WASHINGTON—The U.S.–Mexico–Canada trade pact (USMCA) has strong labor rules, which makes the deal an important milestone for international trade.
The new deal is “a significant accomplishment” for President Donald Trump, according to Edward Alden, a senior fellow at the Council on Foreign Relations. In an article originally published in Politico Magazine, Alden slams critics who say the new agreement is a minor update to the North American Free Trade Agreement (NAFTA).
Trump succeeded in altering the agreement in ways that Democrats and unions for years have longed for, he argues.
“The unions have opposed every major trade deal for the last 40 years, except the 2000 agreement with tiny Jordan that set a new benchmark on labor standards and most Democrats have followed their lead,” Alden wrote. “But with the new NAFTA, President Trump has done more to address their concerns than any Democratic president ever achieved.”
Rules of Origin
The new “rules of origin” on cars is a significant improvement to the old trade agreement, trade experts say.
These rules incentivize the use of high-wage manufacturing labor in the auto sector. The agreement requires a significant portion of the content of cars to be made by workers earning $16 an hour. This will allow more vehicles to be produced in the United States and Canada, since the average manufacturing wage in Mexico is about $2.30 per hour.
The agreement also requires all partners to comply with International Labor Organization labor-rights standards. The agreement’s labor provisions mainly target Mexico. For example, the agreement requires Mexico to make it easier for workers to have unions and collective bargaining rights. It also states that each party should provide acceptable conditions of work with respect to minimum wages, hours of work, and job safety and health.
These conditions will make Mexican workers less competitive against U.S. and Canadian workers.
According to Alden, another win for labor unions is that the deal limits the so-called investor-state dispute settlement (ISDS) provisions of NAFTA. ISDS allowed multinationals to sue states that issue new regulations that affect their operations. According to critics, ISDS has been used to challenge workplace protections. Conservatives have also criticized it for challenging U.S. sovereignty.
‘Worst Trade Deal’
The Economic Policy Institute (EPI), a left-leaning think tank, criticized the old NAFTA as paving the way for American firms to transfer high-skilled, high-wage jobs to Mexico.
“The lack of strong, effective, and enforced labor provisions in U.S. trade agreements is one of many reasons why U.S. workers are competitively disadvantaged in the global economy,” EPI said in a report.
After months of talks, the United States, Canada, and Mexico agreed on Sept. 30 to sign a new trade deal to “terminate and replace” the 24-year-old NAFTA. With its strong provisions, the USMCA has become a “playbook for future trade deals,” said a senior administration official.
Trump called the deal “a historic win for U.S. manufacturers and American autoworkers who have been treated so badly.”
“I have long contended that NAFTA was perhaps the worst trade deal ever made,” Trump said during a Rose Garden ceremony in the White House on Oct. 1. “We’ve lost so many jobs, over the years, under NAFTA.”
Trump praised the USMCA for having “the most advanced protections for workers ever developed.”
He said it will discourage companies from firing their workers and building cars elsewhere.
“There’s no longer that incentive,” he said. “Those days are over.”
In his speech, Trump also touted the revised U.S.–Korea Free Trade Agreement that was signed last month. He called the previous agreement crafted by the Obama administration “a horrible, horrible deal.”
“When that deal was signed, they said 250,000 jobs will be given—by signing this transaction, and they were right,” Trump said. “They were right: 250,000 jobs to South Korea, not to the United States.”