Donald Trump Is No Friend of a Better NAFTA

 

AP Photo/Jacquelyn Martin, File

The national flags of Canada, the U.S., and Mexico are seen at the start of NAFTA renegotiations in Washington. 

This article appears in the Winter 2018 issue of The American Prospect magazine. Subscribe here

Canada, the United States, and Mexico are deep into the renegotiation of the 1994 North American Free Trade Agreement. These talks were precipitated by President Trump, who promised as a candidate to tear up “the worst trade deal ever.” Neither Canada nor Mexico sought to reopen NAFTA.

Progressives, particularly those of us who fought NAFTA 1.0 for being a tool for corporate interests, find ourselves somewhat caught. Labor, environmental, and social justice groups obviously do not side with the narrow and xenophobic nationalism of Donald Trump. But we welcome the opportunity for open debate on a disastrous trade deal as a way to either fix it or tear it up and start over.

NAFTA accelerated the creation of a precariat in North America, as well as a dramatic increase in wealth inequality, wage stagnation, the hollowing out of the middle class and the weakening of the social safety net. Unionized rates have declined in all three countries and many full-time and secure manufacturing jobs have been replaced by insecure, temporary, and self-employed work.

In the United States, more than 930,000 jobs, mostly in manufacturing, were lost to NAFTA offshoring. Between 2000 and 2011, the United States lost 35 percent of its manufacturing jobs, at least half due directly to trade. Canada lost more than 300,000 manufacturing jobs in the wake of the 1989 Canada-U.S. Free Trade Agreement (the precursor to NAFTA) and another 547,000 since 2000, many due to trade competition from Mexico and China.

While Trump says these numbers show that Mexico was the NAFTA winner, about two million Mexican farmers and agricultural workers lost their jobs due to subsidized food imports from the United States, creating unprecedented migration. It is true that many jobs and plants relocated to the maquiladoras, particularly in the auto sector, but Mexican workers, who earn one-eighth of the wages paid to American and Canadian autoworkers, were not winners by any definition.

The three governments signed a side agreement on labor that was supposed to protect workers and prevent labor abuses. But not one of the 36 labor complaints filed with the North American Commission for Labor Cooperation even got to the stage of arbitration, and the commission essentially disbanded.

The story is equally dismal on the environmental front. In all three countries, NAFTA led to an increase in large-scale, export-oriented farming that relies on fossil fuels, pesticides, and GMOs, increased the threat to groundwater, and led to more rapid deforestation. Canada dismantled its regulatory regime for its oil and gas industry and signed a “proportionality” clause, essentially obliging Canada to continue to supply the United States with its energy even in times of scarcity. This led to a dramatic increase in the production and export of tar sands bitumen, resulting in increased greenhouse gas emissions and the dumping of toxic waste into groundwater.

NAFTA inaugurated an era in which environmental laws in all three countries were ignored or dismantled in the name of competition. The post-NAFTA rapid growth in Mexican factories and assembly plants (more than 3,000 now) saw a rapid increase in dumping of toxins on land and water with a concurrent spike in illnesses. Environmental regulations were not enforced and spending on environmental protection drastically declined after 1994, as did factory inspections. The Conservative Canadian government of Stephen Harper pulled Canada out of the Kyoto Protocol and gutted the country’s most important water protection laws, all in the name of global competitiveness. Trump has linked his deregulation policies to bringing back jobs lost to NAFTA.

The most egregious threat to the environment is Chapter 11, the Investor-State Dispute Settlement (ISDS) provision of NAFTA that allows foreign investors to challenge the laws and practices of governments. Chapter 11 has been used 85 times. As documented by the Canadian Centre for Policy Alternatives, 40 of the challenges (the largest number) have been laid against Canada, two-thirds of which have to do with Canada’s environmental laws. Challenges include bans on pesticides, fracking, and the export of PCB waste. Canada has already paid more than $200 million in penalties and is currently facing another $2.6 billion in challenges from American corporations.

As with the labor side agreement, the NAFTA environmental side agreement, called the North American Agreement on Environmental Cooperation, has proven useless in holding governments accountable for their deregulation policies and preventing environmental infractions.

 

GIVEN THIS RECORD, why not just walk away from the negotiations entirely? In part, the answer lies in the reality that, after almost a quarter-century, the economies of the three countries have become deeply intertwined and many are now employed in NAFTA-related jobs. The Mexico Institute at the Wilson Center estimates that trade with Mexico creates just under five million jobs in the United States. The Canadian government estimates that more than three million Canadian jobs are NAFTA-related and that Canadian exports to the United States are now roughly equal to 20 percent of the country’s economy. While these jobs may not provide the same wages, benefits, and security as those lost over the last two decades, nevertheless, there are real ramifications for many workers and businesses from the details of the NAFTA talks.

The labor movement in Canada and the United States has urged that this renegotiation process dramatically improve NAFTA to the benefit of working people. The AFL-CIO calls for a “new approach” that “prioritizes benefits for working families, not simply benefits for multi-national or global enterprises.” It seeks a trade deal that promotes equitable economic development, a virtual cycle of wage-led growth and high standards for the protection of working families and democracy. Jerry Dias, the president of Unifor, Canada’s biggest private-sector union, is actually sitting on the Canadian government’s negotiating team, openly working with Foreign Minister Chrystia Freeland, who heads Canada’s delegation.

These unions are hoping a new NAFTA will spell out clear rights for workers with accompanying enforcement provisions. The Canadian government is proposing a NAFTA chapter on labor standards that would include the core International Labour Organization rights and address both the low wages and poor treatment of workers in Mexico but also anti-worker “right to work” laws in the United States. Freeland is proposing similar chapters on environmental standards, gender rights, and indigenous rights. The latter would include language referring to the U.N. Declaration on the Rights of Indigenous Peoples.

Disappointingly, Canada is refusing to consider canceling Chapter 11, which is fiercely opposed by labor, environmental, and justice groups in all three countries. Canada is also not open to revising the energy chapter or canceling the proportionality provision. In fact, Canada is pushing Mexico to sign on to a similar clause, something Mexico refused to do in NAFTA 1.0, and which would lock in the energy liberalization and privatization policies of the current government. Such an energy chapter in a new agreement would commit North America to a fossil fuel future, making it far more difficult to meet climate commitments for governments of all political stripes.

However, all of this may be for nothing if any party walks away from the talks, which increasingly appears likely. Privately, Canadian and Mexican negotiators say that because Trump is so inconsistent in his policies and directions, their American counterparts are to a great extent winging it. The United States has asked for concessions that no other country could grant. It wants to eliminate Chapter 19, the state-to-state dispute settlement provision—a red line for the other countries that have been served well by it. It wants an end to agricultural subsidies such as Canada’s supply management system for dairy, and a “sunset clause” that would trigger a NAFTA renegotiation every five years. U.S. negotiators want to break down all barriers to American exports and eliminate “unfair” Mexican and Canadian subsidies and restrictions. They want to open up previously exempted areas in services and are targeting telecommunications, financial services, and cross-border data flows.

However, the United States is not in any way willing to be reciprocal, so quid pro quo bargaining is simply not happening. The Trump negotiators are further demanding that half the content of all North American–built autos be produced in the U.S., and states its intention to expand “Buy American” policies and practices. It is proposing to cut access to its own markets so that the total value of contracts that Canadians and Mexicans could access together would not exceed the total value the U.S. firms could win in the other countries, thereby removing the procurement advantage NAFTA gave them. And the Trump administration is threatening to put up new tariffs on textiles and fruit.

 

FOR NOW, THE NAFTA talks are at a serious impasse. If they fail and Trump pulls the plug, our countries will revert to the rules of the WTO. Despite earlier warnings from the corporate sector that this would be an economic disaster, several studies show that while a NAFTA collapse would be disruptive, it would be manageable. The Canadian Centre for Policy Alternatives estimates that for 96 percent of total Canadian exports, the cost would amount to only 1.5 percent of the value of Canadian exports. A study by the IMF had similar results. Similarly, Alberto Arroyo, a professor at Metropolitan Autonomous University in Mexico, reports that the manufacturing exporting sector in Mexico accounts for only 2.4 percent of total Mexican jobs.

Whatever the fate of NAFTA, it is crucial to articulate a progressive vision of a trade and development agenda for North America, and there are many existing excellent proposals by labor and environmental groups. We need a profoundly altered NAFTA. Adding clauses that introduce labor and environmental rights without removing the corporate power structure embedded in the current agreement is not enough. As a group of Canadian labor unions stated, “A bad agreement with good labor rights is still a bad agreement.”

Chapter 11, giving corporations special rights to overturn regulations in the name of trade, must go. Clear labor, environmental, gender, and indigenous rights must form the heart of a new deal, and they must be accompanied by binding dispute settlement mechanisms. Governments must retain the right to regulate in the public interest, including screening foreign investment, combating tax evasion, setting enforceable currency rules, and regulating the financial sector. They must be able to protect and create public services and domestic cultural policies. They must restore local and national sovereignty over food and farm policy and outlaw dumping. Any new trade agreement must be compatible with international climate commitments and not be allowed to challenge domestic measures to combat climate change.

Trump has clumsily attempted to appropriate the legitimate progressive critique of NAFTA, but without delivering something better. Around the world, people and their governments are reassessing the purposes and goals of trade agreements in light of the deep inequality they have helped engender. The backlash against ISDS is international and growing. It is imperative that progressive voices are heard. If any good can come from this impending fiasco, it is that it presents an opening for something new.  

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