The Battle Over NAFTA 2.0 Has Just Begun

The Battle Over NAFTA 2.0 Has Just Begun

The Battle Over NAFTA 2.0 Has Just Begun

Progressives must fight strategically to improve it—if they don’t, the consequences could be devastating.


After over a year of renegotiations of the North American Free Trade Agreement by the United States, Canada, and Mexico, the NAFTA 2.0 text signed on November 30 revealed improvements for which progressives have long campaigned, the addition of damaging terms that we oppose, and critical unfinished business.

It’s no surprise that the administrations of Donald Trump, Justin Trudeau, and Enrique Peña Nieto failed to deliver a transformational replacement for the corporate-rigged trade-pact model that NAFTA hatched in the early 1990s. But if progressives secure swift and certain enforcement of the agreement’s new labor standards—and succeed in incorporating some other key improvements—the final package that will head to Congress in 2019 could end some of NAFTA’s continuing, serious damage to people across North America. And that would be a big deal.

The status quo, with NAFTA helping corporations outsource more US jobs to Mexico every week after nearly 1 million have been government-certified as lost to NAFTA, is not acceptable. Nor are the ongoing Investor-State Dispute Settlement (ISDS) attacks on environmental and health safeguards, or the corporate exploitation of Mexican workers, who today face $1.50-an-hour manufacturing wages that are unlivable and lower in real terms than before NAFTA. Neither withdrawing from NAFTA nor maintaining NAFTA 1.0 will raise wages in Mexico, which must be done to stop the offshoring that transforms middle-class jobs into sweatshop jobs.

This explains why congressional progressives, unions, groups like Public Citizen, and others who have fought decades of bad trade deals did not respond to the signing ceremony with an opposition campaign, but rather with demands for further improvements. Thanks to the midterm elections, only a version that can win significant Democratic support will get through Congress. That creates an opportunity we must seize. The signing of the NAFTA 2.0 text was just one step in a long process. Phase two of the battle to replace NAFTA has begun.

Trump’s claim to have created a totally different kind of agreement is a deceitful sales pitch, similar to those used for decades by US presidents to hawk previous trade deals. No one should refer to NAFTA 2.0 by using Trump’s preferred “US-Mexico-Canada Agreement” (USMCA) rebrand.

The NAFTA 2.0 framework, like previous agreements, sets limits on domestic consumer safeguards and grants protectionist monopoly rights to Big Pharma. Appallingly, the 164 countries that are members of the World Trade Organization—including the United States, Mexico, and Canada—are captured under this regime, NAFTA or not.

But “free trade” agreements like NAFTA include corporate goodies, like ISDS, that extend beyond the WTO rules. This is why fighting for improvements to NAFTA 2.0 matters. Analyses by unions and Public Citizen provide a road map for the improvements still needed.

On the upside, NAFTA’s outrageous investor privileges and ISDS tribunals are dramatically reined in under NAFTA 2.0, after hundreds of millions in taxpayer funds have been paid to corporations using the regime to attack public-interest policies. The new text terminates ISDS tribunals between the United States and Canada, which will prevent significant future damage. Most ISDS cases under NAFTA have involved US or Canadian corporations attacking the Canadian or US government, and all but one of the ISDS payouts over environmental issues involved US firms challenging Canadian policies.

For Mexico, ISDS is replaced by a new approach: Whereas ISDS allows investors to skirt domestic courts, the new process requires investors to use such courts to resolve disputes with a government until the highest available domestic court rules, or until two and a half years pass with no resolution. In the latter case, an investor can seek compensation—but only for limited claims in which “an investment is nationalized or otherwise directly expropriated through formal transfer of title or outright seizure,” or for discriminatory government actions against an established investment.

The five other investor protections in NAFTA that have resulted in almost all payouts so far are eliminated in the new agreement. These are also the protections that made it cheaper and less risky to outsource US jobs to Mexico. Additionally, NAFTA 2.0 eliminates the “right to invest,” which companies use to launch ISDS attacks if a government refuses to authorize an environmentally damaging mine or other proposed investment.

The new text also includes important procedural reforms. Those reviewing claims under NAFTA 2.0 cannot simultaneously represent corporations suing governments, which is not the case under the ISDS process. Also, investors can only be compensated for losses they can prove, with “inherently speculative” damages banned; previously, investors have obtained huge sums premised on their claims that expected future profits would be lost.

These changes don’t go into effect until three years after NAFTA 2.0 does. But this vexing delay did not stop the Business Roundtable, the American Enterprise Institute, and the Wall Street Journal editorial board from criticizing the gutting of ISDS—nor did a loophole under NAFTA 2.0 designed to protect nine US companies if their contracts with Mexico’s National Hydrocarbons Commission are canceled without cause. These companies retain the broader ISDS rights if Mexico maintains agreements that provide such rights to investors from other countries. While none of the companies have used ISDS against Mexico, several have against other countries. Preserving access to broad ISDS rights for any corporation, much less oil companies, is bad.

Yet even with these flaws, NAFTA 2.0 delivers a significant scaling-back of investor power over governments. If an administration as compliant to corporations as Trump’s is whacking ISDS, it will be hard for future presidents to backslide. The move also sends a powerful signal to the many nations worldwide that are seeking to escape the ISDS regime.

However, unless the final deal includes strong labor and environmental standards that are subject to swift and certain enforcement—which is not the case with the NAFTA 2.0 text—US firms will continue to outsource jobs, pay Mexican workers poverty wages, and dump toxins in Mexico. Absent a remedy to this fundamental failing, NAFTA 2.0 will face broad opposition.

The Labor Advisory Committee report, prepared by unions serving as some of the few official US trade advisers not representing corporate interests, concludes that “there are modest but meaningful improvements” in the new labor standards. These include new terms protecting migrant workers and the right to strike, as well as requirements that signatory countries address violence and threats of violence against unionists and implement policies to prohibit workplace discrimination. (That the discrimination provision covers sexual orientation and gender identity and undermines the attack on Obama’s executive orders granting such protections to federal workers has spurred considerable backlash by right-wing groups and antediluvian members of Congress.)

But the new text also retains a fundamental flaw of past agreements by relying on the International Labor Organization’s Declaration on Fundamental Principles and Rights at Work, as opposed to the more precise ILO Conventions, which enumerate specific labor rights and standards and are backed up by related jurisprudence.

The new labor chapter has one standout feature: clear, specific rules that would eradicate the wage-suppressing “protection contracts” that current Mexican law allows employers to impose on workers ostensibly represented by a union. If enforced, these terms could make a real difference in raising Mexican wages, which in turn would reduce incentives to outsource US jobs to Mexico. Today, before Mexican workers arrive at a new plant, a “union” they have no role in selecting—and that is essentially a branch of the pro-business political party that ruled Mexico for 71 years—signs a labor contract with the employer that locks in low wages and otherwise protects the employer’s interests. Workers don’t get to vote on the contract, but if they strike or try to organize an independent union, they can be fired for violating it. NAFTA 2.0 requires that the Mexican government guarantee workers secret-ballot votes on union contracts and facilitate voting to replace all existing protection contracts within four years.

But the NAFTA 2.0 text does not include the monitoring or enforcement provisions necessary to ensure that the new rules actually make a difference in the lives of North American workers. As in other trade pacts since 2007, the NAFTA 2.0 labor and environmental standards are written into the core text, with the same enforcement mechanisms as the other terms, in contrast to the original’s unenforceable labor and environment side agreements. However, Democratic and Republican administrations have been unwilling to use available enforcement mechanisms against even the most egregious labor or environmental violations. The labor movement is now engaging with trade officials to try to solve this fundamental defect. NAFTA 2.0 must not go into effect unless and until enforcement mechanisms are significantly improved and Mexico implements labor-law reforms to comply with the new obligations.

While unions advocated for their demands during the NAFTA renegotiations, environmental groups did not. Given the Trump administration’s unrelenting attack on environmental protections, the green groups concluded that their demands—which had been rejected by the Obama administration during Trans-Pacific Partnership negotiations—would certainly go nowhere with this administration.

The NAFTA 2.0 text, like that of the TPP, fails to even mention climate change—a glaring omission in a time of climate crisis. But NAFTA 2.0 also follows the TPP model in not requiring countries to adopt or enforce domestic laws that would achieve the goals of seven core multilateral environmental agreements. Congressional Democrats forced this obligation into George W. Bush’s final four trade deals. But NAFTA 2.0, like the TPP, only sets that standard for the endangered-species treaty known as CITES. And, like the TPP, the conservation terms in NAFTA 2.0—except for new rules on fisheries—impose few real obligations.

Contrary to their expectations, progress was made on the environmental groups’ top priority, ISDS, and the new text meets their demand to eliminate NAFTA terms that forced countries to continue exporting natural resources they sought to conserve. These “proportional sharing” rules required the continuing export of oil, gas, timber, and even lake water based on previous years’ export levels.

NAFTA 2.0 also reverses the original NAFTA’s requirement that trucks from all three countries must have access to all North American roadways regardless of environmental and safety concerns. When the United States limited access to Mexico-domiciled trucks after investigations found widespread violations of US safety and emissions standards, a NAFTA tribunal authorized sanctions on $2.4 billion in US trade. NAFTA 2.0 reestablishes US discretion to limit access and impose strict standards.

One way in which NAFTA 2.0 is dramatically worse than the original is the addition of a slew of new monopoly rights for pharmaceutical corporations that would help them avoid competition from generic products and keep medicine prices high. Among other dangerous terms is a requirement that countries grant 10 years of marketing exclusivity—that is, longer monopoly protections—for biologic medicines.

These terms would not only lock the United States into a terrible system that keeps such medicines—including cutting-edge cancer treatments—hideously expensive; it would also export that system to Canada and Mexico. Eliminating or reducing the current US 12-year exclusivity protection for biologics has been a priority for advocates of affordable health care. Mexico now provides no extra exclusivity rights for biologic medicines, while Canada allows eight years. If the 10-year provision is not excised from NAFTA 2.0, people across North America could be denied access to lifesaving medicines.

Focus on widespread public anger over health-care costs helped propel the Democrats to victory in the midterm elections, so eliminating the Big Pharma giveaways in NAFTA 2.0 will be crucial if the final package is to win a majority in the House next spring.

If the balance of good, bad, and incomplete in the NAFTA 2.0 text weren’t confusing enough, consider that for the first time, the new agreement would condition market access on meeting a set wage level. For vehicles to qualify, for example, 40 to 45 percent of their value must be made by production workers paid $16 an hour or more on average. There are limitations to this requirement, including the lack of inflation-adjusted increases in wages. But it sets an important precedent. How it would affect production-location decisions and wage levels remains unclear, because only the automakers have the supply-chain information needed to calculate what changes might be required to meet the new rules.

The wage standards are part of NAFTA 2.0’s improved rules of origin, or ROO, which determine whether products qualify for NAFTA’s tariff-free access to markets (goods with significant Chinese and other non–North American value now do). NAFTA 2.0 raises the ROO for autos to require that 75 percent of a car’s value be produced in North America. NAFTA required 62.5 percent (and the TPP required only 45 percent).

Beyond autos, NAFTA 2.0 strengthens NAFTA’s ROO in ways that the Labor Advisory Committee concluded should increase production and employment in North America. Strict rules of origin are also essential for labor and environmental enforcement, because they limit the value of inputs that do not meet those standards.

NAFTA 2.0 also includes first-time terms on the distortion of currency values to gain trade advantages. This is an important precedent for future pacts with countries where, unlike Canada and Mexico, this is a big problem. But the new terms provide no means to stop or discipline cheating. The only enforceable obligation requires countries to provide information on currency practices.

Many other NAFTA 2.0 terms are unchanged from NAFTA or replicate bad rules now in place in the WTO. For instance, despite Trump’s “Buy American” rhetoric, the new deal maintains NAFTA’s waiver of rules that would otherwise require the US government to procure US-made goods. This is a tricky problem to fix: The WTO provides Canada with even broader waivers of such requirements than NAFTA. But without changes, tax dollars and US jobs will continue to be outsourced rather than reinvested to create jobs at home.

Other NAFTA 2.0 chapters include an array of constraints on non-trade policy that progressives have long criticized in NAFTA and the WTO as undermining domestic consumer safeguards. For example, while strong opposition from members of Congress derailed a proposal that would have forbidden countries from requiring consumer warnings on sugary drinks and fatty snack foods, the chapter on food standards otherwise reflects the demands of agribusiness. It includes terms these companies have pushed into US law and practice that undermine consumer health and safety.

Whether a final NAFTA 2.0 package could end some of NAFTA’s continuing damage will only be clear once a final text and the implementing legislation are complete, likely in the spring of 2019. This is why the fight over NAFTA 2.0 is far from over.

The powerful corporate coalition that opposes the whacking of the ISDS tribunals and the inclusion of other progressive demands in NAFTA 2.0 hopes to reverse those gains before a vote. If we are to stop such rollbacks and incorporate the necessary improvements, such as on labor enforcement and the Big Pharma giveaways, the public must get engaged and put pressure on Congress.

Reflexively opposing any new agreement because the renegotiations occurred under Trump is a big mistake. Whatever the fate of these NAFTA negotiations, we must continue to fight for a truly progressive trade model that puts people and the planet first. But if the final NAFTA 2.0 package really could improve people’s lives, then opposing it would not just be deeply unprincipled. It would also bolster the cynical efforts by supporters of the current neoliberal “free trade” model to exploit opposition to Trump by conflating his withdrawal from the Paris climate accord and other nontrade pacts with his opposition to the TPP and NAFTA. This approach posits neoliberalism—including “saving” NAFTA and reviving the TPP—as the policy alternative to Trump’s reactionary nationalism. If this ploy succeeds, it would threaten decades of work by progressives, even as NAFTA and the model it established are more vulnerable today than ever before.

Alternatively, if the final package doesn’t measure up, then opposition must be centered on why the revised agreement would not deliver on the critical mission of stopping NAFTA’s ongoing harm. Trump won in 2016 in no small part by focusing on people’s legitimate grievances with the devastation that the US trade model has wrought on communities nationwide. He exploited the infuriating reality that Democratic presidents have passionately promoted corporate-rigged trade deals and have been dismissive about their resulting damage. Ceding the mantle of trade reform to Trump would be a political error of epic proportions. Next year, a battle royale will ensue over NAFTA 2.0. If progressives don’t engage strategically in that fight, the consequences could be devastating.

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