The outsourcing of US jobs to low-wage Mexico

Efforts to renegotiate NAFTA have so far mostly ignored the paramount issue — the outsourcing of industry and jobs to Mexico because of its very low wages and lack of labor rights.  

Labor (as well as environmental) standards were very controversial during the original NAFTA negotiations 25 years ago, and the failure to address the issues then can be clearly seen today. With tariffs gone, and investment in Mexico seemingly more secure, industry in the U.S. moved south of the border. Mexico’s dramatically lower labor costs were a magnet for movement of plants, and the maquiladoras expanded into the Mexican heartland.

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With wages around a dollar an hour, the U.S. “Big Three,” Japanese and German companies moved production to Mexico, with suppliers swarming in mass alongside. Low wages in Mexico are ingrained in a labor structure where workers have no rights. They labor under so-called protection agreements between the employer and a “union” attached to the government. There are thousands of these “agreements” often signed before there were any workers or without their participation or consent. Complaints by employees on working conditions were invariably thrown into a dark hole composed of labor boards controlled by the government or CTM and the hostile company. Industrial wages in Mexico in real-dollar terms have gone down in the 25 years of NAFTA, even as productivity has gone up 80 percent. A new $1 billion BMW plant recently opened shows this trend continuing — wages will range from $1.10 to $2.53 per hour according to a review from Bloomberg.

So far, there has been a broad failure to face up to this issue during the current negotiations to revamp NAFTA. Canada has put forth “its progressive agenda” including proposals related to worker rights. While I agree with Canadian proposals related to repeal of U.S. right-to-work laws, and the ratification of ILO conventions on labor, these reforms simply cannot be effectuated through the NAFTA renegotiation. As to Mexico, it has acted on a constitutional amendment on labor reforms, but it is has never put in place necessary implementing legislation and the deeply ingrained structure seems very much in control.

The Trump administration has acknowledged the issue but has focused on other approaches to make U.S. investment less attractive in Mexico. The first is the elimination of access of parties to use arbitration. While dispute settlement issues need attention, they are not central to outsourcing to Mexico (which has lured industry with multiple millions in incentives). The second is a “sunset” provision for NAFTA. Not only is limiting the duration of NAFTA opposed by businesses as undermining investment, but it could also be an inducement to procrastination instead of active implementation of labor reforms.

And the third administration proposal would be to insert a U.S. content rule of origin requirement of 50 percent in any industrial export to the United States. Unlike the proposal to increase the NAFTA region rule of origin requirement to 80 percent, which would only result in further movement to Mexico, the 50 percent U.S. content proposal could increase pressure for production in the U.S. But as I studied this issue during consideration of the Trans-Pacific Partnership, rules of origin are very complex and it is difficult to see how a workable solution exists given the high flow of manufacturing components back and forth across the northern border, not to mention the southern border. And Canada and Mexico are both vehemently opposed to the content proposal.

Facing a deadlock in NAFTA negotiations, and the threat of a Trump administration notice of termination, all parties need to face up now on how to effectively address its fundamental flaw, instead of increasingly working on how to minimize the effects if NAFTA is ended. There are certainly many important issues to consider, but none as vital and central as labor rights in Mexico. Canada needs to get down to brass tacks on this issue, not wishful thinking. Mexico needs to drastically reform in language and on the ground its industrial policy that races to the bottom. And the Trump administration must insist that it will not agree to a renegotiated NAFTA unless Mexico ends what one Mexican businessman called a “maquiladora policy” built on the backs of its workers and causing the loss of jobs and wages for American workers.  

Levin represents Michigan’s 9th District and is a member of the Ways and Means Trade Subcommittee.