Could the corporate lobby kill NAFTA?

The North American Free Trade Agreement (NAFTA) faces a critical juncture as a fifth round of NAFTA renegotiation talks ended Tuesday in Mexico City. If talks deadlock, the administration is likely to withdraw from NAFTA altogether. 

If that happens it will be thanks to the corporate lobby, not the unions or groups like my own that have long held that no NAFTA is better than this NAFTA.

ADVERTISEMENT
Longtime critics of NAFTA are urging Canada and Mexico to engage on U.S. reform proposals with the goal of replacing the 23-year old deal. The corporate lobby is urging the other NAFTA countries to reject the U.S. reforms out of hand, an approach that paves the way to the no-NAFTA outcome. 

The administration’s proposals, tabled in October, focus on eliminating NAFTA’s incentives to outsource investment and jobs from the United States. For decades congressional Democrats and Republicans, unions, consumer groups and other NAFTA critics spanning the political spectrum have sought these very changes.

This includes eliminating protections at the heart of NAFTA that incentive outsourcing by making it cheaper and less risky to move production to Mexico to pay workers poverty wages and dump toxins and then import products back to the U.S. for sale. These terms also empower thousands of corporations to sue the NAFTA governments before panels of three corporate lawyers that can award the corporations unlimited sums to be paid by taxpayers, including for the loss of expected future profits, when the firms claim their investor privileges have been violated. 

Also proposed is lifting NAFTA’s limits on Buy American preferences in government procurement policy so U.S. tax dollars are reinvested to create jobs here rather than being outsourced to buy goods produced in Mexico and Canada. A proposed review and reaffirmation of the deal every five years would ensure the pact is meeting the desired outcomes or is adjusted as needed. 

The U.S. Chamber of Commerce and a chorus of other corporate lobby groups shrilly denounced these proposals as “highly dangerous” and launched a frantic campaign to derails the reforms.

Given the administration’s approach preserves NAFTA’s duty-free trade terms, the corporate meltdown helpfully spotlighted the gap between NAFTA’s “free trade” brand and the pact’s actual terms.

Most of NAFTA’s 22 chapters provide special protections for investors, extend patent and copyright monopolies, constrain regulation of banks and other services, undermine food and product safety standards, limit government procurement policies, and otherwise impose one-size-fits-all rules unrelated to trade pacts’ traditional remit of tariff cutting.

The development of these rules was co-opted by corporate interests, including the 500 official U.S. trade advisors representing business interests who had access to texts and negotiators while the public and Congress were locked out. The business interests’ goal was binding, enforceable rules that protected their investments and profits – not that maximized domestic employment or wage levels.

To date, more than 930,000 American workers have been certified under just one narrow government program as losing their jobs to NAFTA with more middle-class jobs being outsourced to Mexico every week. Almost $400 million in taxpayer funds have been paid to corporations successfully attacking environmental and health safeguards in NAFTA tribunals.

After decades of lobbying and campaign contributions to customize U.S. trade pacts to their benefit, perhaps the Chamber, Coalition of Service Industries, PhRMA and other business groups prefer no NAFTA to a new trade agreement design eliminating their special protections.

But why the American Farmer Bureau and others ostensibly representing U.S. farmers have joined the “our way or the highway” strategy is inexplicable.

If the United States left NAFTA, and a president has authority to withdraw, under the Trade Act of 1974 a president also can proclaim reversion of tariff rates to World Trade Organization (WTO) levels. Forty-six percent of U.S. tariff lines, 50 percent of Mexico’s and 76 percent of Canada’s are duty-free under the WTO. The remaining tariffs are drastically lower than before NAFTA because in the ensuring decades, WTO tariff cuts were implemented. The current average WTO Most Favored Nation applied tariffs on a trade-weighted basis for the United States, Mexico and Canada are respectively 2.4, 4.5 and 3.1 percent. 

However, some of agriculture is the outlier: U.S. exports to Mexico of beef, pork, and poultry, for instance, would face significant tariffs. (Almost all U.S. corn exports to Mexico, by far our largest agricultural export, would be duty-free because Mexico zeroed yellow corn tariffs for all WTO countries in 2008. A large share of U.S. soy exports also would be duty-free without NAFTA.)

Assuming the president did not revert to duty free treatment under the 1988 U.S.-Canada Free Trade Agreement, which was suspended when NAFTA was enacted, WTO tariffs for Canada would be significant for U.S. exports of barley, dairy and beef.

Agricultural interests have no dog in the fight over NAFTA outsourcing protections, but U.S. meat producers could be harmed if NAFTA ends. That is why there is a majority in Congress that could pass a new NAFTA that sustains duty-free access for U.S. exports but eliminates the corporate poison pills and adds strong labor and environmental standards with swift and certain enforcement.

That last element, for which the administration has yet to make a strong proposal, explains why NAFTA critics prioritize getting a new deal. 

Average Mexican manufacturing wages are now 9 percent lower in real terms than before NAFTA. After decades of fake “protection” unions conspiring with companies to thwart increases, Mexican manufacturing wages are now lower than in coastal China.

Raising wages in Mexico is not only a moral imperative, but is essential to reversing the draw for firms to outsource U.S. jobs there. Workers represented by the independent Steelworkers union in Goodyear’s American plant earn $26.63 hourly. But when the firm decided to open a new plan in North America, it choose Mexico where it pays workers $1.88 per hour.

Simply withdrawing from NAFTA won’t raise wages here or in Mexico. Nor will it reverse two decades of damage and bring back the million middle class American NAFTA destroyed.

That’s why NAFTA critics seek a new deal that levels the playing field. No NAFTA is certainly better than more years of NAFTA’s ongoing damage, but the best outcome is a new deal that raises standards and wages throughout North America.

Lori Wallach is director of Public Citizen’s Global Trade Watch.