules in the original NAFTA, which created rights for foreign firms to have set portions of another NAFTA country’s oil, gas, timber, and even water based on previous years’ export levels. These terms meant that if a country decided to eliminate an environmentally damaging production process, such as Canada’s tar sands oil, or to conserve a resource, the country would be obliged to provide access to foreign firms.

These changes have led to unhappy responses from some corporate quarters.

“The old NAFTA dispute settlement system for investors has been gutted, leaving U.S. industry and Congress with a huge dilemma as to whether to support the new pact,” fumed American Enterprise Institute’s Claude Barfield.  

The Business Roundtable fretted about “concerns that today’s announcement might signal not an improvement, but rather a step backward by requiring a sunset provision, weakening investment protections and constraining access to dispute settlement procedures.” And The Wall Street Journal editorialized that “this is half a NAFTA that contains some improvements but is notably worse in many ways.”

Despite those corporate concerns, the administration’s factsheets on the U.S.-Mexico deal revealed that at least Big Pharma and Big Content obtained terms that could export to Mexico and Canada the extreme U.S. intellectual property rules that jack up prices for medicine and educational materials and entertainment content. Whether the final deal includes these terms—including new monopoly rights for biologic medicines, which would allow big pharmaceutical corporations to avoid generic competition and extended copyright terms, as well as terms that could undermine consumer privacy protections—will depend on Canada.

If Canada accepts the terms on these issues agreed to by Mexico and the United States, Canada would be forced to change its laws in ways that would be unpopular even if the changes were not being dictated to a Canadian prime minister facing re-election next year by the Bully-in-Chief who is widely despised in Canada.

Canada’s decision to disengage from negotiations this spring means it missed the opportunity to reject these terms in the course of talks. On the other hand, recent polls in Canada show that a majority of Canadians would prefer no NAFTA to one that undermines Canadian interests.

Let’s be clear: No one believes that the Trump, Enrique Peña Nieto, and Justin Trudeau administrations will deliver a NAFTA replacement deal that fully meets all of the benchmarks  endorsed by over a thousand civil society groups earlier this year. But elements of long-held demands have already made headway in the policy arena that would have been unthinkable just a year or two ago. This happened because efforts led by labor, civil society, and progressive Democrats in Congress have created a context where such demands must be met to garner the support needed to pass a new agreement.

The devil will be in the details. Unless the enforcement of the Labor Chapter is significantly improved, the deal will not measure up to the standard that many progressives will apply: Any final deal must be judged on whether it will end NAFTA’s ongoing damage. 

Unlike the choice progressives faced when judging the prospect of a new deal—TPP—NAFTA is in effect and doing more damage every week.

Almost one million American jobs have been government-certified as lost to NAFTA, with NAFTA helping corporations outsource more jobs to Mexico every week, including recently from Boeing, GE, Comcast, and Nabisco. New ISDS attacks on public-interest laws and government action to protect the environment and public health are filed monthly.

The status quo of NAFTA helping corporations outsource more jobs and attack health and environmental safeguards in secretive tribunals is unacceptable as a policy matter. It also creates political dynamics ripe for exploitation by the likes of Trump.

Given Trump’s nationalistic perspective of why NAFTA has caused what is real and severe damage is so wrongheaded—it was the 500 U.S. corporate advisers who rigged the agreement’s terms against working people throughout North America, not some plot by “Mexico” to steal U.S. jobs—it may seem improbable that this administration could be making changes progressives have long sought.

The reality is that public anger over outsourcing has made it impossible for business-as-usual trade agreements to get through Congress, as became evident when the TPP could not obtain majority support in the year after it was signed before Trump was elected.

And Trump has promised outcomes from his widely touted pledge to “fix” NAFTA that are measurable every month with government data and that can only be achieved by doing what progressives have long demanded: eliminating NAFTA’s job-outsourcing incentives and ISDS tribunals and adding strong labor terms with swift and certain enforcement to raise wages.

The bigger questions than whether a deal gets made with Canada is whether Trump can deliver a final deal strong enough to meet his election promises to return manufacturing jobs and cut the large NAFTA trade deficit.

Despite good faith efforts by top U.S. trade officials, who have worked more closely with critics of the trade status quo than any past administration, Democratic or Republican, Trump regularly undermines that prospect with his maniac tweets and threats aimed at other countries’ leaders and the unions whose support would be essential to passing any deal.

And if such a deal ultimately emerges, it remains to be seen whether Republicans in Congress would buck the corporate lobby and the new Koch brothers campaign in support of the trade status quo, and vote for the sort of deal that could get support from unions and Democrats in Congress.

Stay tuned.

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