The Good and the (Potentially Very) Bad in Trump's NAFTA Renegotiation

We shouldn't be too optimistic about the NAFTA renegotiation actually helping workers. (Getty Images)

The Good and the (Potentially Very) Bad in Trump's NAFTA Renegotiation

All in all, it’s a good heuristic to judge trade deals by how mad business lobbyists are about them, and judging from the Business Roundtable’s grumblings, the renegotiation has the potential to be decent

With the United States and Mexico having both signed off on a reworked North American Free Trade Agreement (or whatever President Trump wants to call it), negotiators are now attempting to secure a last-minute agreement with Canada by a Friday deadline. The Trump administration has threatened auto tariffs on Canada if they don't climb aboard. Because Mexican president Enrique Pena Nieto's term ends in November, and U.S. trade law requires a 90-day waiting period before all parties can sign, the final agreement must be completed by August 31.

If Canada does sign on board, the results of the year-long negotiations will be decidedly mixed. Only lazy pundits would call the U.S./Mexico agreement "TPP 2.0." A number of features do eliminate corporate favors from prior trade agreements, and drive a better bargain for workers in all partner countries. Since this will be the template for other U.S. trade deals moving forward, that's important. On the other hand, those anti-corporate provisions have their limits, particularly because it's unclear how they will be enforced. And Canadian involvement means everything's subject to change. Let's take a look at what we know.

The end of corporate shakedowns: Perhaps the best provision signals the demise of the notorious investor-state dispute settlement (ISDS) process. Under ISDS, foreign corporations can sue countries for "expected future profits" when laws and regulations change. Extrajudicial tribunals composed of three corporate lawyers decide on the claims; some of the arbitrators simultaneously serve as counsel for corporations bringing other complaints.

ISDS has led to governments paying hundreds of millions of dollars to corporations. And it has increasingly become a means for rich investors to speculate on lawsuits, winning huge awards and forcing local taxpayers to foot the bill.

Under the new agreement, this process is virtually eliminated. U.S. and Canadian companies will only have access to domestic courts, making impossible nearly all previous NAFTA ISDS cases against the two countries, which have functioning legal systems to handle those complaints. For cases involving Mexico, domestic courts and administrative proceedings would have to be exhausted before ISDS could be invoked. Tribunals could not be stocked with lawyers working on ISDS claims for corporations, and several common "investor rights"--like demanding a minimum standard of treatment from a foreign government--would be revoked. Damages for "expected future profits" would be eliminated; only concrete damages could be demanded.

A small group of U.S. investors in Mexico who have contracts in the oil and gas sector would get wider protections through a carve-out. This led Roosevelt Institute fellow and ISDS expert Todd Tucker to call the changes "a privileged forum for Big Oil and Big Gas... handouts to big companies afraid of leftward progressive change in Mexico." While this was apparently the price of taking down ISDS elsewhere, if the new NAFTA sets a precedent that most corporations can't rely on a special process to hold up governments for cash, it might be worth it.

Auto rules: For some reason, the U.S.-Mexico agreement gets incredibly detailed on auto manufacturing, even though far more is traded between the two countries. Under the agreement, 75 percent of a car's value must be made in North America, as opposed to 62.5 percent in the original NAFTA. Close to half the vehicle must be made by workers who earn at least $16 an hour, either raising wages sharply for some Mexican workers (the current average wage for auto parts workers is between $3.60 and $3.90 an hour) or shifting production to higher-wage countries. This is the first wage standard in a trade agreement's "rule of origin" chapter. The deal also caps tariff-free imports of Mexican-made cars at 2.4 million per year, which may also move production.

Global trade experts are shocked that this may raise the price of cars for consumers, but this is a perennial complaint, that giving workers a living wage is just too burdensome to companies. Given the spike in corporate profits as a share of overall wealth, a worker backstop isn't the end of the world. But only auto workers can access such a backstop in the new agreement. Other U.S. and Mexican manufacturing workers are left out in the cold.

Labor standards, and the missing teeth: All North American workers, however, would benefit from the new labor chapter. Mexican "protection unions," set up before anyone is hired to lock in low wages, would be effectively banned under the agreement. All Mexican workers would have access to secret-ballot union elections for bargaining and contracts. Union leaders are excited about the prospect of using the trade deal to obtain valuable rights for workers in Mexico.

However, five U.S. union leaders noted in a statement that "there is more work that needs to be done to deliver the needed, real solutions to NAFTA's deeply ingrained flaws." Chief among their complaint is that the labor chapter doesn't have sufficient enforcement mechanisms to ensure worker rights. There's a history of weak enforcement in NAFTA when it comes to workers, and without legislative guarantees and active participation from all countries involved, that's bound to continue. That makes the pretty words in the labor chapter potentially all but irrelevant.

Odds and ends: Corporate lobbyists will not go home empty-handed in this deal. Copyright terms have been extended from 50 to 75 years, a gift to intellectual property holders like music and movie companies. The digital chapter may also include legal immunity for Internet companies that host illegal or pirated content; it's as yet unclear where that stands.

A government dispute resolution mechanism to prevent state subsidies and "dumping" of low-cost exports has been removed, and while those cases could still be fought at the World Trade Organization, Canada has previously called the faster NAFTA-specific dispute resolution vital. Negotiators have expressed willingness to end the protection of the Canadian dairy industry, with its 200-300 percent tariffs, in exchange for retaining dispute resolution, though Prime Minister Justin Trudeau quickly walked that back.

While the United States was seeking a five-year "sunset" of the entire agreement, the deal with Mexico has a 16-year expiration date, with the ability to extend every six years. There's also no mention of climate change in the agreement, something Canada deeply sought.

All in all, it's a good heuristic to judge trade deals by how mad business lobbyists are about them, and judging from the Business Roundtable's grumblings, the renegotiation has the potential to be decent. Corporate power is definitely weakened in key areas of the agreement. But you would have to believe that the Trump administration would be uniquely attuned to the conditions of Mexican laborers to believe that workers will really advance in this deal. There's not much history to suggest such concern.

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