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How Enforcement of the USMCA Will End a Corporate Race to the Bottom

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Yves here. I hope Tom Conway’s optimistic view of the United States-Mexico-Canada Agreement, aka USMCA or Nafta 2.0 proves to be correct. The pact includes provisions that give Mexican workers rights to organize, most importantly, expedited procedures for enforcement against rogue employers.

USMCA required the Mexican government to pass new pro-labor laws and implement an enforcement regime. From a White & Case write-up:

The Mechanism establishes a process by which the governments of the United States or Mexico may bring a complaint that workers at a specific facility in the other Party’s territory are being denied their right of free association and collective bargaining under applicable domestic laws.1 This process consists of (1) an initial review period, during which the two governments may attempt to resolve the issue bilaterally; and (2) a formal dispute settlement process, in which an independent panel will determine whether the alleged ‘Denial of Rights’ exists. If a Panel determines that a Denial of Rights exists, the complaining Party will be authorized to impose remedies (i.e., import restrictions) targeting goods or services from the facility at issue. The suspension of preferential tariff treatment under the USMCA is one available remedy, but the Mechanism contemplates additional, undefined ‘penalties’ that go beyond the suspension of preferential tariff treatment, if such additional penalties are ‘proportional to the severity of the Denial of Rights[.]’

Um, if you see “independent panel” and think “investor-state dispute settlement,” you be getting warm. The White & Case article describes how this process differs from “state-to-state” dispute resolution. In other words, the aim of protecting worker rights on a cross-border basis entails ceding national sovereignity. We are back to Dani Rodrik’s globalization trilemma, which he described in a 2007 post:

Sometimes simple and bold ideas help us see more clearly a complex reality that requires nuanced approaches. I have an “impossibility theorem” for the global economy that is like that. It says that democracy, national sovereignty and global economic integration are mutually incompatible: we can combine any two of the three, but never have all three simultaneously and in full.

Here is what the theorem looks like in a picture:

To see why this makes sense, note that deep economic integration requires that we eliminate all transaction costs traders and financiers face in their cross-border dealings. Nation-states are a fundamental source of such transaction costs. They generate sovereign risk, create regulatory discontinuities at the border, prevent global regulation and supervision of financial intermediaries, and render a global lender of last resort a hopeless dream. The malfunctioning of the global financial system is intimately linked with these specific transaction costs…..

So I maintain that any reform of the international economic system must face up to this trilemma. If we want more globalization, we must either give up some democracy or some national sovereignty. Pretending that we can have all three simultaneously leaves us in an unstable no-man’s land.

We’ve seen quite a few readers react negatively to calls for international labor solidarity by Yanis Varoufakis and others. One of their objections seems to be that a truly international coalition will represent laborer in low wage countries, so there is no way to have a rising tide bring the level close enough to advanced economy levels. The second is a concern about accountability: American union leaders become close in class and pay terms to their nominal opposition than their members, and too often act accordingly. International labor organization leaders seem destined to be even more remote from their flocks.

By Tom Conway, the international president of the United Steelworkers Union (USW). Produced by the Independent Media Institute

Chris Reisinger and his coworkers recently added a third daily shift at the Metal Technologies, Inc. (MTI) Northern Foundry because surging vehicle sales boosted demand for the tow hooks, steering components and other auto parts they produce.

Yet Reisinger knows that jobs at the Hibbing, Minnesota, facility will always hang by a thread—even in really good times—as long as his employer has the option to shift production to poorly paid Mexican workers.

Americans can protect their own livelihoods by ensuring their Mexican counterparts have unfettered, unconditional use of new labor reforms intended to lift them out of poverty and stop employers from exploiting them.

To protect workers on both sides of the border, America’s labor community and the U.S. trade representative recently filed the first-ever complaints under the 10-month-old United States-Mexico-Canada Agreement (USMCA), demanding action against two plants that suppressed Mexican workers’ right to unionize.

Swift, significant punishment of these kinds of offenses through the USMCA’s innovative “rapid response”enforcement procedures would deliver a major boost to Mexican workers’ efforts to form real unions for the first time. And those unions, in turn, would help Mexican workers negotiate better wages, eliminate employers’ incentive to move jobs out of the United States and end a corporate race to the bottom that’s harmed millions in both countries.

Not only has Reisinger seen a steady stream of U.S. automakers and suppliers send work to Mexico over the years, but his own employer opened a location there about three years ago. Reisinger, who represents about 50 Northern Foundry workers as president of United Steelworkers (USW) Local 21B, doesn’t want to see the company open a second just to take further advantage of low wages there.

He’s counting on the USMCA to help keep that from happening.

“It’s just frustrating to see work going away from American workers,” said Reisinger, noting MTI could have expanded the Northern Foundry or its other U.S. locations rather than open the Mexico facility.

Under the North American Free Trade Agreement (NAFTA), the previous trade deal in place for 25 years, U.S. corporations relocated about a million good-paying manufacturing jobs south of the border to exploit the abysmal wages, weak labor laws and a lack of environmental safeguards.

These companies made huge profits at the expense of powerless Mexican workers while devastating U.S. manufacturing communities, gutting the nation’s industrial capacity and decimating the middle class.

To curb this greed, U.S. labor leaders and their Democratic supporters in Congress successfully battled to enshrine tougher labor standards in the USMCA as well as enforcement mechanisms to hold employers’ feet to the fire.

The USMCA, for example, required Mexico to pass laws enabling workers to form democratic unions, select their leaders and negotiate real contracts for the first time.

Those changes empower Mexican workers to kick out the corrupt cabals—masquerading as labor organizations—that for decades collaborated with employers to suppress wages, stifle dissent and even kill those who publicly challenged the status quo. These groups not only denied workers a say on the job but bound them to oppressive contracts that made them the perfect targets for U.S. corporations preying on cheap labor.

Now, Mexican workers can look forward to joining unions that, like Reisinger’s, fight not only for better wages but affordable health insurance, retirement plans and safety measures to ensure they return home safely to their families at shift’s end.

“It gives you a voice,” Reisinger said of the local he’s proud to lead. “We have pushed back against the company several times on safety issues.”

Eradicating the anti-worker forces entrenched in virtually every Mexican workplace would have been a herculean, time-consuming process even without delays associated with the COVID-19 pandemic.

In December, the Independent Mexico Labor Expert Board, created to monitor the labor reforms, noted that progress had been made with the help of well-intentioned Mexican officials.

However, the board reported that “serious concerns” remained. Most workers still awaited opportunities to form unions and elect leaders, for example, and many continued to face intimidation for organizing efforts.

Those are some of the issues at the heart of the complaints filed recently.

The AFL-CIO, other unions and the activist group Public Citizen alleged that Tridonex, an auto parts maker owned by a Philadelphia company, harassed and fired hundreds of workers trying to organize. Hourly wages at Tridonex range from about $1.80 to $3.30.

In a separate complaint, the U.S. trade representative reported that a phony labor group trying to cling to power at a General Motors plant in northern Mexico destroyed the ballots of workers seeking legitimate representation for the first time. Workers in the GM factory, which makes Chevrolet Silverado and GMC Sierra trucks, start at $1.35 an hour, with a top wage of $4.95 an hour.

Now, these employers face investigations by the Mexican government, special panels set up under the USMCAor both. Punishments for individual plants found to have violated the new labor rights include tariffs or other sanctions, and repeat violators could have their products denied entry to the United States.

Strict enforcement of the USMCA will not only help the oppressed workers at the Tridonex and GM plants but also send the message to other employers that they have to comply with the law as well.

“Otherwise, they’re just going to laugh at it,” Reisinger said. “You have to have these enforcement mechanisms in place, and you have to utilize them.”

Noting his foundry has struggled at times, Reisinger knows a more level playing field under the USMCA can help secure the facility’s future, generate even more business and help his coworkers build better lives.

“I think it’s important that they remember to share that increase with the workers,” he said.

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16 comments

  1. Chris Herbert

    Sovereignty is not a bad word if you happen to live in a monetary sovereign nation that practices democracy, and is educated in Modern Monetary Theory. I don’t think that exists anywhere yet. So feel free to hire Bill Mitchell, or Stephanie Kelton, or L. Randall Wray, or Michael Hudson among hundreds of other economists who were not schooled in flunkenomics.

    Reply
    1. Jeremy Grimm

      I suspect Bill Mitchell, or Stephanie Kelton, or L. Randall Wray, or Michael Hudson among hundreds of other radical economists were schooled in flunkenomics. But somehow they managed to continue to think for themselves. It’s tempting to quote Einstein:
      “It is a miracle that curiosity survives formal education.”

      Reply
  2. Susan the other

    I don’t understand how Varoufakis’ goal of eliminating the “Labor Market” will work. I agree that labor should not be considered a simplistic cost and that to look for the cheapest labor “market” is immoral and should be illegal – but if all countries have different standards of living and different social services and different environmental standards the decision will always be the bottom line for the corporation. How to get the required profit in order to pursue more profit. Profit is almost always extracted socially and environmentally. It’s because the items being manufactured do almost nothing to make living cheaper, safer. healthier and better. The objective is usually wasteful and banal – make life more “convenient” or attractive in some way. I remember the old saying that two things sell: “cute” and “sex”. It probably still holds true. And the end goal is to become rich and powerful by selling cute and sexy nonsense. I’m worried electric cars are falling into the nonsense category. So that mindset is totally fukacked. Extracting money for superficial goals that do not help society or the environment is the wrong paradigm. If we manufactured things that made workers lives significantly better that would be a start. What things would that be? What universal standards?

    Reply
    1. Monte McKenzie

      yes so coop business is always in conflict with labor unions bosses objectives and can compete when corporations & their Unions are priced out of the market! Now rethink your question!
      What is wasteful ? Soon you and others will be asking what is least cost production ? Non FF energy is cheaper so why arn’t we using lots of it?

      Reply
      1. Susan the other

        When I think “wasteful” I’m looking at all the excess stuff we produce. Let’s call it a quota. A certain amount of manufactured goods to meet the quota, even if we don’t need that amount. So ‘wasteful’ in the sense that resources are simply wasted for the sake of a level of production that results in enough profit for the company to continue to compete, and as of now, without any rules and standards except what the “free market” will bear. I think it all borders on mindlessness. And to rein it in requires some serious thinking. So again my question is what universal standards should we establish? One way or another it comes down to this question. imo. IF we can get universal standards for labor; and for capital; and for the environment then we can probably keep everything in balance. But who is to say what is a suitable product and a suitable quantity in this almost-militaristic “free market?”

        Reply
      2. Naomi

        When I think “wasteful” I’m looking at all the excess stuff we produce. Let’s call it a quota. A certain amount of manufactured goods to meet the quota, even if we don’t need that amount. So ‘wasteful’ in the sense that resources are simply wasted for the sake of a level of production that results in enough profit for the company to continue to compete, and as of now, without any rules and standards except what the “free market” will bear. I think it all borders on mindlessness. And to rein it in requires some serious thinking. So again my question is what universal standards should we establish? One way or another it comes down to this question. imo. IF we can get universal standards for labor; and for capital; and for the environment then we can probably keep everything in balance. But who is to say what is a suitable product and a suitable quantity in this almost-militaristic “free market?”

        Reply
  3. chuck roast

    My first union was the Hotel & Restaurant and Bartenders Union when I was 16. My old man was a union man his entire life, and that status allowed him to raise a family, put my sister through uni and have a dignified retirement. Call him a “Son of Flint”. It’s been a long and painful path downhill for labor unions ever since. Was it Taft-Hartley? Sure. Was it their own internal inertial, parochial dynamics? Yeah. Was it the vast power of the ruling apparatus arrayed against them? Of course. But after a lifetime of watching, my conclusion is that labor unions are a obstacle to the advancement of working people. I’ll give a nod to the IWW, but that ain’t happenin’ my lifetime, your lifetime or your kid’s lifetime.

    It seems to me that an answer to the powerlessness and struggle of working people everywhere is to…ahem…own the means of production. Old worn trope? Indeed. But when I see the rare workers co-op in action, I see contented people with smiles on their faces. We need to get past the usual worker/owner dichotomy.

    Certainly the AFL-CIO has absolutely no interest in worker co-ops. They have long been an institutional prop to worker powerlessness outside their own union shop. Moreover, I seen them take the side of their corporate overlords countless times in my life. The AFL and their like fight their own battles, and the benefits to working people everywhere are usually minuscule at best. Another international agreement where the environment gets wrecked and labor leaders get murdered. International enforcement mechanisms are a demonstrable bull$hit.

    Long after I’m dust, the fabulous world-wide success of worker co-operatives may present their own problems to the mass of humanity. So what. Let’s see what contradictions lurk behind this chapter of Murphy’s Law.

    Reply
    1. Monte McKenzie

      Great chuck, good thinking!
      This isn’t 1946 or even 1980 it’s 2021 and entering a new world order where America can’t rule the roust and call very play. Also global warming has created a new necessity “for all nations” , all to do with “more with less resources so jobs will be declining in some industries and new jobs forming as technology advances in places we can’t imagine today! All that is reducing resources per item of production like new steels use less iron ? other stuff converting to a paperless world all that reduces jobs and makes new jobs in converting to energy from U233 & Geothermal electricity and stopping wastefull for profit industries like auto manufacturing & toasters and, and .
      Think survival of humanity not survival of jobs!

      Reply
      1. Susan the other

        So MMcK, back to Varoufakis’ goal of eliminating the Labor Market. Under the logic that labor is not a commodity – which I agree with. The only way to protect labor, capital AND the environment is to come up with a universal set of standards. And I do not think we are giving up our sovereignty or our democracy if we come to an agreement on these issues with the rest of the world. It’s time to do this.

        Reply
        1. Lambert Strether

          > labor is not a commodity

          The Bearded One agrees; labor — in essence, the human power to create — is not alienable. Labor power, the ability to apply force to change the motion of an object, is a commodity and can be sold.

          Reply
          1. Susan the other

            That makes sense from a money point of view. Hence automation, no? But it’s ill-conceived. I’m at a loss who the “bearded one” is here. Ill-conceived because innovation, a brilliant idea, and the manpower to accomplish it are a continuum. So, for instance, if everything is made by automation then the consumers must also be automatons, needing nothing from society. That doesn’t fly.

            Reply
  4. hickory

    How is it that labor unions and democrats are so incapable/unwilling to get major pro-worker victories domestically, yet they succeeded in shaping trade agreements to supposedly support foreign laborers as a way to indirectly support domestic workers? How am I supposed to take an author seriously who doesn’t acknowledge the weirdness of this premise underlying his article?

    Reply
  5. Timothy Dutra, MD, PhD

    I visit my family in Mexico City frequently. In my opinion, they are more aware of reality than most North Americans. They know their government is owned and operated by crooks and thieves. It seems that many, if not most, North Americans are oblivious to the corruption in our own government. American worker’s real wages haven’t risen in fifty years, and wealth goes to the 1%. We’re like Mexicans, but they’re more realistic.

    Reply
  6. Felix_47

    “So I maintain that any reform of the international economic system must face up to this trilemma. If we want more globalization, we must either give up some democracy or some national sovereignty. Pretending that we can have all three simultaneously leaves us in an unstable no-man’s land.” Yves hit it on the head. This modification of the agreement is going in the right direction but there is no way farmers and business on both sides of the border are going to give up the wonderful labor arbitrage setup they have in any significant way. Mexican auto workers are making 3 dollars per hour and there is no worker’s comp, lawyers, equal rights, D E and I, etc. etc. At the same time the US is experiencing massive migration to benefits and better wages and living conditions. At this point the US is essentially bilingual. Changing the concept of sovereignity by integrating the US and Mexico and, for that matter, Central America, Haiti, the Dominican Republic and Cuba and Puerto Rico. This was more or less what Jefferson and Adams wanted to do at the founding. They held off because they needed Spain and France as allies against the British. At this point the United States really has no dominant culture, race or class. As I look at my kid’s classes they look essentially like classes in Mexico or Honduras with a little Africa mixed in. We lost the WASP establishment long ago. This trend of mult kulti is accelerating. Without a border the federal government could establish uniform standards regarding worker’s comp, discrimination, environmental standards litigation, rights of unions to organize etc. The autoworkers should not be represented by Mexican Unions. First of all they are building cars largely for US manufacturers for the US market in factories built and financed to some degree by the US taxpayer. The UAW and the ILGWU and other Unions should be organizing the workers in Mexico. The I in ILGWU means International….it should be international. We see that both major US parties are not willing and never will be willing to close the border or enact immigration restriction each for its own reasons. So de facto if not de jure we have unified the populations of all these countries already. And the US has the money to pay for unification especially when one considers the massive cost of immigration. The oft stated argument that immigrants pay taxes is simply absurd when one considers the cost of schooling, health care and other government benefits that are triggered with the first baby born in the the US. Unification of the North American economy would be expensive but we could adopt the best practices of all the nations. For example, we could adopt the Mexican health care system and simply fund it at a much higher level. Already if someone in Honduras or Mexico is sick and wants care in the US there is nothing stopping them. Some people argue that this is imperialism but every survey shows that if the border were eliminated 80% of Mexicans would immediately move north. The only people who would suffer would be the oligarchs on both sides of the border. They all would have to be subject to paying the same wages and benefits which means less profits. If we really believe in diversity, equity and inclusion…… What is the difference between my daughter, age 14, and the Honduran girl from San Pedro Sula sitting next to her in class whose mother just crossed the border? Is our government going to send the little girl home?

    Reply

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