More Rights for Mexican Workers Will Benefit U.S. Jobs and Trade
President Donald Trump campaigned on ripping up the North American Free Trade Agreement, while his administration is now reportedly seeking merely to “modernise” it. Neither of these extremes will pave a better path for workers in the US or in Mexico. The real way forward is to address the huge wage disparity between the two nations driven by the lack of basic labour rights in Mexico.
I have just returned from a week-long fact-finding mission to Mexico to observe the effects of Nafta on workers, communities and industry, and to examine the prospects for meaningful change in the renegotiations of the trade agreement.
Consider a state-of-the art new $1bn BMW plant in the northern Mexican state of San Luis Potosí that will hire 1,500 workers when it opens in 2019. The plant will produce the BMW 3 Series, largely for export. A company union negotiated a contract in 2014 — a “protection” agreement for the company — before a single worker was hired. According to a review from Bloomberg, wages will range from $1.10 to $2.53 per hour. At these wages, workers won’t be buying many cars or much of anything else either made in Mexico or exported from the US.
Through compliant unions and a labour system stacked against workers, Mexico has distorted comparative advantage, the 19th-century economist David Ricardo’s notion that if each country concentrates on what it does best, all countries benefit. Mexico’s comparative advantage has become a lack of labour rights. The resulting depressed wages are an aphrodisiac for investment.
Combining high productivity with low wages, Mexico is projected to become the fifth-largest auto producer in the world by 2020, building 5m light vehicles annually. Five new plants are opening in 2016-19 alone.
In other areas we found even more dismal conditions. A female leader of a respected NGO at the US-Mexico border told us that “eggs are a luxury item now” because wages had shrunk so drastically. She complained of compulsory 12-hour shifts and a lack of safety instruction or equipment on the job. A different NGO described 12-14 hour shifts in the fields in Baja, unchecked sexual harassment and abuse, and no protection against pesticides and chemicals. In all cases, independent unions either did not exist or faced fierce persecution from employers and the government.
After delaying labour reform for two decades, Mexico put a constitutional amendment on fast track, allowing workers to vote for officers and to ratify contracts. This effort occurred in the prelude to the vote in the US Congress on the Trans-Pacific Partnership. President Trump jettisoned TPP in the early days of his presidency, but the constitutional amendment was ratified in February.
Real reform at last in Mexico? Surely not yet. The critical “secondary” legislation to implement the amendment has yet to be enacted and could result in limited or nonexistent change, in effect pouring old wine into new bottles. It is not a positive sign that legislation to add transparency was put together largely without open public participation.
But the solution is not to throttle trade with Mexico, an approach which could damage both economies and spread globally. A far better protection for US workers is to ensure better rights for Mexican workers. This would lead to wages and working conditions harmonising upwards across North America rather than being on their current destructive downward slope.
Corporations benefit from a more rapidly expanding market and trade could grow with what legendary US labour leader Walter Reuther called “high velocity purchasing power.”
The Nafta experience indicates that promises only last until the ink on the agreement dries, if that long. Instead, Nafta locked in a damaging status quo for a quarter century. This time around, Nafta must include strong language and enforcement in the agreement, but, even more importantly, demonstrated reform in the labour area must take place before the agreement is voted on.
There are many critical issues in the renegotiation beyond labour standards. Absent these labour changes, however, we condemn workers in Michigan, Ohio, California, and elsewhere to more dislocation and lower wages. We also ensure Mexican workers remain mired in high productivity poverty. And, we generate unpredictable political tensions on both sides of the border.
Real, functioning core labour rights lay the basis for expanding trade and reducing deficits by building a strong middle class. This is the road the US followed in the aftermath of the second world war that created a broadly shared prosperity and reduced inequality. This approach helps lay the foundation for growing economies and strong democracies across North America.
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Reposted from The Financial Times
