NAFTA’s Replacement Gives Labor Some Shelter From Globalization’s Storms

The Senate on Thursday approved the United States-Mexico-Canada Agreement by the extraordinary margin of 89 to 10. The USMCA deal is the replacement for the original North American Free Trade Agreement (NAFTA) of 1994, and its passage in both houses of the U.S. legislature brings to a close the U.S. effort to rewrite North American trade rules. After three years of tough negotiations, USMCA now enjoys a strong, bipartisan coalition of supporters.

The NAFTA renegotiation started off as U.S. President Donald Trump’s effort to fulfill a campaign promise to fix the deal or rip it up. But USMCA’s political momentum in Congress is due largely to labor rights provisions crafted by Senate and House Democrats. Labor rights have long been a precondition for broad Democratic support of America’s regional trade deals. In addition to the original NAFTA, agreements with Colombia and Central America faced staunch opposition from Democrats concerned that trade treaties fail to protect average workers.

Trade skeptics have had a right to be worried. The United States has taken the lead when it comes to building labor rights into its trade deals—a step many other countries have been reluctant to take. But it’s one thing to have the rules on the books and another to enforce them. Even the United States—the champion of enforceable labor rules in trade agreements—has only brought one such dispute, which it lost. Organized labor groups argue that trade deals have so far failed to produce results.

The hope is that the new USMCA will be a different story. That’s why House Speaker Nancy Pelosi insisted that her fellow Democrats would only support a deal that was “enforceable for America’s workers.” Hence, the revised labor provisions announced this past December. The most significant change is a unique enforcement mechanism that will allow the parties to work jointly to try to ensure that Mexicans enjoy real collective bargaining rights. The mechanism is unique both in its speed (months rather than years) and in the fact that it focuses on the factories themselves where the violations occur. Instead of having to sue Mexico for breaching its obligations, the United States can instead partner with Mexico to address on-site violations.

These changes satisfied some of USMCA’s major critics, including the United States’ largest organized labor federation, the AFL-CIO. After opposing the deal as negotiated by the Trump administration, AFL-CIO President Richard Trumka welcomed the revised version and said that “working people can proudly support” the amended agreement.

And these provisions don’t come at the expense of a sizable number of Republican votes. In the Senate, only one Republican voted against it. Indeed, there has been broad bipartisan support for enforceable labor and environmental rules in these agreements for many years. Republicans have recognized the need to mitigate the incentive within the international trade system to create an unfair advantage by suppressing labor and environmental standards.

As with the Senate, USMCA sailed through a floor vote in the House last month by a margin of 385 votes to 41. That included support from 84 percent of Democrats, breaking from the average of 36 percent support for the last 10 such deals. In fact, only the U.S. agreement with Jordan in 2001, which passed through both chambers via simple voice vote, received so much support from the left.

But despite these improvements, there’s more to be done. Mexico’s acceptance of stronger labor provisions wasn’t a foregone conclusion. It’s true that Mexico passed new domestic standards last year. However, Mexican officials previously opposed deeper commitments on labor, with Mexico’s Undersecretary to North America Jesús Seade stating that USMCA’s labor provisions “are very far-reaching. … There is nothing else you may want.” And, Mexico’s President Andrés Manuel López Obrador complained about some U.S. demands on the grounds that they would purportedly amount to allowing U.S. inspectors into Mexico’s factories. As a result, suspicions of imperfect implementation remain.

Mexico’s resistance is more easily understood in a broader context. Many countries pay lip service to the obligations they’ve signed up to at the International Labor Organization, which include rights outlined in the new NAFTA. The difficulty lies in enforcing those obligations. That’s why the United States for over a decade has chosen to make those rules enforceable through its bilateral and regional trade deals.

But these deals can’t eliminate exposure to competitive pressures in a globalized economy. If labor laws are enforced in Mexico, Mexican factories will experience higher labor costs. That is good, given the historic problems of suppressed wage growth in Mexico. But it also means Mexican factories will face more pressure from low-cost producers elsewhere in world markets. China is a case in point: It has benefited tremendously from a race to the bottom on labor rights (and environmental rules) allowed by—if not encouraged by—a global trading system that imposes no labor obligations on its participants. Labor isn’t even on the table in the Trump administration’s negotiations with China.

Labor arbitrage isn’t a new problem. It is precisely because labor is a condition of competition, subject to exploitation, that the founders of the global trading system sought to include enforceable labor rights in the original global trade regime embodied by the General Agreement on Tariffs and Trade. That didn’t happen, and the agreement’s successor, the World Trade Organization, continues to suffer from the same shortcoming—remaining silent on labor obligations across its members.

The WTO’s omission of labor protections means that Mexico must enforce its labor commitments while its chief competitors are not similarly bound. As a result, Mexico faces diverging incentives. It is obliged to honor USMCA’s standards while, at the same time, it faces pressure to compete with producers that can dodge these rules.

Yet amid all the discussion of WTO reforms, including dispute settlement and subsidy disciplines, there is a near-total failure to discuss labor rules. Even the United States has been mum. This, in the face of backlash against globalization driven at least in part by income inequality.

Ultimately, the WTO’s failure to address these systemic issues is the one of the drivers of the broader turn away from multilateralism. It encourages countries to find solutions, even imperfect ones, outside of the global trade regime. It’s how we arrive at different groups of countries having their own sets of commitments. That’s a problem. There isn’t an overarching umbrella shielding workers from the rain. Instead, labor is too often left exposed to the elements.

Saving the dispute settlement system won’t be enough to save multilateralism. The rules themselves have to change.