NAFTA 2.0 gets complicated for US & global manufacturers, particularly automakers
This week, an 11th-hour demand from Democrat members of the U.S. Congress concerning the U.S.-Mexico-Canada Agreement (USMCA), the trade agreement to replace NAFTA, has put Mexico’s government and global manufacturers in a tight spot. The U.S. lawmakers are calling for a program of inspections to enforce the beefed up labor standards included in the new deal, along with meaningful penalties for companies that don’t comply — including the imposition of tariffs on the goods they manufacture.
The proposed trade agreement, unlike NAFTA, includes protections for workers in all three North American countries as well as a stipulation that 40% of the cars assembled in the region would have to be made by workers earning at least $16 an hour, multiples higher than the average hourly wage earned by Mexican auto workers. The protections include “the right to collectively bargain”, “freedom of association,” and the “right to strike.”
Mexican workers will also be freed to challenge so-called “protection” contracts, which lock in low wages as a precondition demanded by many companies to set up shop in the country.
These protection contracts are part of the wage-repression system in Mexico, established between global manufacturers, local unions, and governments. This system has been able to repress wages in auto plants even as wages in other emerging-market auto plants, particularly in China, have surged. And it has induced automakers to shift production from the US to Mexico, at the expense of US workers.
These contracts are particularly prevalent in Mexico’s auto sector, whose exports to the US market continue to grow even as total deliveries of vehicles to end-users in the US have fallen.
It is hoped that the new measures featured in USMCA will go some way to strengthening, at long last, labor standards and rights in Mexico as well as reduce systematic wage repression. But there are major concerns about just how rigorously the new standards will be enforced. Hence, the new demand that inspections be held in Mexican workplaces to ensure they are being implemented.
While the proposal may enjoy strong support among auto workers in the US and the unions that represent them, it faces stiff opposition south of the border.
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