Why NAFTA’s 2.0 Current Labor Provisions Fall Short
By Owen E. Herrnstadt, Economic Policy Institute
One year ago, we were hopeful that renegotiating NAFTA represented the first real opportunity in 25 years to finally rewrite the labor template currently relied on for trade agreements. After all, since NAFTA was implemented, hundreds of thousands of U.S. jobs have been outsourced to Mexico by companies taking advantage of workers who do not enjoy the fundamental human rights to form their own free and independent unions, engage in meaningful collective bargaining, be free from discrimination and forced labor, and work in safe and healthy workplaces.
In anticipation of the renegotiations, numerous recommendations for improving and enforcing labor standards were submitted—all of which are instrumental in removing corporate incentives to transfer work to Mexico. Specific recommendations for improving the labor template of current U.S. agreements included these five general suggestions:
- Incorporate explicit references to labor standards and interpretation of those standards through various cases and reports reflecting specific rules adopted by the UN’s International Labour Organization (ILO), including those concerning the freedom of association, collective bargaining, discrimination, forced labor, child labor, and workplace safety and health.
- Remove the footnote explicitly limiting the terms of the chapter to the ILO Declaration on Fundamental Principles and Rights at Work.
- Eliminate the requirement that labor violations under the agreement must be in a manner affecting trade or investment between the parties.
- Eliminate the requirement that labor violations must be sustained or recurring.
- Verify that labor standards in the agreement are being honored and enforced by the signatories prior to the agreement going into effect.
Unfortunately, none of these essential changes were made to NAFTA 2.0. As noted by the AFL-CIO’s recent Executive Council Statement, “[T]he NAFTA renegotiation requires strong labor rights provisions and strong enforcement provisions that as of today are not yet in the agreement.” Without incorporating the recommendations mentioned above, NAFTA 2.0’s labor standards and enforcement remain weak and Mexico’s workers will still struggle to enjoy fundamental human rights. As a result, wage suppression will continue to provide incentives to for corporations to outsource work to Mexico.
Despite much discussion over modest improvements to the labor chapter, complaints must still overcome obstacles posed by four significant questions regarding NAFTA 2.0’s labor obligations:
Are signatories obligated to honor labor rights or principles?
Under NAFTA 2.0 as currently drafted, any signatory could argue that if it meets the principles of labor rights, as opposed to the rights themselves, it satisfies its obligations under the agreement. This is why recommendations include that the signatories’ obligations must be explicitly linked to specific ILO’s rules along with ILO’s cases and reports, which furnish precise interpretations of these rights.
Not only was this recommendation rejected, but negotiators also retained a footnote first incorporated in the Peru Trade Agreement that makes it even easier for signatories to argue that they are only obligated to meet certain principles, as opposed to the rights themselves. NAFTA 2.0 retains this flaw, making it even more difficult for parties to argue that ILO Conventions and accompanying cases and reports can at least give guidance to interpreting the principle-based obligations.
As stated in the Labor Advisory Committee for Trade Policy and Trade Negotiations (“LAC”) Report on NAFTA 2.0:
Instead of referring to the ILO’s core conventions, the Parties chose to include language [in footnote 3 of NAFTA 2.0] that serves to obfuscate, rather than clarify, the rights and principles in the ILO Declaration. We have offered numerous ideas about this matter including simply eliminating the footnote, all of which have been rejected to date.
Few companies would be satisfied with such vague obligations when it comes to matters of special relevance to their interests. This is why they have demanded, and in many instances succeeded in, including specific language in the agreement addressing their concerns. Can you imagine the comments from businesses if NAFTA 2.0 only obligated Mexico to honor the principles of protecting intellectual property rights? Why should labor provisions, which are directly related to Mexico’s suppressed labor rights and resulting low labor costs, be viewed any differently?
NAFTA 2.0’s Article 23.9 reinforces the LAC’s concerns over the lack of commitment to honor specific rights. While it addresses discrimination for a number of things including sexual orientation and gender identity, when it references the signatories obligations, it adopts the wording, “that it considers appropriate” undermining any enforceability. Furthermore, footnote 13 declares that “existing [U.S.] federal agency policies regarding the hiring of federal workers are sufficient to fulfill the obligations of this Article”—raising additional questions over interpretation and enforcement.
Are sectors of workers excluded from NAFTA 2.0’s labor obligations?
Even if a labor violation is deemed to violate the principles referenced in the labor chapter, in order to proceed, the violations must be “in a manner affecting trade or investment between the parties.” This provision makes it clear that large sectors of employment may not be covered by the agreement’s labor obligations. This means that thousands of teachers, government workers, fire fighters, police, medical workers, and others could arguably left out of NAFTA 2.0.
As explained by the LAC:
[The provision] therefore risks leaving loopholes for wage suppression, particularly by public sector employers that refuse to accord fundamental labor rights to their employees. Mexico has denied workplace rights and freedoms to its teachers, which not only suppresses the wages, benefits, and conditions of those teachers, but also applies downward pressure on wages, benefits, and conditions of similarly skilled working people in Mexico’s private sector, many of whom produce goods or provide services that compete with goods and services of U.S. workers… The failure of one significant set of workers to be able to enjoy their rights can undermine the proper functioning of a market, suppressing demand, both for the goods produced in that country and for the goods produced by other trading partners.
Would murder of a trade union activist constitute a violation of NAFTA 2.0?
Even if a labor violation meets the burden of showing that there has been a violation and meets the burden of affecting investment or trade, the violation still must meet the sustained or recurring burden.
Single egregious acts can and do crush workers’ desires to exercise their fundamental human rights to form unions and engage in meaningful collective bargaining. The murder of a union activist sends a powerful message to all other workers that they face the same fate, should they wish to form a union. Language in Footnotes 8 and 11 even represents a step backward by emphasizing that “an isolated instance or case” is not covered, removing any possible ambiguity. The new standard sets a very high bar requiring that not only do the actions (or inactions) have to occur “periodically and repeatedly,” but the “occurrences” must be “related or the same in nature.”
What good are labor standards if they are not effectively enforced?
Even if NAFTA 2.0 adopted stronger standards, violations of the labor chapter’s provisions must be effectively enforced. To date, an effective enforcement mechanism in the proposed agreement is lacking. Although several recommendations have been made, none have been adopted.
Without a strong and swift enforcement mechanism, none of the labor obligations—even strengthened labor obligations—in the agreement will be effective. One of the faults of NAFTA is that it does not provide enforcement for obligations like the freedom to form a union. Subsequent labor agreements also fail to provide for effective enforcement. Workers know that without a true commitment to enforcement, through proper funding, accessible and equitable procedures, education on what basic human rights are (like the freedom to form a union and engage in meaningful collective bargaining), as well as other essential items, enforcement will not be effective.
As noted by the LAC:
NAFTA 2018’s dispute settlement and enforcement provisions are neither “effective” nor “equitable,”… by failing to include additional provisions to ensure that the labor rules are adequately and promptly monitored, remedied, and sanctioned if not remedied, the dispute settlement provisions will be neither effective nor equitable as regards labor. A quarter century of experience has proved that labor rules must receive special attention to ensure swift and certain enforcement. Workers simply do not have the power and influence that global companies seeking to vindicate their trade rights have.
Without question, NAFTA 2.0’s labor provision contains some improvements. Language regarding the right to strike, recognition of violence against workers and efforts to improve Mexico’s labor laws with respect to protection contracts are welcome. Nonetheless, as stated, NAFTA 2.0 maintains the fundamental flaws carried over from past trade agreements. Until the recommendations mentioned above are adopted, NAFTA 2.0 will continue to fall short in significantly improving labor standards and, wage suppression for Mexico’s workers will continue.