Levin Testimony at USTR NAFTA Hearing

Jun 27, 2017 Issues: Trade

WASHINGTON, D.C. – Rep. Sander Levin (MI-09) today gave the following remarks during the U.S. Trade Representative’s hearing on NAFTA renegotiation:

(remarks as prepared)

“Some come before you today with the view that NAFTA needs a tune up.  While I agree we need to address some issues that were not part of the trade debate two decades ago, I come before you as someone who believes that NAFTA needs a major overhaul.  And re-negotiation must start with the core issue it failed to get right over twenty years ago: labor standards.

“When NAFTA negotiations started we were on the front side of a new era of globalization.  Up until that time, most of our trade was with developed countries with economic systems more or less like our own. NAFTA represented something different – the first major trade agreement with a developing country where the conditions and standards were far different than those here.  

“Unfortunately, the concerns of those of us who opposed NAFTA – that without fully enforceable and fully enforced labor and environmental standards – we would just experience a rush to the bottom in search of the lowest wages – have come true.

“There is no denying that the job loss caused by NAFTA is in large measure because of the huge wage differential between the two countries.

“Consider the automotive sector which accounts for a majority of the trade deficit with Mexico.  Mexican workers are paid 19 percent as much of their unionized U.S. counterparts, and at about $2.40 an hour, auto parts workers earn even less.

“Auto sector employment in Mexico rose by 45 percent between 2007 and 2015, adding more than 200,000 hourly jobs, while the U.S. industry dropped 90,000 hourly jobs during the same period.  Indeed, the number of auto jobs in the two countries is now converging: 620,000 in Mexico and 715,000 in the U.S.  

“And with Mexico’s auto output projected to double to more than 5 million vehicles annually by 2020, more U.S. jobs are at risk.  To date, most of the production shift has involved small cars, but more profitable trucks and SUVs could also be increasingly affected.

“Automation is not the driving force, and we are not trading low level assembly jobs for better paying high technology jobs.  The opposite is true.  

“U.S. wages are being driven down by the depressed wages in Mexico. Why?  Because the entire Mexican labor system is designed to prevent workers from obtaining their rights and bargaining for better wages and working conditions.  It’s a system built around a government policy of suppressing workers’ rights to encourage investment.

“An Agreement that was sold on the premise that it would improve conditions in Mexico and build a customer base to buy our products has failed.  Between 1994 and 2011, wages and benefits for Mexican workers actually slid 20 percent while at the same time Mexican manufacturing productivity increased 80 percent.

“If we do not address this major distortion in the marketplace, NAFTA will not be any different.  

“And it will fail to get the votes to pass in Congress.  The majority of Democrats in the House opposed NAFTA for this very reason over 20 years ago, so we will be together in our insistence that the Mexican labor regime must be totally scrapped and re-built from the bottom up.

“As one of the authors of the May 10th agreement on labor standards, I know that it was a ground breaking achievement because it was breaking the strangle hold of badly outdated 19th century economic theory on free trade.  As you know, May 10th requires countries to adopt, maintain and enforce a number of basic international labor standards, including the right to collectively bargain, and environmental standards.  

“May 10th is the standard, but work must be put in now to achieve that standard.  Mexico is so far out of compliance with May 10th that during the re-negotiation they must dismantle their current system.

“In Mexico, the government, the union which is an arm of the majority political party, and often the employer are in collusion to create and maintain a sham system of so-called “protection contracts.”  

“A May 5, 2017 Bloomberg article highlighted a recent example of an entrenched system of protection contracts that can “trace their roots to the 1930s.”  I am attaching the article to my testimony, but let me read a key section:

At a ceremony at Mexico’s Los Pinos presidential residence in July 2014, BMW Chief Executive Officer Harald Krüger pledged to spend $1 billion to build a factory in the northern state of San Luis Potosí that will employ 1,500 workers. To mark the occasion, he presented President Enrique Peña Nieto with a model of a silver BMW race car.

The German automaker had unwrapped its own gift two days earlier, a labor contract signed by a representative from the state chapter of the Confederación de Trabajadores de México (CTM), the country’s largest union confederation, and notarized by a Labor Ministry official. The document, which Bloomberg reviewed, sets a starting wage of about $1.10 per hour and a top wage of $2.53 for assembly-line workers.

 

The starting rate is only a bit more than half the $2.04 an hour that is the average at Mexican auto plants, says Alex Covarrubias, a lecturer at the University of Sonora in Hermosillo. 

The paperwork was filed two years before BMW broke ground on the new plant, which will turn out $45,000 3 Series sedans. When workers begin to stream into the factory sometime next year, there’s a good chance most won’t know they belong to a union.

So-called protection contracts— agreements negotiated between a company and a union that doesn’t legitimately represent workers—are illegal in the U.S. and Germany. But Lance Compa, a senior lecturer at Cornell’s School of Industrial and Labor Relations, says they’re standard operating procedure in Mexico, where deals are cut factory by factory rather than collectively across a company or industry. Experts say this is a primary reason that wages in the auto sector have stagnated in recent years, despite a fresh wave of investments by foreign carmakers, most recently by German and Japanese manufacturers.

Mexico’s union bosses and politicians are more interested in keeping corporations happy than in raising the living standards of workers, Covarrubias argues. Protection contracts are a way to keep wages artificially low,” he says.

“NAFTA re-negotiation must insist that every protection contract is eliminated and that workers are able to bargain collectively for a new contract. 

“In addition, Mexico’s system of labor boards, which are responsible for registering unions, approving strikes, and resolving labor disputes, is inefficient, politicized and corrupt.  

"The Conciliation and Arbitration Boards (CABs) stand as a major barrier to reform.  They are biased and render non-independent decisions governing the rights of workers and unions.  

“And, while steps have been taken to change the Mexican constitution, those steps are far from complete and it is not clear the type of body that will replace the CABs. 

“To change this entrenched system that distorts competition between our two nations, May 10 must be a reality on the ground in Mexico.  That means much more than ensuring the language is in a renegotiated NAFTA.  We have seen the shortcomings of that approach in Colombia where labor conditions remain horrendous and there is no plan to insist they comply now that the FTA is in force.

“Change to Mexico’s labor regime is not an issue for the time period after Congress votes and before the agreement comes into force.  It is an issue for now.  Any other approach will not even enable you to call NAFTA re-negotiated, and it will be vigorously opposed in Congress and in America’s heartland.

“Finally, there are certainly other important issues in any re-negotiation.  Issues like investment, currency, Rules of Origin, environmental standards, Buy America, intellectual property, including medicines, are important and I will be saying more about them during this 90 day period.

“But if the Administration doesn’t move past its current rhetoric that any changes to labor laws in Mexico might be difficult and run into issues of another country’s “sovereignty,” your efforts at re-negotiation will stall.

“The re-negotiation of NAFTA took on a new urgency with the news last week that Ford Motor Company would build the Focus in China and import it to the United States rather than doing so as previously planned in Mexico. 

“The implications of this move for both the path of globalization and the United States are worrisome and it makes the effective re-negotiation of NAFTA all the more important. If you fail to address an issue at the core of the debate over shaping globalization so that it is not built on the backs of workers, we will not be in any position to address the threat posed by China.

“We must not miss this opportunity to use a new NAFTA as a model for addressing labor rights as part of global trade.  If we finally get it right with NAFTA, we can move on through the global trading system and seek to address labor conditions perpetrated by government policies as an unfair subsidy that is actionable under U.S. laws.

“Thank you for your time today.”

 

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