Mexico and the USMCA: Why Little Will Change for Mexican Workers

Originally Published in the December 2019 Journal, Breaking the Silence, Pg. 17

In July 2019, United States Trade Representative Robert Lighthizer testified in front of the House Committee on Ways and Means to satisfy Congressional concerns regarding the US-Mexico-Canada Agreement (USMCA), the Trump administration’s replacement for NAFTA. At the hearing, one of the most controversial provisions in the agreement discussed was the requirement that Mexico would need to reform its labor laws to allow for stronger union collective bargaining and higher wages for certain Mexican workers, particularly in the automobile parts industry. While Lighthizer and his team believe that the USMCA will be a giant step towards increasing Mexican labor welfare through its pro-union elements, a further analysis of Mexico’s domestic affairs posits substantial skepticism of the aforementioned claims. Upon analyzing the USMCA in light of Mexican government legislation, such skepticism can indeed be justified, as USMCA requirements are not likely to significantly improve working conditions in Mexico. Mexico lacks the financial resources and corporate support to effectively enforce the terms of the agreement. There is currently little to no progress on increasing current Mexican national minimum wage, which is far lower than wages prescribed by the USMCA.

A step up from NAFTA’s guiding principles concerning labor, the USMCA contains explicit directives aimed at ensuring that Mexican unions have unhampered power in collective bargaining for better workplace conditions, benefits, and wages. To comply with such directives, on May 1, 2019, Mexican President Andrès Manuel Lopez Obrador (AMLO) signed a law creating independent Mexican labor courts for dispute resolution, contract registration, and legal protection against coerced labor. The new law protects the right of unionized workers to vote for union leaders in secret ballots directly overseen by the newly created Federal Conciliation Center and Labor Registry (Centro Federal de Conciliación y Registro Laboral, or CFCRL). This is so that employers cannot interfere with the voting process and pick leaders who support their interests. Additionally, companies have to enact protocols to eradicate forced labor and all forms of workplace discrimination, and are also obligated to recognize a union’s right to strike as long as the union maintains the support of at least 30 percent of its employees. While members of AMLO’s political party, Morena, are applauding the law’s passage as a great victory, labor advocacy groups across North America are extremely doubtful that the Mexican government can actually enforce its new policies.

For the past 50 years, unions in Mexico have negotiated contracts with employers known as “protection agreements,” which are made exclusively between union leaders and employers. These agreements often heavily favor employers and have led to an influx of foreign direct investment but relatively little growth in worker wages and working conditions from collective bargaining. Although the new laws demand independent elections and accountable union leadership, they say nothing about banning these protection agreements. Even if workers are aware of their rights and press a complaint against corrupt negotiations, the current texts of the USMCA and the new labor law allow for the accused (i.e. the employer) to “unilaterally block the formation of a dispute resolution panel.” AMLO may be personally sympathetic to workers, but his administration is crippling its ability to oversee and enforce its new labor protections. In September 2019, the Mexican government announced that it was reducing its labor budget to help pay for more soldiers at the country’s southern border.

Furthermore, the May 2019 reforms can expect little support from the business community. Gustavo de Hoyos, the president of Coparmex, a powerful Mexican business lobbyist group, denounced them as a shameful capitulation by the Mexican government to American influence. The idea that the Mexican government will somehow follow through and actually help workers with its recently passed USMCA-inspired federal labor law by not only crippling its own enforcement mechanisms financially, but also alienating the business community, seems both counterintuitive and highly unlikely.

The USMCA stipulates that roughly 40 percent of US auto imports from Mexico must be made by workers with wages of $16 USD or higher. The average Mexican worker makes around $2 USD an hour, but the Mexican minimum wage is approximately $4.15 USD for a full day’s work, indicating a disparity between expectations and reality. Although President Obrador has promised to raise base wages to keep up with inflation, those promises center around an increase to barely $5 USD a day, a far cry from what the USMCA seeks from the Mexican auto industry. Speaking of raising wages in this sector of the economy, even such a localized sign of progress has been called into question. The USMCA states that companies wishing to avoid the $16 USD rule entirely simply could pay a 2.5 percent tariff on the manufactured products they send to North American trading partners. According to Mexican economists like Luis de Calle, many companies may just choose to pay the tariff, as it makes better economic sense in the short run. Furthermore, there are 700,000-800,000 auto workers in Mexico, which is only around 1.5 percent of the entire country’s labor force. Despite American sentiments about how the USMCA is going to level the playing field and augment wage equity, there will likely be no statistical impact on wages in Mexico overall.

Despite Mexico’s enforcement shortcomings and their economy’s overall wage stagnation, the USMCA will probably be enacted by all three participating nations, because it is exceedingly difficult to monitor compliance on the labor regulations of the agreement. In fact, Mexico’s undersecretary to North America, Jesús Seade, recently rejected all international attempts to increase international compliance monitoring of the USMCA, a strong signal that at least Mexico is ready to move forward with the trade deal. Also, since NAFTA led to trilateral trade increases valued in the hundreds of billions of dollars, the United States, Canada, and Mexico have too much to gain in this trade deal to let it fall through over labor disputes. However, whatever happens with the USMCA, the economic welfare of the Mexican working class will likely see no improvement.

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