Behind the Virtuous Façade

The USMCA’s Restructuring of Mexico’s Labor Relations

By Mateo Crossa and James M. Cypher | May/June 2021

This article is from Dollars & Sense: Real World Economics, available at http://www.dollarsandsense.org

This article is from the
May/June 2021 issue.

Subscribe Now

at a 30% discount.

The United States-Mexico-Canada Agreement (USMCA)—the successor to NAFTA—commenced on July 1, 2020. As the first anniversary of the agreement approaches, too little is known, or knowable, as to what has been accomplished in terms of one of the agreement’s main objectives—the legitimation of Mexico’s labor relations. Over the past decade, Mexico has rapidly ascended the list of U.S. trade partners—achieving top status in 2019, edging out the world’s industrial colossus, China. As its export capacity in manufacturing rose—particularly in auto and auto parts production—so did the objections of U.S. unions and their allies to what can be understood as “social dumping.” That is, Mexico, unlike China, has kept its average manufacturing wage roughly constant—at about one-tenth of U.S. wages, on average—as exports soared in the NAFTA era (1994–2020). In great part the bloated profits from Mexico’s booming exports have flowed into the already swollen coffers of U.S. transnational corporations since most of the standout export firms are owned by U.S. capital, thereby accelerating deindustrialization in the United States.

Mainstream economists have never been able to come to terms with the adverse distributional impacts of NAFTA in both the United States and Mexico, or with their erroneous projections of its effects. They have failed to understand that it was never a “free trade” deal. Rather, it was an investment project designed to evade U.S. union wages in manufacturing and undermine organized labor’s power.

As U.S. workers were undermined by capital’s end-run around U.S. labor unions, the chickens eventually came home to roost in a strange scenario during the presidential campaign of 2016. The candidate for the Democratic Party was hopelessly implicated in NAFTA’s anti-labor project, while the Republican candidate (representing a party deeply committed to thwarting any and all attempts by labor to organize) bleated endlessly that NAFTA had been the worst international agreement ever because it undermined U.S. workers. It worked. Once in power, the Republican leader blunderingly focused on sculpting a new agreement—the USMCA. Now, the time has come to look behind the soothing façade of the agreement: We find that a monumental process of restructuring Mexico’s labor relations is either being implemented—or avoided. If it’s implemented, the United States intends to exercise a high level of control over the Mexican labor movement. And—despite claims by the AFL-CIO that they will raise wages for Mexican workers and otherwise empower them—the available evidence suggest that Mexico’s oligarchy will continue to have the upper hand over labor, and U.S. and transnational corporations will continue to have happy access to a vast army of low-wage Mexican workers.

USMCA Targets Mexican Labor Unions

The labor provisions of the USMCA mandate the creation of three key U.S. government-financed institutions. First, the U.S. Trade Representative (USTR) has established the Interagency Labor Committee for Monitoring and Enforcement. This committee will bring together representatives from across the U.S. government (such as the Secretary of the Treasury) to “monitor” the changes that the USMCA will impose on Mexico’s collective bargaining process. Strangely, the USTR claims that monitoring Mexico’s labor rights is a power that the U.S. government has the legal right to exercise, so it is allowing the committee to act without Mexico’s consent. Second, putting these preferences and decisions into effect involves the participation of the Independent Mexico Labor Expert Board (IMLEB). And, third, the Rapid Response Labor Mechanism (RRLM) is designed as the policing agent to enforce the labor provisions of the USMCA.

The IMLEB is charged with annually reporting to and advising the Interagency Labor Committee on matters pertaining to the implementation of Mexico’s 2019 labor reforms, which mandated that all collective bargaining agreements would be based on a free and fair vote by the majority of union members. The Board also has the power to determine whether Mexico is complying with USMCA-mandated labor regulations.

In November 2020, the Board filed its first annual report—an extensive document filled with repeated charges that Mexico’s unions, its corporations, and its government are jointly complicit in many instances of corrupt practices that must be eliminated. Yet, under the provisions, while Mexico is being pressured to eradicate a range of shady, entrenched practices, U.S. unions are exempt from any oversight that would call into question a long record of corrupt practices that have occurred on several occasions. For example, in 2020, 15 members of the top leadership of the United Auto Workers’ (UAW), including two past UAW presidents, pleaded guilty to fraud and embezzlement charges. Such acts of commission are often to be matched by practices of omission—such as the negligent and passive stance of the U.S. cannery workers union (which is part of the United Food and Commercial Workers International Union) as it largely stood by as Covid-19 swept meatpacking plants in 2020. Thus, the USMCA is structured as an asymmetric exercise in U.S. power—Mexican labor policies and practices are to be placed in the spotlight, while U.S. unions (and capital) are allowed to continue with “business as usual.”

The main complaint of the IMLEB, as expressed in its first annual report, is that an estimated 85% of all union contracts in Mexico do not have worker input. These collusive arrangements are known in Mexico as “protection contracts” because they are designed to control the labor force in a non-representative arrangement wherein Mexican-based corporations maintain their own pliable Mexican “labor leaders” to ensure that worker militancy is suppressed. Yet the Board made no mention of the top U.S.-owned exporting firms, including the “Big-Three” auto corporations that accounted for nearly 10% of Mexico’s exports in 2015. These companies (Chrysler—now “Stellantis,” Ford, and G.M.) have long enjoyed the vast financial benefits arising from their collusions with Mexico’s (too often) counterfeit labor leaders.

The new labor provisions apply particularly to “Covered Areas”—those that assemble and manufacture products that are traded within the USMCA countries in “Priority Sectors,” such as autos and auto parts, electronics, mining, steel and aluminum, and aerospace. Any complainant would take their issues to the RRLM. This consists of a six-person panel of U.S. nationals who are to speed up any necessary action that will force a targeted plant in Mexico to correct any and all violations relating to “freedom of association” and discrimination. This will include site visitation for monitoring/scrutinizing the workplace. Mexico also has a six-person Rapid Response panel, but it does not have a mandate to ferret out inappropriate collective bargaining practices in the United States. Rather, it is to examine and prosecute/sanction Mexican unions, using formal reviews and dispute resolution mechanisms.

This new structure, according to the AFL-CIO, will raise wages in Mexico, thus reducing the incentive of U.S. companies to shift production to Mexico. Presumably, if Mexican workers were represented by elected unions, these unions would force up wages. But, were this to be the case, acting together to realize the dreams of the USMCA formulators, Mexico, the USTR, and the AFL-CIO would kill, or wound, the goose that lays the golden eggs. This is the money-making machine that transfers value from Mexico-based factories operated with underpaid Mexican workers to the coffers of transnational corporations. It is not only U.S. companies (or any foreign-owned companies) that objectively stand to lose from this arrangement—thousands of Mexican corporations, representing the financial interests of Mexico’s powerful oligarchy, have a large material stake in the status quo since they too use low-wage workers to operate their factories, which are frequently supplier firms to large U.S. transnationals.

Money, Money, Money

It may not come as a total surprise that any restructuring of Mexico’s labor processes in the “Covered Areas” will be a costly endeavor. On the U.S. side, in 2020, about $50 million was extended to a variety of organizations by the U.S. Department of Labor to implement the USMCA’s labor provisions. A considerable amount went to nongovernmental organizations (NGOs). Over the past several decades, powerful governments have often found that when they are engaged in exercising their influence abroad it is prudent to not leave fingerprints. Thus in 2020, or earlier, to bring the USMCA into full force, the Labor Department deployed the Solidarity Center (allied with the AFL-CIO), Partners of America, the Pan American Development Foundation, and IMPAQ International—all probably virtually unknown outside of the NGO money-mill of Washington, D.C.—to help implement the new structures mandated by the USMCA. The Labor Department’s Bureau of International Labor Affairs has also provided funds to hire three new “labor attachés” to be housed at the well-guarded U.S. embassy in Mexico City. There they will, presumably, work quietly and closely to see that Mexico is in compliance with the labor provisions of the USMCA.

In total, between 2020 and 2023, U.S. outlays as provided by the Department of Labor and the USTR will add up to approximately $300 million as “implementation advances.” That might seem like a mighty sum, but it pales in comparison with Mexico’s obligated expenditures to set up new institutions to monitor and evaluate labor processes in the Covered Areas: according to Section 714 of U.S. Public Law 116–113 (also officially known as the “United States-Mexico-Canada Agreement Implementation Act”), Mexico must budget and spend $176 million U.S. dollars in 2021, $325 million in 2022, and a further $328 million in 2023. Full compliance is to be reached by May 2, 2023. As scheduled, the effort to legitimate all collective bargaining agreements in the Covered Areas will proceed on a state-by-state basis, through three stages. The very large exporting states would reach compliance only in late 2022, or shortly thereafter, to meet the May 2, 2023 deadline.

In total, then, the United States has presented Mexico with a nearly $1 billion bill. Consider that, at the minimum wage, $1 billion would employ, full-time, more than over 500,000 poor Mexicans for an entire year! So, Mexico is to spend an outsized amount of money in order that, according to the USTR and the AFL-CIO, Mexican workers’ wages in the Covered Areas would rise to the degree that U.S. corporations would be disinclined to further move their plant operations to Mexico. Does this all sound a bit like the zany idea that the United States would build a costly, insurmountable, wall along the U.S.-Mexico border and then demand that Mexico pay for it (a major and popular plank in the Republican Party’s program during the 2016 presidential election)?

South of the Border

We estimate that there are nearly three million Mexican workers in the Covered Areas toiling to manufacture traded products—many of whom slog away for less than $1 U.S. dollar per hour. These employment numbers are on the rise: in late 2020, as Covid-19 took a deadly toll, in Ciudad Juarez and Tijuana taken together, the number of maquila workers jumped by approximately 60,000. U.S. capital, at least at these crucial sites, has thus strengthened its leverage over Mexico right up to the moment, just as Mexico has sunk into the pandemic morass. (See Mateo Crossa and James M. Cypher, “Essential—and Expendable—Mexican Labor,” D&S, July/August 2020.)

Mexico’s neoliberal economic model—ever-refined over the past 40 years—has hinged on low-wage manufacturing as its competitive advantage, and the country’s average wages are now far below those of China. The neoliberal program has combined many policies, foremost of which has been an aggressive anti-labor initiative that has resulted in the stripping away of unions that once legitimately represented the collective interests of their members. Since the early 1980s, the level of unionization has fallen, in lockstep with several waves of privatizations in state-owned firms, while at the same time, the incursions of transnational corporations seeking protection contracts has meant that those who remain unionized are bereft. As a result, approximately 29% of the workers in the “formal” private-sector labor force are registered union members. (A collective bargaining agreement is a possibility if a work site has a minimum of 20 workers. Mexico’s economic structure consists of a few giant firms, and a modest number of medium-sized firms, with nearly all operations employing fewer than 20 workers.) The qualitative decline in Mexico’s unions can be noted indirectly as official strikes-per-year numbers have plummeted (particularly in the years after NAFTA was implemented): in 1982 there were 1,685, while in 2013 there were none.

Today, a relatively small share of organized workers in the labor force is to be found in what is known as “red” unions—those tied to the legacy of the post-revolution corporatist era. That is, from the late 1920s onward until roughly 1987, a top-down “corporatist structure” was used to “stabilize” Mexico. Each sector of the society had their “representatives”—peasants (then the largest group) intermediated their objectives with the state through the National Peasants’ Confederation (CNC). Workers—a fast-growing and powerful group, intermediated their interests through the Confederación de Trabajadores de México (Confederation of Mexican Workers—CTM). During this corporatist era—which was then overthrown by the audacious neoliberal president Carlos Salinas and his U.S.-educated technocratic cadres (1988–1994)—a few other worker-based organizations, such as the lesser-known, long-established Confederación Revolucionaria de Obreros y Campesinos (Revolutionary Confederation of Workers and Peasants—CROC) or the Confederación Regional Obrera Mexicana (Regional Confederation of Mexican Workers—CROM) played a minor role in representing labor’s interests within the centralized state apparatus. These unions, once largely giving voice to workers’ socioeconomic needs, made their peace with the dog-eat-dog ethos of neoliberalism and now avidly pursue employers’ interests and their own leaders’ personal fortunes (through padded salaries and various indirect and untraceable payoffs). Another cluster of organized workers are in so-called “white” or company unions. Such organizations were originally developed from 1936 onward by the Monterrey-based oligarchs through their Federación Nacional de Sindicatos Independientes (National Federation of Independent Unions—FNSI). FNSI now has nearly 250,000 members, and they claim national leadership in the current drive to “legitimate” collective bargaining agreements through a free, transparent ratification vote by all union members as specified by the USMCA labor provisions.

Importantly, there are also authentic independent unions in operation, some affiliated with the Unión Nacional de Trabajadores (National Union of Workers—UNT). Yet, showing the reach and inculcation of neoliberal doctrines, most of these independent unions have fallen into the trap of centering their negotiating clout on meeting hard productivity targets as set by employers—once known as a “speed-ups”—and they have allowed a range of “flexible” contractual agreements to flourish while making space for a certain amount of subcontracting to enter the workplaces where they operate. Beyond the now neoliberal formerly corporatist unions and those who coquettishly maneuver with and, sometimes, around big capital (national and transnational) there exists an urgent need for more and better independent unions. But any steps to establish one are always met with the aggressive and repressive structures that the peak business and employer organizations—such as the notorious, ideologically-charged Confederación Patronal de la República Mexicana (Employers Confederation of the Republic of Mexico—COPARMEX), which represents 36,000 employers that account for roughly 30% of Mexico’s GDP—have built to derail authentic organized labor power. These entities are ready and willing to do whatever it takes to prevent the existence of any and all negotiations that would reduce their dominance.

Wildcats Roam the Border

Nevertheless, in spite of the overwhelming odds against them, workers have recently participated in labor struggles in many different corners of the country. These events, however limited, have called into question the underlying basis of Mexico’s labor policies as well as the functioning of the export-led model that has left them high and dry.

Although the list of labor stoppages in the last few years is long and conditions have varied, some of these indicate a drift toward worker-coordinated social resistance wherein they have managed to bring together multiple spontaneous or “wildcat” strikes, thereby generating a common, short-term insurgency affecting a number of companies simultaneously. This was the case in 2015 in Ciudad Juárez, when an avalanche of hundreds of workers from many maquiladora plants brought production to a dead stop—thereby stepping around their bureaucratic labor “representatives” as well as the entire long-established corporatist (now neoliberal) labor structure. Echoing the anarchist traditions that greatly contributed to the Mexican Revolution (approximately 1910–1920) the red and black flag—known universally throughout Mexico—was hoisted once again as a public signifier of demands to increase the wage rate as well as to democratize unions and halt numerous forms of on-the-job harassment and discrimination. Subsequently, in 2019, an enormous work stoppage occurred in the northern state of Tamaulipas, especially in the city of Matamoros, temporarily bringing nearly 50 auto parts and electronics plants to their knees in a bid to impose a wage hike across all impacted workplaces. In this case, thousands of workers took control of the factories as well as the city streets, leaving the all-powerful exporters with nothing to ship to the United States and thereby closing off the supply chain of the automobile sector in the United States. The now-uncomfortable union “representatives” had no choice but to respond to the common interests of the factory operatives. All in all, in 2019, a trend reversal occurred—76 strikes were registered across the nation, 38 of them taking place in Tamaulipas.

In some of the most harrowing days of the pandemic in 2020, only days before the USMCA was to be put into force, once again thousands upon thousands of workers in different parts of the country put down their tools to protest the deaths of their compañeros as employers adopted a work-till-you-drop approach to Covid-19. Dozens of plants, from the arid north to the tropical south, were forced to shut down as workers demanded some hygiene protection and/or time off with full pay. Every one of these labor uprisings started at the bottom; the unions thought of nothing and did nothing. Nor were these workers supported in any way by political parties.

(As an important comparative aside, we note that this was also largely the case in the United States where, at best, some unions wrung their hands a bit: Other than some nursing unions that promoted job actions, including a few strikes, and a Teamster initiative to force paid leave for infected employees of the shipping giant UPS, the silence from U.S. unions was deafening. Most of the few work stoppages that did occur arose spontaneously from unrepresented workers and any gains were limited.)

These events were truly unprecedented in scope and intensity as humble workers collectively and spontaneously became protagonists. These seemingly untoward events provoked a wave of fear which swept across some of the largest, most powerful corporations in the world. It constituted a shift exactly opposite to what was anticipated as the USMCA went into effect: the USMCA was designed by U.S. policymakers to open ever-wider the options for U.S. capital to run the table in Mexico, but the wave of wildcat strikes illuminates the fragility of their situation.

Filling this void, then, has been the task of the office of Mexico’s Secretary of Labor which has, with some success, inaugurated, as of November 2020, an all-out push to “legitimate” all of the union contracts for the Covered Areas. Unions and management are now setting aside a part of a workday to have every worker vote to endorse, or reject, the contract. In the case of the giant CTM (4.5 million members), they claim that the majority of their 114 so-far “legitimated” collective bargaining contracts have been endorsed unanimously. As of mid-March 2021, the Mexican newspapers have not, apparently, found any cases where workers have turned down their contracts through the secret-vote legitimation process. Given that 80% of the 200,000 collective agreements are regarded as protection contracts, the fact that—to our knowledge—no existing contract has yet been rejected is astonishing. According to an anonymous source in Mexico City who is involved in this “legitimation” process, CTM officials have quietly told workers that “if you vote ‘no,’ you will not have a contract.” Technically, this is true. But it leaves out the fact that the new labor law would permit these workers to maintain all their contract-won benefits while they vote in a new union. Workers, even in the unlikely event that they know of such provisions in the new labor law, would reasonably fear that voting no would mean they would lose such benefits. Experience tells them that lofty promises are almost never fulfilled. Since all contracts in the Covered Areas have to be ratified by the workforce by May 2, 2023 (as noted), perhaps only those with some underlying legitimacy have been put to the test so far. Yet, as the Secretary of Labor has stated on several occasions, the entire purpose of this exercise is to validate Mexico’s labor relations and thereby provide a guarantee to foreign capital of the stability of their investments and the attractiveness of further ventures in Mexico.

A Happy Ending for Whom?

Neoclassical economists are rarely hesitant to make predictions and are almost never held to account for the fact that their predictions—based in “economic science” as they claim—are usually wrong by an extreme magnitude. Readers might want to review the major predictions made by U.S. economists in the early 1990s with regard to NAFTA: the most widely cited account was offered by Gary Clyde Hufbauer and Jeffrey J. Schott in their 1992 book, North America Free Trade, in which they predicted that in the year 2023, Mexico’s living standards would be higher than the level established in the United States in 1988! In fact, the official poverty rate in 2018 was 49%. Poverty (expressed in 2020 prices) for an urban individual, according to official data compiled by the Consejo Nacional de Evaluación de la Política de Desarrollo Social (the National Council for the Evaluation of Social Development Policy—CONEVAL), would be an annual income below $1,922 U.S. dollars.

We would not like to join this group of economists by asserting any particular outcome with regard to how the labor provisions of the USMCA will be implemented and consolidated. Yet, since what the AFL-CIO and the office of the USTR conjured and now seek to impose on Mexico is nothing less than an institutional change, we note that institutional economists—those who are hostile to neoclassical formulations and follow the path opened by U.S. economist Thorstein Veblen—have developed over many decades a theory of institutional change. Their important conclusion is that, when and if such change occurs, the economic and social forces that structure the overall economy—those to whom Veblen referred to as the predatory “captains of industry and finance” who operate the system of “absentee ownership and business enterprise”—will do their utmost to maintain the status quo. However, if they are compelled by circumstances to accept institutional change, it will come in the form of minimal displacement as the “vested interests” sculpt such change to serve their own objectives.

All the elements that would tend to confirm that Mexico’s power elite is well on the path of outmaneuvering the United States through a strategy of minimal displacement have been set in motion. Consider the context: For 300 years, Spanish rule inculcated a process of “organizational inertia” within the system of colonial governance in Mexico. Those strategies of local resistance were famously encapsulated in the saying “I obey but I do not execute.” Colonial subjects responded to the demands imposed by Spain’s colonial system in a manner that suited them, not Spain. It does appear that this is the approach that Mexico’s oligarchy has adopted with regard to the USMCA’s labor provisions. The art will be to both “consent” to U.S. intervention and at the same time to consciously and deliberately fail to “execute.” The available evidence indicates that there will be no remaking of the most vital Mexican institution (cheap-labor-based export assembling industries) in order for it to conform to the idealized conceptions of the USTR and the AFL-CIO as to how labor relations should “properly” be constructed abroad.

Mateo Crossa is a research professor at the Instituto de Investigaciones Dr. José María Luis Mora in Mexico City, México.
James M. Cypher is an emeritus professor in the Doctoral Program in Development Studies (UAED) at the Universidad Autónoma de Zacatecas, México.

Did you find this article useful? Please consider supporting our work by donating or subscribing.