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FRIDAY, SEPTEMBER 7, 2018
Click HERE for Tuesday's quote from President Trump.
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U.S.-MEXICO - A FOCUS ON LABOR
"Most dramatically, the pact helps US factory workers by linking low wage levels with trade limitation."
Laurent Belsie and Whitney Eulich
August 28, 2018
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Laurent Belsie and Whitney Eulich both write for The Christian Science Monitor. Mr. Belsie is based in Boston and Ms. Eulich is the paper's Latin America editor and correspondent. In their now famous telephone call of August 27, President Trump and President Peña Nieto of Mexico announced that they had reached a deal on a new United States-Mexico Trade Agreement. The next day, August 28, The Christian Science Monitor published an article by Mr. Belsie and Ms. Eulich with a focus on the labor issues in that agreement.
Of course, they quoted liberally from the previous day's exchange between the two presidents, including President Trump's declaration that it was a great day for trade. A quote they chose from President Peña Nieto was:
Most importantly, it is an incredible deal for the workers and for the citizens of both countries.
When the deal was announced, the Office of the U.S. Trade Representative put out fact sheets listing key elements. All of the elements are interesting, but they are not all clear. Presumably clarity will come with the drafting of a final agreement and implementing legislation. The question is, will the bill be one to implement the United States-Mexico Trade Agreement or one that is geared to a trilateral agreement. As for the new agreement with Mexico, the USTR fact sheets list several labor provisions, including these three.
No. 1 A Change in Mexico's Labor Laws. In today's Mexico, the bulk of labor contracts are between companies and "employer protection unions." These are essentially company unions, often set up and contracts negotiated before any employees are hired. According to Mr. Belsie and Ms. Eulich:
The new trade agreement calls for those unions to be eliminated within four or five years. Instead workers would be guaranteed the right to vote in secret for a union (so they can't be retaliated against), forming bargaining units that would push for better pay and working conditions.
No. 2. Wages Linked to Tariff-Free Treatment. One of the most eye-catching sentences in the USTR fact sheet on the agreement with Mexico is this:
To support North American jobs, the deal requires new trade rules of origin to drive higher wages by requiring 40-45 percent of auto content be made by workers earning $16 USD per hour.
To be sure, that language raises questions. We assume it needs to be read in conjunction with the requirement that automobiles and parts have at least 75 percent North American content - (U.S.-Mexican at this stage) - in order to qualify for tariff benefits. That still leaves us wondering, why the range, 40-45 percent? Wouldn't it have been cleaner just to pick a number, either 40 or 45 percent? Doubtless, questions like that will be answered in time. The key point is that the agreement established a link between wage rates and the benefits of the agreement.
No. 3. Labor at the Core. Here too it is worth quoting from a USTR fact sheet:
The United States and Mexico have agreed to a Labor chapter that brings labor obligations into the core of the agreement, makes them fully enforceable, and represents the strongest provisions of any trade agreement.
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The Canada-U.S. Free Trade Agreement of 1988 was contentious primarily in Canada, where it was the defining issue in that year's national election. NAFTA could have been such an issue in the U.S. presidential election of 1992. The Administration of President George H.W. Bush had negotiated the agreement, and it might have played an even larger role in that year's election if the Democratic challenger (and later president) Bill Clinton had opposed it. But he didn't. He embraced it, albeit with the promise of improving it with side agreements on labor and environment.
That is not to say that NAFTA wasn't a campaign issue in 1992. To the contrary, it was the principal pillar of Ross Perot's candidacy, which gave us the sound bite of "the giant sucking sound" of jobs going to Mexico, and made Perot, with almost 19 percent of the popular vote, one of the most successful third-party candidates in U.S. history. We'll highlight a portion of one of 1992's presidential debates in the next entry. The point here is that, while economically America reaped enormous advantages from NAFTA, the underlying political fear or grievance - call it what you will - was never addressed. It would surface now and then, as in the 2008 campaign when candidate Barack Obama said he would renegotiate NAFTA, but it was never really addressed.
We cannot know at this stage what will become of this new agreement with Mexico. Congress, after all, will decide whether it is ever implemented. That decision could well turn on the outcome of the current talks with Canada as well as the continuing negotiations with Mexico. That said, we will be surprised if, one way or another, these new labor provisions do not make their way into whatever agreement provides the basis for trade between the United States and Mexico. On the U.S. side of the border, they address a long-festering list of concerns. And on the Mexican side, they are in line with the goals of the incoming president, André Manuel López Obrador, AMLO, who will take office on December 1.
We have no further comment on these labor provisions, but we would highlight a couple of facts. The first is that bringing the wages of Mexican auto workers up to $16 an hour would be a big jump. In their article, Mr. Belsie and Ms. Eulich suggest that Mexican auto workers today make "perhaps $6 an hour." $16 an hour would be more than double that, and yet it would still be well below U.S. wages rates in the auto sector. The following table makes the point. The figures in it are from a 2015 report and are probably out of date. (It seems unlikely, though, that any of them have gone down in the last three years.)
WAGE RATES FOR U.S. AUTO WORKS (EARLY 2015)
Company Hourly Compensation
Daimler AG $65 per hour (Alabama plant)
General Motors $58 per hour
Ford $57 per hour
Toyota $48 per hour
Honda $49 per hour
Fiat Chrysler (FCA) $48 per hour
Nissan $42 per hour
Hyundai $41 per hour
Kia $41 per hour
BMW $39 per hour
VW $38 per hour
Again, these number are old. We don't know how much is included in them - benefits etc., and they mask important differences such as compensation for older versus younger workers. We offer them simply to give some sense of disparity between automotive wage rates in the United States vs. those in Mexico.
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THE MEXICO DEAL AND WORKERS HOPES
This is The Christian Scient Monitor story about the announcement of a new trade agreement between the United States and Mexico. Written by Laurent Belsie and Whitney Eulich and published on August 28, this piece was the source for today's featured quote.
PRELUDE TO BARGAINING is a link to the 2015 Reuters story that was the source for the wage rates given above.
A U.S.-MEXICO FACT SHEET is a link to a USTR fact sheet on the new trade agreement between the United State and Mexico, including some of the labor language quoted above.
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