By: Fernando González-Rojas
Some defenders of the recently launched NAFTA renegotiation process believe that the prevalence of low wages in Mexico has ‘stolen’ jobs from United States, diverted direct investment towards Mexico and rendered made-in-the-U.S.A. goods uncompetitive in terms of price vis-à-vis Mexican products. Therefore, in their view, NAFTA should be modified to force the Mexican Government and entrepreneurs to increase salaries in their territory in order to stop a practice commonly known as ‘labor-dumping’, i.e. gaining a larger share of the market by reducing their labor costs.
Most trade experts would agree that forcing Mexico to increase its minimum-wage level through the insertion of an express obligation in NAFTA would be unfeasible. First of all, Mexico’s economy would most likely be unprepared to resist such a drastic adjustment. In addition, the Mexican Government would certainly face fierce opposition to the acceptance of that obligation from very influential sectors of its economy. It is perhaps for this reason that none of the delegations has formally advanced this proposal.
However, the unfeasibility of reforming NAFTA to impose a direct obligation on Mexico to increase its minimum-wage levels does not mean that other changes to NAFTA proposed by the Parties may not have the same effect in the long term. In my view, some of the labor-related reforms that have already been suggested by the United States and Mexico may actually result in minimum wage increases in Mexico in the long run.
In July, the United States Trade Representative (USTR) announced that one of the United States’ primary objectives for this renegotiation process is “that NAFTA countries […] adopt and maintain in their laws and practices the […] core labor standards as recognized by the [International Labor Organization, ILO] Declaration”, including “[f]reedom of association and the effective recognition of the right to collective bargaining”. Mexico’s list of objectives for the renegotiation of NAFTA also includes “strengthening compliance with domestic laws and international commitments on labor matters”. Thus, both countries have expressed their desire to adopt and comply with international labor standards, which include the protection of freedom of association and collective bargaining. Interestingly, for more than half a century all three NAFTA Parties refused to adopt the 1949 ILO Convention on the Right to Organize and Collective Bargaining (ILO Convention 98), which was only recently ratified by Canada.
The ILO Convention 98 imposes few yet very important obligations. One of those obligations is ensuring that employers cannot dismiss their workers, if they abandon their unions. For many decades, union-employer contracts in key sectors of Mexico’s economy included these so-called ‘exclusion clauses’, which impose an obligation on employers to discharge those workers who have been separated from their unions. This practice gave enormous power to union leaders who often colluded with the employers to accept very precarious working conditions for their members. Furthermore, exclusion clauses also cancel the possibility for independent workers’ organizations to negotiate separate deals with their employers.
In 2012, Mexico reformed its labor laws and eliminated the provision that expressly authorized the use of exclusion clauses in collective agreements. However, Mexico did not complement the removal of this authorization with an express prohibition of such practice. Consequently, the use of exclusion clauses in Mexico has not been entirely eradicated.
An important obligation contained in the ILO Convention 98 is the elimination of any “acts which are designed to promote the establishment of workers’ organizations under the domination of employers or employers’ organizations”. Another practice that has also been widely denounced in Mexico is the adoption of ‘protection contracts’, i.e. collective agreements between employers and fictitious or unrepresentative unions. This practice has also hampered the workers’ ability to see their interests reflected in their contracts.
The recurrence of both practices in Mexico, i.e. the use of ‘exclusion clauses’ and ‘protection contracts’, is demonstrated by the statistics on the application of the public communication mechanism (PCM) established under Article 16 of North American Agreement on Labor Cooperation (NAALC). The PCM allows workers’ organizations, NGOs and individuals to submit complaints before the national authorities of one of the NAFTA Parties about another Party’s alleged failure to enforce its labor laws. More than half of the submissions claiming Mexico’s failure to apply its laws precisely refer to violations of the workers’ freedom of association and right to bargain collectively.
Impeding workers’ ability to directly negotiate the terms of their contracts with their employers may be one of the reasons that salaries in Mexico have remained low. Thus, finally eradicating the use of exclusion clauses and protection contracts may significantly contribute to raising salaries in Mexico.
In 2015, the Mexican Government submitted the ILO Convention 98 for approval to Mexico’s Senate. However, this approval-evaluation process has not yet been finalized. Despite internal pressure exerted by some Senators and Congressmen who are members of left-wing parties in Mexico, the Mexican Senate has not issued a final decision on this matter.
As mentioned above, all three NAFTA Parties refused to adopt the ILO Convention 98 for decades. However, on 14 June 2017 Canada deposited the instrument of ratification of the ILO Convention 98 with the ILO Director General. During that act, Canada’s Minister of Employment, Workforce Development and Labour, The Honourable Patty Hajdu declared that “Canada looks forward to working with the ILO and [their] international partners towards ensuring that the rights of workers are respected both at home, and abroad” (emphasis added).
Consequently, there seems to be consensus among the NAFTA negotiators as to the convenience of strengthening the protection of the workers’ freedom of association and right to collective bargaining. This agreement may put pressure on Mexico’s Senate to finally approve the adoption of the ILO Convention 98. Ratifying this international instrument may provide an effective legal incentive to eradicating the use of exclusion clauses and protection contracts in Mexico. Rather than attempting to establish a novel regulatory scheme in NAFTA which may have an uncertain market effect in the region, the adoption of the ILO Convention 98 by the NAFTA Parties may be a more practical means of increasing salaries in Mexico and offsetting the phenomenon known as labor-dumping which concerns US negotiators.