TPP in Focus: Why Mexico’s Labor Standards Matter for TPP

Jul 10, 2015

This blog post is part of a series about the Trans-Pacific Partnership trade agreement.

The United States and Mexico have been free trade agreement partners for over 20 years, since the North American Free Trade Agreement (NAFTA) took effect on January 1, 1994. And yet, one of the most important outstanding issues in the Trans-Pacific Partnership Agreement (TPP) negotiations relates to a subject that was and remains an open sore left over from the debate and passage of NAFTA: Mexico’s severely deficient labor standards and worker rights.

The concern at the time of NAFTA’s consideration by Congress was that the low costs and low standards of Mexico’s labor market would take away from the United States manufacturing plants and manufacturing jobs.

The “Productivity Paradox”

Professor Harley Shaiken, Director of the Center for Latin American Studies at the University of California, Berkeley and long-time scholar of NAFTA, has observed that Mexico has faced a paradox of “high productivity poverty” – i.e., rising productivity in manufacturing that is accompanied by declining wages. Prof. Shaiken’s research has shown that, in the past two decades, the paradox has gotten worse; between 1993 and 2011, real wages for Mexican manufacturing workers fell nearly 20 percent while productivity rose nearly 80 percent.

The data illustrate these trends clearly, particularly in the auto sector. 

  • In terms of production, according to the Detroit Free Press, in 2014, Mexico’s share of vehicles manufactured in North America reached nearly 20 percent – double the level in 2004 – and is forecast to increase to 25 percent by 2020.
  • In terms of investment, in 2014, international automakers announced $7 billion of new investment slated for Mexico. There are 18 auto plants in Mexico with at least five more planned or currently under construction. 

Some credit Mexico’s network of trade agreements as the source of attraction for auto industry investment, noting that Mexico has agreements with over 40 countries while the United States has far fewer agreements. However, the vast majority of Mexico’s vehicle exports – nearly 80 percent – are destined for the United States and Canada. In 2014, industry analysts forecasted that, as early as 2015, Mexico could surpass both Canada and Japan to become the top exporter of vehicles to the United States.   

Undeniably, therefore, a very significant factor in Mexico’s ability to attract investment in the auto sector remains its low labor costs which, according to Prof. Shaiken’s research, have in real terms become even lower over time. As the Detroit Free Press reports, labor costs for the auto industry in the United States are currently between $40 and $60 per hour while costs in Mexico are less than $10. And, although Mexico’s production lost out to China’s in the 2000s because China had lower labor costs, wages in China’s coastal regions have risen around 19 percent a year meaning that Mexico’s labor costs, which have stayed flat, today are only slightly higher than China and in some instances nearly equal to China’s. 

It is this combination of high productivity and depressed wages in Mexico that serves, as Prof. Shaiken has described it, as a “beacon for investment.” 

Low Labor Standards

A key component of Mexico’s persistent productivity paradox is the lack of core labor rights in Mexico and the lack of any improvement in its labor standards. Workers who cannot form independent unions or bargain collectively in a meaningful way have no means to improve their working conditions or increase their wages.

As the Washington Post reports, workers in Mexico’s auto plants today find themselves with no recourse in conflicts with management. They are subject to retaliation, including firing and forced resignations, when they complain or seek improvements to their working conditions. They also face apathy by the state in enforcement and unresponsive union representatives.

Of course, Mexico’s labor deficiencies are systemic and extend beyond the auto industry. As mentioned in an earlier blog post, labor conditions in Mexico present serious concerns in light of the core, internationally-recognized labor rights

“Protection” Unions and Contracts

Freedom of association and the right to collective bargaining are severely compromised. There do exist a few independent unions in Mexico that are able to negotiate representative collective bargaining agreements on behalf of their members. However, “protection unions” –  i.e., unions that are subordinated to (and “protect”) employer and state interests – prevail in Mexico. The contracts that these protection unions conclude with employers, because they are not representative of worker interests but instead serve (and “protect”) employer or state interests, are considered “protection contracts” and not collective bargaining agreements. These contracts generally secure an arrangement between the employer and the union where the employer pays a monthly sum to the union in exchange for peace in the workplace. The terms of these contracts rarely provide for rights and benefits that go beyond the minimum of what is already required by law and they prevent workers from being able to choose any other bargaining representatives.

In fact, workers often do not know that there is a union at their workplace or that a contract between the union and the employer exists until they attempt to organize their own union and negotiate with their employers.  Currently, the law does not provide workers with the right to know either. It is estimated that up to 90 percent of collective agreements filed with Mexico’s labor authorities have been protection contracts. 

Biased Labor Boards

The obstacle that protection unions and protection contracts pose to freedom of association and the right to collective bargaining is compounded by the endemic anti-worker bias of Mexico’s Conciliation and Arbitration Boards (CABs). 

The CABs are the labor law enforcement authority in Mexico. They are tripartite bodies comprising representatives of: (1) the government; (2) management; and (3) labor. The CABs play a number of critical roles in labor relations in Mexico. They are the quasi-judicial courts that resolve disputes relating to labor organizing, collective bargaining, and strike disputes, as well as disputes relating to complaints by workers regarding compensation, leave, unjust termination, etc. They have the authority to intervene directly in negotiations and strikes in a workplace. They also play an important role in recognizing unions’ rights to bargain for contracts. 

However, Mexico’s CABs are captured by the state and management’s interests. Despite formally being “tripartite” in structure, workers do not have a say in who represents their interests on a CAB. The result is that the CABs are structurally biased in favor of the state and management. This is the case whether the CABs are acting in their quasi-judicial functions or in the administration of union recognition. 

According to the U.S. Department of Labor, “[t]he labor representative on the CAB generally represents the incumbent or majority union, usually a CTM affiliate. Therefore, at least one member of the CAB has a competing interest with any independent union seeking registration.” Given that the CTM (the largest confederation of unions in Mexico which is also closely aligned with the dominant political party, the PRI) is often behind the “protection” unions that are party to the protection contracts, the CTM’s presence on the CABs wholly undermines the ability of workers to challenge the legitimacy of a protection union, dispute the terms of a protection contract, or register an independent organization that has the direct support of workers.

Manipulation of the Union Registration Process:  “Toma de Nota”

Freedom of association and the right to collective bargaining are also undermined in Mexico by the “toma de nota” (“taking notice”) process that unions must go through in order to obtain official, legal recognition by the government. Mexico’s labor law requires unions to register with the labor authorities by submitting a number of documents, including minutes from the incorporation meeting, a list of members, the by-laws, and minutes from the meeting at which the board of directors was elected. Under the law, there are only reasons that a registration can be denied:  (1) the union’s objectives are not in accordance with the law’s requirements; (2) the union’s membership does not meet the minimum number required by law; or (3) the required documents are not submitted. While the process set forth in the law appears straightforward and ministerial, in practice, Mexico’s labor authorities exploit the law’s registration requirement to create delays (that can last for years), frustrate, and even ultimately reject (even when all legal requirements have been met) applications made by unions that the authorities disfavor. As a result, through the use of “toma de nota,” the government maintains its discretion and an absolute authority to prevent the legal recognition of any independent unions (or their leaders).

Forced Labor and Child Labor

The core international labor standards also call for the elimination of all forms of forced or compulsory labor and the effective abolition of child labor. However, forced labor and child labor are prevalent in Mexico. The Los Angeles Times investigated and reported on evidence of child labor, forced labor, and inhumane working conditions on Mexican farms growing produce destined for the U.S. market. The Los Angeles Times presented stark findings and observations of farm laborers trapped for months at a time in rat-infested camps; camp bosses who illegally withhold wages to prevent workers from leaving during peak harvest periods; and an estimated 100,000 children under the age of 14 pick crops for pay in Mexico. The problem of forced labor and child labor in Mexico is also annually detailed by the State Department and the Department of Labor.

Learning from the Past, Improving the Future

The net result of Mexico’s massive labor standards “fail” is that low cost labor in Mexico remains low cost and, in relative terms, is even lower now than before. The struggles of Mexico’s workers continue unabated. And U.S. workers are dragged down with them as the depressed wages in Mexico place a downward pressure on wages in the United States.

When President Obama was a candidate, he pledged to re-negotiate NAFTA to address this very issue. At the AFL-CIO Democratic Candidates’ Forum in August 2007, then-candidate Obama said that, as President: 

I would immediately call the president of Mexico, the president of Canada to try to amend NAFTA because I think that we can get labor agreements in that agreement right now. And it should reflect the basic principle that our trade agreements should not just be good for Wall Street, it should also be good for Main Street.

. . . And we’ve got to make sure that our agreements are good for everybody, because globalization right now is creating winners and losers. But the problem is, it’s the same winners and the same losers each and every time.

Today, nearly eight years later, the President and his Administration are negotiating the TPP – a trade agreement with eleven other countries that include Mexico as well as Canada. This is the President’s opportunity to re-negotiate NAFTA, to get it right this time. Meaningful changes need to be made, commitments need to be secured, and implementation needs to take place as part of the TPP that will address and improve Mexico’s labor standards. The stakes are high. Those who lost out last time should not be the same ones who lose out again.

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114th Congress