BY REP. SANDER LEVIN (D-MICH.) AND HARLEY SHAIKEN, OPINION CONTRIBUTORS
02/07/17 the Hill
The long-overdue renegotiation of the North American Free Trade Agreement (NAFTA) was driven into a wall by President Trump’s heated rhetoric on tariffs to build that wall. If such a discussion resumes, a fundamental question remains: Does the President who encouraged auto jobs to flow to southern states for lower wages during the campaign realize that labor standards are at the core of the problem with NAFTA?
When NAFTA was debated in late 1993, most Democrats in the Congress opposed it because they felt that worker rights and environmental standards were wholly inadequate. They were right.
Now we have a highly unbalanced trading relationship with Mexico and job loss that has taken a terrible human toll and shaken the core of manufacturing communities throughout our nation. The trade deficit stands at a record $110 billion and the Economic Policy Institute indicates the U.S. lost 850,000 jobs between 1993 and 2013.
What happened? For investors and corporations, Mexico offered the guarantees of Ohio; while for Mexican workers, labor rights began to resemble Honduras. These poor working conditions and low wages became a magnet for state-of-the-art manufacturing.
Observers generally treat low wages in Mexico as if they are a natural part of the environment. They’re not. They reflect government policy to attract investment by keeping wages low. A labor relations system that can be both convoluted and corrupt makes it virtually impossible to form independent unions in the export sector. The so-called protection agreements are shams, not negotiated by workers. The Mexican government and employers dominate the labor board structure, which oversees and enforces labor laws.
This dysfunctional system has shattered the link between rising productivity and wages. This means that workers produce more and earn less. Mexican manufacturing productivity increased 80 percent, while real compensation—wages and benefits–slid 20 percent between 1994 and 2011. Not only did most gains bypass Mexican workers, but in a highly integrated market U.S. workers feel the pain across the economy. They lose twice: first, production shifts to Mexico attracted by depressed labor costs; second, workers become willing to accept far lower wages to be “competitive”.
Consider the auto industry, the flagship manufacturing industry across North America. The Mexican auto industry exports 80 percent of its output of which 86 percent is destined for the U.S. and Canada. If high productivity translated into higher wages in Mexico, the result would be a virtuous cycle of more purchasing power, stronger economic growth, and more imports from the U.S.
In contrast, depressed pay has become the “comparative advantage”. Mexican autoworker compensation is 14 percent of their unionized U.S. counterparts and auto parts workers earn even less–$2.40 an hour. Automation is not the driving force; its depressed wages and working conditions. Auto sector employment in Mexico rose by 45 percent between 2007 and 2015, adding more than 200,000 hourly jobs, and auto output is projected to double to more than 5 million vehicles annually between 2010-2020, which could include larger vehicles now produced in the U.S.
While many dimensions of NAFTA need to be updated, including investment provisions, rules of origin and environmental protections, a demonstrated reform of core labor rights–the ability to form independent unions and bargain collectively–is absolutely essential. “Demonstrated” means not simply better language, but meaningful changes on the ground as the precondition for the agreement being implemented. And enforcement provisions as part of the re-negotiation that allow us to prevent any backsliding.
We strongly believe in the benefits of trade, competitiveness, and engaging the global economy. Competitiveness, however, needs to be based on innovation, productivity, and quality, not who has the fewest rights. We need rules for trade ensuring these gains translate into broadly shared prosperity on both sides of the border. Trade rules that channel the benefits to the top squander the promise of trade and leave dislocation and stagnant wages or poverty in their wake.
If President Trump wants to put workers first, he must put worker rights first in any future negotiations on NAFTA.
Rep. Sander Levin represents Michigan’s 9th District and is a senior Member of the Ways and Means Committee with jurisdiction over trade. Harley Shaiken is a Professor at the University of California, Berkeley, specializing in labor and the global economy.