Rethinking Trade - Season 1 Episode 34: The USMCA, A Year in Review
July 12, 2021
On July 1, 2020, following a lengthy campaign by unions, civil society groups and congressional Democrats to win key improvements, the revised North American Free Trade Agreement, or United States Mexico Canada Agreement (USMCA), went into effect.
Unlike the original NAFTA, the USMCA requires its signatory countries to respect workers’ rights. And it has a special Rapid Response Labor Enforcement Mechanism. The revised deal largely gutted the disastrous Investor-State Dispute Settlement (ISDS) system. But recently-filed labor enforcement complaints and a “legacy” ISDS case with the corporation behind the XL pipeline demanding $15 billion from U.S. taxpayers provide a stark warning that if and how the USMCA improves life and work in North America will depend on activism in all three nations.
See Public Citizen’s analysis of the delayed phase-in of Mexico’s new labor justice system here: http://bitly.ws/dRnT
Music: Groove Grove by Kevin MacLeod. Link: https://incompetech.filmmusic.io/song/3831-groove-grove. License: http://creativecommons.org/licenses/by/4.0/
Transcribed by Sally King
Welcome back to rethinking trade where we don't just talk about trade policy, we fight to change it. I'm Ryan and I'm joined once again by our in house trade expert, Lori Wallach. In our recent episodes, we've been speaking a lot about COVID-19 and the world trade organizations intellectual property barriers, but today we're going to talk about the revised North American Free Trade Agreement, or the USMCA because it went into effect exactly one year ago. In addition to having Lori with us today, we're also joined by global trade watches Research Director, Daniel Rangel. Daniel has been leading a lot of our work around USMCA related labor and workers rights issues, specifically around the implementation of the new labor rights obligations in Mexico. Daniel is one of the lawyers who filed one of the first labor violations cases. Lori, why don't you start us off with a general overview of the labor rules that activists fought for during the Replace NAFTA campaign. And then Daniel, let's talk about the trade next case and the report you recently authored regarding labor reforms and implementation in Mexico.
So one of the biggest changes between the original NAFTA and the revised deal was that Democrats in Congress forced Donald Trump to renegotiate his renegotiated NAFTA, to add a thing called the rapid response labor enforcement mechanism. And what that did is it allowed for actions to be started through petitions by unions or activists that the governments have to respond to that allow enforcement against a particular company with respect to certain specific violations. And the violations relate to obligations each country was required to implement, to, for instance, guarantee basic fundamental union rights to organize to collectively bargain to be able to have, for instance, Mexico's implementation required being able to have votes on your union contract and see it in advance or being able to elect your own officers of your union to make sure they actually represent you. And what this was focused on was the combination of the original NAFTA, having no real labor standards, there was a side agreement, it wasn't enforceable in any way. And the standards themselves were enforce your own laws. So Mexico's laws and the books were pretty good. The problem was they had been enforced for literally decades, such that what were called protection unions, were the vast mass majority of unions in Mexico and in protection union is one that protects the boss. So it's a union that basically the workers don't vote for. They don't elect that union or its officers, it signs contracts with the bosses that are intended to qualify for Mexican labor law requirements that you have a union contract, but the workers never approve it. Some of them don't even know there is a union. And then these so called unions make a lot of money off of getting deductions from the workers wages, to basically be partners with the bosses in keeping wages down. And that horrible collusion, which was just basically reinforced by NAFTA and all the investment protections that helped big US multinationals move down to Mexico to use that kind of exploited labor. That combination is a big part of why, you know, 25 years after NAFTA not only had Mexican wages not risen as NAFTA as original boosters promised, but in fact, they were slightly down, and certainly they were considerably lower than manufacturing wages in China. That was one of the things that had to be tackled, that was both horribly unfair to work as in Mexico, we're making world class products for global companies, and also as a contributing factor to over a million US jobs having been certified as having been offshored to Mexico under NAFTA. So the deal was stronger labor standards guaranteed of independent unions, and for the first time, some real enforcement, but what you have on paper you never know if you have in reality and that is why one year after that all went to a fact the real question, is it changing people's lives.
One of the situations that Lorijust described one of the specific examples of it is something if you listen to our show you've heard about before, which is the case at the Tridonex plant in Matamoros and You know, the situation regarding the labor lawyer who's been representing the independent union there, Susana preeto. Daniel, tell us about what has been happening at the Tridonex factory and also the case that you have lead regarding the violations of labor rights at the Tridonex factory.
Sure. Thank you for having me, Ryan. So basically, this all started in early 2019, when the President of Mexico and then Manuel Lopez Obrador decided to rise the wages across Mexico a 20% increase of the minimum wage. And when the workers in the northern part of Mexico wanted to have that increase for the wages, that was a right that they want decades ago, because that was a provision that was already in much of the collective bargaining agreements that were prevalent in Tamaulipas, when they decided that they want to ask for this increase. They faced repression and violence, not only from companies but also from the local authorities in Tamaulipas, specifically. So one of the ways in which workers decided to claim for the new rights was organizing through a dependent union that's called MOVIMIENTO 2032 that was born out of this struggle. Workers from many factories affiliated to this union, specifically, workers from Tridonex, who played an important role in the initial uprising. When the workers tried to organize independently, they faced a lot of repression, not only from Tridonex to company management, but also the management was parked by the local authorities that in Mexico are called conciliation and arbitration boards, and those are the authorities that Lori was mentioning before that have been colluding with for decades to repress workers and to undermine the rights. So what we have done, along with our partners in labor, both in Mexico, and in the United States, is to help them present a case before the US government arguing why this has been a violation of the labor rights that are recognized by NAFTA, by the new NAFTA, and consequently, making both the Mexican government and the US government to cooperate to try to find a solution. And if it is not possible to impose sanctions on Tridonex because it has been violating labor rights.
And how does this case tie into? You know, I know that there are now a few other cases as well raising the issue of labor violations under the new rules. There's also the issue of the phase implementation of the rules in Mexico. Why don't you talk about the report that you recently authored looking at the status of the labor reforms and implementation in Mexico and how those kind of relate to the Tridonex case,
The Tridonex case is a good parting point to explain why the stage implementation of the labor reform is worrisome. And is because a good deal of the labor reform in Mexico is related to the creation of new labor courts that will deal with the cases that are filed by unions and workers to fight for their rights. The problem is that in Tamaulipas, that is the state where treatment plans are located. This has been the state that is labeled as phase three estate. What this means is that there are not gonna be any labor courts and the new labor courts in this state until May, 2022. So workers will have to go to the old corrupt labor bodies that already exists, and that are not granting them the rights until at least May 2022, for an additional year. This is not only for Tamaulipas, but it's all for all three states that, together, they have half of the manufacturing output of Mexico, half of the labor conflicts that the country registers every year, and an overwhelming number of strikes per year. And that's the problem that we identified in our report on that we're trying to put the spotlight on so that authorities both in Mexico and in the US look for policy solutions to redress this.
And you can see that report at the link in the summary of this episode. Moving on from that, you know, another one of the big victories during the Replace NAFTA campaign, aside from the labor rights and implementation improvements, was the gutting of Investor State Dispute Settlement rules. While this was a huge moment in the fight For better trade policies, there are still ISDS threats looming across North America. I wanted to talk a bit about both trade deals under the ISDS rules and the situation regarding the gutting of ISDS under the USMCA. Lori, maybe you could tell us a bit about ISDS policies in general and how significant the USMCA is in the context of the ISDS status quo.
So I want to start by reminding folks what Investor State Dispute Settlement or ISDS is, it is a system that empowers multinational corporations, to skirt domestic courts and sue governments for unlimited payments of taxpayer funds over any domestic law or policy or regulation court decision that a corporation thinks violates their special investor rights in a trade agreement or an investor treaty. And these cases are decided by tribunals have three corporate attorneys whose decisions are not subject to appeal, and the amounts they can order taxpayers to pay the corporations have no limits. So the North American Free Trade Agreement, NAFTA, which went into effect in 1994, was the first trade agreement that had this extreme system embedded into it. It basically was a mechanism under which corporations could threaten and or literally extract funds from countries for implementing laws that treat foreign and domestic firms the same. And under NAFTA, almost $400 million were paid out in attacks, on environmental policies, and on totally non trade related policies like bands of toxic substances and land use policies, and water and timber policies. And that system was really one of the most pernicious elements that corporate power rigging was one of the most pernicious elements of NAFTA, it also made an incentive to outsource jobs. Because if you took off and you went to any of the other NAFTA countries, you had more of an opportunity to behave badly. And if the government did anything about it, it was like having basically investor insurance, you could go raid the Public Treasury, if they if the government said follow labor law, follow environmental law, really the wrongheaded way of of having global policy. So the really exciting thing about the revised NAFTA, is that with respect to the US and Canada, that system was simply phased out. So we are now 1/3, of the way to the end of Investor State Dispute Settlement in North America, between the US and Canada. And so July 1 is, you know, we're heading down the road, it's really important because an enormous number of the cases where US corporations attacking Canada's better environmental laws. And when US-Canada, investor state goes away, that means that literally 90% of us investor state liability goes with it. So big improvement. With respect to the US and Mexico, the old ISDS system was replaced by a system that includes most of the reforms progressives have asked for, that, among other things, requires a corporation to actually use up all of its remedies that are available in domestic law and spend a bunch of years trying before they could even use the system. But more importantly, it replaces the old substantive rules where you could get money for almost anything, to literally compensation for actual taking of a property without compensation. And that is not what these cases are about, these cases are about a regulation that changes the use and undermines the expectations. And the way the compensation works, it's the difference between what a company thought they would make their expected profits and what they really make. So it's a big honkin deal. There is one big problem with that fix, which is there was an exception with respect to existing contracts in the petrochemical sector. So oil and gas, if a US company has contracts with Mexico, then if Mexico keeps this full investor state system with any other country that has companies with contracts, then there's a grandfathering of the old outrageous rights with respect to those legacy contracts. And that's super problematic, of course, because those kinds of companies are often the biggest players, some of the biggest money grabs a famous agreement under a US-Ecuador treaty is why the largest ones were oil company is the one that is attacking Ecuador and getting literally more than a billion dollars. So it's a it's a problematic exception, but relatively speaking, almost all the cases actually Have all the cases have happened to the old NAFTA couldn't happen under this new regime. However, three years to phase it in, and as much as we can celebrate, that means there's still three years for bad cases. And already in this first year, some of them have been filed. So there have been some, what we can call legacy cases, phase in period cases. So these corporations are scrambling to use these old corporate rights before they go away. And that's a problem.
You know, Lori, some of the things you just said about the existing ISDS rules under the USMCA what was good, but also the carve out and you know, the the phase in and how that presents these kinds of problems. And Daniel, you were talking about some of the phase in problems under the labor rules. When when the USMCA was passed, some, some are celebrating it as a model for future trade deals, and even a, quote gold standard. But I know Public Citizen, we saw it as progress to be built upon, but far short of a model agreement. We're going to ask you both how is the USMCA looking now after a year? And what does it taught us about the future of US trade policy?
What the whole renegotiation of NAFTA told us is that the old US trade model, which was made worse and worse and worse, until you saw the Trans Pacific Partnership, which was horrific, NAFTA on steroids, is nothing sacrosanct. It is just one version. And it was a version that was not very widely supported. And so after all, the damage it did, it got replaced. Yet, the other thing that told us was, this is an ongoing process. This ain't the gold standard. This isn't the fix. The revised NAFTA is not the model. It was important steps in the right direction. And it fix some things and it tests out some important improvements. But there's a long way to go to get a trade agreement that is really worker centered, that is one that works first for people and the planet. And the whole fight over renegotiating NAFTA is basically from going in a way from NAFTA, which was like five layers below hell we got ourselves up to the surface, which is good. But we aint in any way in trade heaven yet. So there's a lot more work to be done. And we will see how well the changes and improvements in the revised NAFTA actually work because those are things from which we can build. But there's plenty of bad stuff that's still from the original NAFTA and some new bad stuff like rules that help big tech escape, being decent to workers, or that can trash our privacy, all that stuff get added in. So there's a lot further to go. But one very big thing I think this whole episode taught is that the old trade authority system, the so called fast track system, is just a total myth. Because the revised NAFTA was negotiated under so called fast-track. And ultimately, when it came back to Congress, and there simply wasn't a majority that was going to pass that agreement, fast-track or no fast-track, they made the administration go back and renegotiate renegotiate the deal. And it ultimately passed with such a huge supermajority you didn't need fast-track. So the theory of fast-track is you have to put handcuffs on Congress. Well, that didn't work because Congress made them renegotiate it. And then the second theory of fast-track is you'll never get an agreement through Congress unless you have fast track, and no one can have any amendments and debates are limited. Except the thing got the biggest majority of any trade agreement in the 35 years I've been working on trade. Why? Because when you actually include a broad set of interests and make an agreement that actually might work for working people, you have a broad set of members of Congress that are willing to give it a try and support it. So long way to go. Fast-track is not part of the plan going forward. And some improvements that need to be built on is the lesson for me.
As for me, I like to say that USMCA provides hints of what a pro-worker pro-environment trade agreement could look like. At the same time, it has worrisome elements as the ones that Lori was mentioned regarding digital governance that is dying, the states to conduct certain kinds of policies are very much still debated and in there. So now, I think that it is for activists and proposal makers to build up from the good terms that we got from USMCA and not go back to the day that corporate globalization model that has repeatedly shown its shortcomings over the last decades.
As this episode was going live. The company behind the notorious Keystone XL pipeline launched a new attack against the US under the USMCA is legacy ISDS terms. The company TC energy claims is due $15 billion in US taxpayer money because the US government rejected the proposed 875 mile pipeline that would have transported 830,000 barrels of highly polluting crude oil across indigenous communities and more than 1000 rivers, streams and wetlands. We're going to talk a lot more about that in the next episode, so stay tuned. Rethinking Trade is produced by Public Citizen's Global Trade Watch. To learn more you can visit rethinktrade.org, you can also visit tradewatch.org. Stay tuned for more and thank you for listening.