Eliminate NAFTA terms that promote the outsourcing of American jobs and create downward pressure on wages.

How does NAFTA 2.0 measure up?

Demand: Eliminate Investor-State Dispute Settlement and the foreign investor protections it enforces that make it less risky and cheaper to outsource jobs.

The elimination of ISDS between the U.S. and Canada and the replacement of NAFTA’s ISDS regime with the two U.S.-Mexico annexes on investment would eventually remove the original NAFTA Investment Chapter incentives to outsource U.S. jobs, but the current text allows the outsourcing incentives to remain in place for three years after NAFTA 2.0 goes into effect. The main U.S.-Mexico investment annex eliminates the protections that have functioned as no-cost risk insurance to firms considering outsourcing, making it cheaper and less risky to relocate production. This includes elimination of rights to compensation for violations of Minimum Standard of Treatment, Indirect Expropriation, Performance Requirements and Transfers as well as the pre-establishment “right to invest” that provided protections for prospective new investors that minimized entry costs. The secondary “Mexico-U.S. Investment Disputes Related to Covered Government Contracts” annex is problematic for preserving broad sustentative ISDS rights for oil firms, but given it is limited to investors with contracts with a federal government to perform services in Mexico, it does not provide those protections in a context that could make it cheaper or less risky to outsource manufacturing production from the United States to Mexico.  

Demand: Eliminate NAFTA procurement rules limiting Buy American, labor and environmental preferences so the government buys U.S.-made, pro-worker and pro-environment goods – reinvesting our tax dollars to create jobs here rather than outsourcing them to buy cars, construction materials, office supplies and other goods made elsewhere.

With respect to Mexico, the text maintains the old NAFTA rules that require the waiver of Buy American and Buy Local procurement preferences. This is a stark contradiction with Donald Trump’s “Buy American, Hire American” policy. The only change with respect to which U.S. government agencies must comply with these rules is the removal of certain purchases of the Transportation Security Administration. (The once-independent Office of Thrift Supervision was previously listed on its own, but is now part of the Department of Treasury.) Language in U.S. trade agreements since 2007 that was designed to clarify that countries can use technical specifications for goods and services they seek to purchase relating to environmental protection was incorporated, but similar language pertaining to labor standards was weakened. The provision in the new agreement only allows countries to “promote” rather than “require” compliance with labor-related technical specifications. There is no Canada procurement schedule in the text that is posted. This likely represents the reality that U.S.-Canada procurement terms established in the World Trade Organization’s (WTO) Agreement on Government Procurement provide Canada greater access to U.S. procurement contracts than Canada’s NAFTA terms did. Because Canada already has a broader waiver of Buy American rules under the WTO than it had in NAFTA, fixing the waiver of U.S. domestic procurement preferences with respect to Canada requires changes to WTO terms, while changes to NAFTA’s procurement terms would remedy the problem with Mexico.

Demand: Raise wages by adding strong labor and environmental standards with swift and certain enforcement to raise poverty wages and strengthen lax environmental rules in Mexico.

This is a work in progress. For detailed analysis, please review the official Labor Advisory Committee (LAC) report. With respect to the labor provisions, the LAC overview states that “there are modest but meaningful improvements in the rules in comparison to the Trans-Pacific Partnership (TPP).” However, given the abysmal TPP labor standards, that is hardly a measure of the standards’ prospects for actually improving labor rights, wages or working conditions. With respect to the NAFTA 2.0 text, the LAC report notes: “The obligations include some improvements, including new provisions regarding violence, migrant workers, wage-related benefit payments and the right to strike. The text, however, retains the basic flaws of the ‘May 10’ agreement, limiting itself to the 1998 Declaration of Fundamental Principles and Rights at Work, as opposed to the clearer ILO [International Labour Organization] Conventions. While the text retains limitations we reject that labor violations under the agreement must be in a ‘manner affecting trade or investment’ (which likely excludes much of the public sector) and occur in a ‘sustained or recurring course of action or inaction’ (which excludes egregious but one-time acts such as murder or torture), clarification of these standards is welcome. Language strengthening rules regarding goods made with forced labor and compulsory labor, including forced or compulsory child labor, is welcome but should be made stronger by including goods from NAFTA countries and those made in whole or in part by the worst forms of child labor as well as by eliminating the phrase ‘through measures it considers appropriate.’ Critically, the chapter includes an annex we support with specific provisions detailing how Mexico must reform its labor law. Important weaknesses remain, including a footnote that makes it difficult to uphold international labor standards (footnote 2) and the absence of rules prohibiting abusive labor recruitment practices or requiring the payment of living wages. Most importantly, there are no labor-specific monitoring or enforcement provisions… Therefore, we will continue to work for improvements to the labor provisions.” See below for details on environmental standards. However, what is clear is that swift and certain enforcement of both the labor and environmental standards remains lacking and must still be addressed, or U.S. corporations will continue to outsource jobs to Mexico to pay workers a pittance, dump toxins and import products back for sale here.

Demand: These terms must raise wages and end existing “protection contracts” that lack majority support of workers they cover. A revised NAFTA must address shortcomings exposed by the recent Guatemala-CAFTA labor rights case by eliminating the use of the terms “sustained or recurring course of action or inaction” and “manner affecting trade” as barriers to enforcement of labor and environmental standards.

The new text includes what the LAC report characterizes as “new rules to eradicate wage-suppressing protection contracts in Mexico” in a new Labor Annex. Fake “protection contracts” are endemic in Mexico. Workers arrive at a new high-tech, multi-million-dollar plant to find that a fake union for which they never voted has already signed a contract with the company that the workers never approved that locks in low wages. Workers who go on strike are arrested for violating “their contract.” According to the LAC report: “This Annex, in contrast to prior trade agreements and the bulk of the [new NAFTA text’s] labor chapter, includes detailed, specific rules with which Mexico’s labor laws must comply. Of the changes to the labor text vis a vis prior labor agreements, this Annex has the potential to be the most meaningful, but only if it is enforced.” The LAC report also notes, that the new Labor Chapter text includes language intended to fix the problems exposed by the Guatemala CAFTA labor rights case that it consider progress. But, those clarifying terms still leave doubt as to whether all workers in an economy are covered by the agreement’s labor rights provisions, and also whether single egregious acts that fail to form a “sustained or recurring” course of action remain uncovered, even potentially a one-time mass murder of union activists.

Demand: New tools must be added to ensure that independent monitoring and enforcement will occur, and preferential market access must be conditioned on sustained evidence of on-the-ground improvements, with social and environmental dumping tariffs imposed for backsliding.

This is a work in progress. There are no labor-specific monitoring or enforcement provisions (such as an independent secretariat or labor-standards-compliance certification requirements) that would ensure that the new rules will be swiftly or certainly enforced. The LAC report notes: “As a result, the LAC has serious doubts that the improved rules will make a meaningful difference to North American working families without additional provisions, assured funding, and implementing language. Unenforced rules are not worth the paper they are written on.” The report also notes that while the labor standards are subject to state-to-state enforcement, like other provisions in the agreement, there has been a consistent history through Democratic and Republican administrations alike of government officials being unwilling to challenge even the most egregious violations. Thus, relying on government enforcement of the agreement’s labor standards provides no certainty that the terms included in the text will have any practical effect. The LAC report notes: “We will continue to engage with the Administration and Congress on implementing, monitoring, and enforcement measures to buttress the provisions in the agreement and to secure sufficient mandatory funding to provide technical assistance, where needed, and capacity building to help new unions form and budding unions to stand up.” Finally, while tariffs could be implemented in the course of a state-state dispute if a violation of the labor standards were found, there are no new provisions establishing countervailing duties based on social dumping.

Demand: Congress must not vote on a new NAFTA until each party adopts, maintains, implements and enforces domestic laws that provide the labor rights and protections in the International Labor Organization’s Core Conventions (including but not limited to the recent constitutional changes in Mexico).

This is a work in progress. The LAC report notes that unions welcome language in the new text’s Labor Annex that sets an expectation that Mexican labor law reform will be passed before the deal is signed and implemented prior to the agreement’s entry into force. Among the changes that would be required in Mexico are the establishment of impartial labor courts and an independent agency to administer conciliation and the registration of collective bargaining agreements. To guarantee that expectation, the LAC report recommends that the pact’s implementing legislation should include a provision explicitly preventing entry into force of a new NAFTA deal if Mexico has not enacted and implemented its labor law reforms.

Demand: Create American jobs and reinforce improved labor and environmental standards by strengthening “rules of origin” and stopping “transshipment.” Strengthened rules of origin and new safeguards that reduce opportunities for leakage must be added to incentivize production in North America in general and the United States in particular. Strengthening rules of origin must go hand-in-hand with significantly improving labor rights, wages, environmental standards and enforcement to effectively address American job loss and wage stagnation.

The text includes stronger rules of origin (ROO) in the automotive sector, which covers a significant portion of trade between NAFTA countries. The total share of value that must be made in North America to get NAFTA benefits is raised to 75 percent from the current 62.5 percent for automobiles and parts, with some exceptions such as heavy-duty trucks, for which the requirement is 70 percent. These new requirements are phased in over five years. The previous auto 62.5 percent ROO allowed NAFTA benefits for goods with significant value produced in China and other non-North America countries. Also included is a first-time innovation that would require workers making $16 per hour or more to produce 40 percent of the value of autos and 45 percent of the value of light trucks in order for the finished product to qualify for NAFTA’s duty-free treatment. This Labor Value Content (LVC) requirement spotlights an important concept of linking trade market access to wage levels and sets an important precedent for future pacts. But to date it has been difficult to calculate the LVC’s practical effects on where auto assembly and auto parts jobs will be located and on wage levels in the United States, Mexico or Canada. Only the auto firms know precisely where every element of their product is manufactured, and thus the extent of the changes that would be needed to meet the required percentage of production by workers paid $16 or more. While the auto sector rules have gotten the most attention, the new NAFTA text has higher rules of origin throughout. As the LAC report notes: “In the critical area of rules of origin… other than for automobiles and parts (which will be discussed separately), the negotiated text improves upon the original NAFTA in a number of ways that should increase production and employment in North America.” Examples of improvements are elimination of methodologies for calculating the value of inputs in a product that minimize counting the foreign content, improved rules on the origin of steel and aluminum used to make products, and a shift in focus in the determination of the “origin” of a good to the value of inputs rather than whether final changes to or assembly of a good occurs.

Demand: Ensure a fair playing field for American job creation by adding strong, enforceable disciplines against currency manipulation and misalignment. New binding disciplines against currency manipulation and misalignment must be added to NAFTA’s core text along with a commitment to cooperate tri-nationally to confront harmful currency manipulation and misalignment by trading partners around the world. Add stronger rules to stop transshipment cheating. 

This is a mixed outcome. Inclusion of terms on the misalignment of currency values to gain trade benefits sets an important precedent for future agreements. However, in the new NAFTA chapter “Macroeconomic Policies and Exchange Rate Matters,” only the reporting requirements are binding and subject to dispute settlement. Terms that refer to refraining from competitive devaluations and other bad practices are framed in non-binding “should” language and are not subject to dispute settlement. In contrast, countries actually are obligated (“shall” language) to publicly disclose foreign exchange reserves data and currency market interventions. But there is no mechanism for actually disciplining actions countries may take to manage the value of their currencies. The LAC report recommends terms in implementing legislation “to ensure provisions are linked to action under existing U.S. trade laws” and to make currency manipulation and misalignment a subsidy subject to countervailing duties.