Future of NAFTA 2.0 Could Turn on Labor Rights

The next phase, legislative approval, is a foregone conclusion in Canada (where the Liberals have a parliamentary majority and Conservative support) and Mexico (where the newly elected president and his allies control the Senate and can count on support from opposition senators).  But that is not the case in Washington. Under “fast-track” rules mandated by legislation, the USMCA must be approved, with no amendments, by a simple majority in both chambers of Congress.

Although Congress cannot amend the deal, it can insist on commitments about how the USMCA is to be implemented. In effect, these could amount to changes. Furthermore, if the White House anticipates a negative vote in the soon-to-be Democratic-controlled House of Representatives, the U.S. administration might come back to Canada and Mexico demanding textual revisions, interpretive side letters and/or new assurances about how the deal is to be implemented in each country.

The USMCA’s labor provisions are certain to be a key area of ongoing discussion and contention.  The incoming Democratic leadership in the House and labor allies have expressed a clear need for stronger assurances on the enforcement of labor rights. Such a development might even be welcome to the Canadian and new Mexican governments.

On the other hand, a group of 40 Republican legislators (most of whom were re-elected) have threatened to vote against the deal because the labor chapter forbids discrimination based on sexual orientation and gender identity. Removing or even diluting such fundamental human rights would be a difficult, perhaps politically impossible pill for the Trudeau government to swallow.

The USMCA labor provisions represent an improvement over previous free trade agreements, but those agreements set a low bar. The original NAFTA, for example, contained no binding provisions protecting labor rights or standards. NAFTA’s labor side agreement, negotiated by the Clinton administration to secure congressional approval of the trade deal, was toothless and ineffective.

The USMCA labor chapter is largely modeled on the discredited Trans-Pacific Partnership (TPP), but with a few significant changes. Like the TPP, the USMCA refers to the International labor Organization’s (ILO) Declaration on Rights at Work, rather than the more robust ILO core conventions. This is not surprising since the U.S. has ratified only two of these eight fundamental conventions, but it significantly limits the potential impact of the USMCA labor provisions.

The USMCA strengthens the TPP provision “to prohibit the importation of goods produced by forced labor” (Art. 23.6).  It also includes new, improved provisions that aim to protect against discrimination based on sex, sexual orientation and gender identity (Art. 23.9); address violence against workers (Art. 23.7); and provide protection for migrant workers under labor laws (Art. 23.8).

While the key USMCA labor provisions are subject to dispute settlement, their enforceability remains highly problematic. The rules contain hurdles that ensure a complaint will be time-consuming, expensive and unlikely to succeed. Troublesome provisions compel a complaining party to demonstrate that alleged violations result from a government’s “sustained or recurring course of action or inaction in a manner affecting trade or investment between the Parties” (Art. 23.5).

This means that a single, isolated violation of labor rights, however atrocious, is beyond challenge. It also leaves public sector workers and most workers in non-tradeable sectors including health, education, retail and construction without meaningful protection. The inclusion of such hurdles in previous labor chapters has meant there has never been a single successful labor complaint under any trade agreement signed by the U.S., Canada or Mexico.

In one notorious example, a challenge by the U.S. government, the AFL-CIO and Guatemalan unions to Guatemala’s labor practices failed after nine years of litigation. Although the complainants proved that the Guatemalan authorities were systematically failing to enforce their own labor laws, the dispute panel ruled that there was insufficient evidence that these violations affected international trade. Guatemala has been sanctioned as one of the most dangerous and inhospitable jurisdictions in the world for labor unions and worker advocates. Unfortunately, the USMCA labor provisions are not sufficiently improved to prevent the repeat of such a miscarriage of justice.

The most innovative and potentially beneficial part of the USMCA labor chapter is a new annex on worker representation in collective bargaining in Mexico. This commits the Mexican government to specific legislative changes to guarantee workers’ rights to bargain collectively. Specifically, the annex restricts the use of protection contracts. These contracts, widespread in Mexico, allow corrupt unions to sign long-term collective agreements without workers’ input or approval.

The newly elected Mexican government has, on its own initiative, proposed an ambitious program of labor reform that includes an increase in minimum wages, increased workplace inspections, a clampdown on sub-contracting abuses, training for youth and other highly unemployed groups to encourage them enter the workforce, and certification for decent workplaces, which could become a condition for securing government procurement contracts.

The USMCA annex could provide a welcome boost for the Mexican government in its attempts to improve workers’ rights. But the hoped-for success of efforts to reform protection agreements depends primarily on the ability of the new Mexican government to overcome entrenched domestic and foreign business opposition to its proposed labor reforms.

As Democratic and trade union critics of the USMCA labor rules have noted, improved enforcement is essential. Even without reopening the text, it would be possible, for example, for the parties to agree to create an independent secretariat to investigate and prosecute complaints. The new body’s procedures could include clear, non-discretionary deadlines requiring authorities to investigate and adjudicate complaints from workers and their representatives, while committing all three governments to enforce rulings and impose meaningful penalties for non-compliance.

But other flaws in the chapter are difficult to correct without reopening it. Enshrining labor rights as universal human rights enjoyed by all workers requires the removal of the USMCA’s arduous requirements for complainants to establish a direct causal link between rights violations and trade or investment. A fair and effective labor chapter must also protect all workers in all circumstances without having to establish that violations of rights are “systematic” or “part of a recurring pattern.” Finally, there must be no backsliding on commitments to forbid all forms of workplace discrimination, including based on gender, sexual orientation, gender identity or migrant status.

As the pitiless restructuring of General Motors’ North American operations drives home, it is unrealistic to expect even the most gold-plated labor provisions in FTAs to redress the vast power imbalance between workers and gigantic, internationally mobile corporations. But in the wake of such callous indifference, to approve yet another free trade deal with substandard and largely ineffective protections for workers is indefensible.

Originally published by Behind the Numbers, a blog from the Canadian Centre for Policy Alternatives.