Using NAFTA 2.0 to boost wages in Mexico could be a ‘deal-breaker,’

Using NAFTA 2.0 to boost wages in Mexico could be a ‘deal-breaker,’ ex-Mexican officials warn

From Politico Pro By Megan Cassella

A push to increase wages and tighten labor standards in Mexico — one of the Trump administration’s top priorities in a modernized NAFTA — is likely to be a no-go issue for the Mexican government that has the potential to scuttle the renegotiation, two former Mexican negotiators warned on Tuesday.

“Wages, I think, should be out of any kind of discussions and should be a red line and a deal-breaker,” Francisco de Rosenzweig, a former deputy trade minister for Mexico who led the country’s negotiating team for the Trans-Pacific Partnership, said at an event in Washington hosted by the Wilson Center. The issue, he added, “should not be considered even as a possibility to negotiate.”

Mexico has instituted several labor reforms and improved its legal framework on labor issues since NAFTA was first negotiated, Rosenzweig said, adding that additional changes that Mexican President Enrique Pena Nieto submitted recently are still “on the way.” He described current labor provisions that were written in side agreements as positive developments, and said Mexico would be comfortable moving those provisions into the main text of an updated NAFTA agreement, as the U.S. wants. But going beyond that and tightening those standards would prove more difficult and could endanger the talks, he said.

“We don’t know what other provisions the U.S. may want to submit to Canada and Mexico, so we will take a look,” said Rosenzweig, who is now a partner in the Mexico City branch of the law firm White & Case. “But in the end, it’s about reaching balances,” he said. “It’s not only about the U.S. Congress. It’s about the Mexican [Senate] and the Canadian Parliament, too.”

The United States, in its detailed negotiating objectives, listed bringing those labor provisions into NAFTA’s core text as its top labor-related priority. But it also outlined nine other labor initiatives, including requiring countries to establish rules to enforce labor laws surrounding working conditions and minimum wages. The Trump administration also wants to ensure that NAFTA countries’ labor standards do not affect trade or investment between the parties.

Top U.S. officials have reinforced the point that labor standards in Mexico will be a primary topic of discussion throughout the talks, slated to begin on Wednesday. Back in June, U.S. Trade Representative Robert Lighthizer told members of the Senate Finance Committee that with regard to labor standards, “certainly they will be one of the very first things that we talk to them about.”

In an example of a potential negotiating point where labor standards would figure prominently, POLITICO reported earlier Tuesday that U.S. negotiators would submit a proposal during the first round of talks to make it easier for U.S. produce farmers by region to protest allegations of dumping on Mexico’s part. Many U.S. produce growers complain that the substantially lower labor costs in Mexico help its produce exports undercut the price of produce grown in the U.S.

While it is not known how the Trump administration may propose to achieve its priorities on labor during the talks, the concern is that “apparently Mexico is like the bad guy in the arena because we have lower labor costs,” said Luz Maria De La Mora Sanchez, a former official at Mexico’s Foreign Affairs Ministry who was part of the original team that negotiated NAFTA in the early 1990s.

“Wages in Mexico are lower than in the U.S. That’s a fact,” she said at the Wilson Center event. “The fact that that exists doesn’t mean we have an overt trade advantage.”

Mexico has to work hard to close that gap, she said, but doing so will require education, innovation, improvements in productivity — and not new trade agreements.

“My concern with respect to labor is that the U.S. comes up with a proposal that really tries to intervene in minimum wages and labor markets, which cannot be solved through a trade negotiation,” she said. “We have to be very careful on not offering solutions that may end up not getting us anywhere.”