Nineteen years ago, in 1998, the Made in the USA Foundation, with the United Steelworkers Union, challenged the constitutionality of the North American Free Trade Agreement (NAFTA) on the grounds that NAFTA is a treaty and required two-thirds Senate approval (which it did not receive). We argued that NAFTA would cost the US hundreds of thousands of jobs. We were right on both grounds: NAFTA is undeniably a treaty under the US Constitution. There is no doubt that the US lost about a million jobs because of the agreement.
Before NAFTA was agreed to, the US had a modest $1.7 billion trade surplus with Mexico. By 2014 we had a $54 billion trade deficit with our southern neighbor. Most economists agree that each billion dollar’s of trade deficit represents about 20,000 jobs. Based on this metric, we have lost more than one million jobs to Mexico over the last two decades.
We are proposing that NAFTA be amended, and that the amended treaty be submitted to the US Senate for approval pursuant to the US Constitution’s treaty clause. The original NAFTA was approved as a “tratado” (treaty) under Mexico’s constitution. As long as NAFTA is being revised, it should be done in compliance with the Constitution of the United States.
The US auto industry lost 350,000 jobs since 1994—a third of the industry—while Mexican auto sector employment spiked from 120,000 to 550,000 workers. The reason is obvious: Mexican wages are a small fraction of US wages. Bloomberg reported that workers at the new BMW plant in Mexico will be paid from $1.10 to $2.53 per hour. US auto workers earn an average of $28 an hour, according to the US Bureau of Labor Statistics. Mexican wages were supposed to rise under NAFTA, but they have not done so.
NAFTA should be amended to allow the US to charge a 10% duty on all Mexican manufactured products for a period of five years. This should stop the bleeding of American jobs to Mexico while allowing the Mexican auto industry to survive. At the same time, the new NAFTA should require Mexican wages to rise.
When NAFTA was signed in 1993, there were three pesos to the dollar. Now there are 18 pesos to the dollar. You cannot have an integrated North American economy with wild currency swings like that. We propose introduction of the North American dollar. We recognize the euro has had problems, but overall the European Economic Community has had a solid economy and reasonable integration of wealthy and poorer nations, due in large part to a common currency.
The North American Dollar would be controlled by the Federal Reserve Board. Membership on the Board of the Fed would be granted to Mexico and Canada. The Canadian dollar has had substantial swings, but not nearly as catastrophic as the Mexican peso. It is difficult trading with countries that have wild currency movements.
The US beef industry has suffered $20 billion in lost sales during the past two years because of disputes raised by Canada and Mexico. As one of the principal proponents for the Country of Origin Labeling Act (COOL) I contend that our neighbors’ efforts to undermine COOL was an unacceptable trade practice and a violation of US sovereignty.
Mexico and Canada filed a complaint with the World Trade Organization claiming that COOL was a non-tariff barrier to free trade. Now beef sold in the US is unmarked as to country of origin. An unintended consequence of the WTO decision, and Congressional caving to the Canadian and Mexican demands, is that beef from Brazil, Australia and other countries is mixed with US, Mexican and Canadian beef. Consumers have no idea of where their hamburger meat is coming from.
As part of a new NAFTA, Mexico and Canada would have to agree to accept the right of the Congress of the US to enact the Country of Origin Labeling Act. Further, Mexico, Canada and the US would have to agree to file all disputes concerning NAFTA and trade amongst the three nations under NAFTA and not with the World Trade Organization.
Under the General Agreement on Tariffs and Trade, all subsidies are illegal. The Agreement on Subsidies and Countervailing Measures prohibits subsidies that harm foreign competition. Canada’s film subsidies have significantly harmed the US film industry. As a response, California and several other states have enacted their own subsidies to film production. In our view, all of these subsidies should be prohibited in a revised NAFTA. Films should be made where the scenery, weather, infrastructure and labor pool is advantageous, not where subsidies are abundant.
Most people do not know that Canada allows no beer to be imported, creating an absolute barrier to trade. These barriers have been erected by the Canadian provinces, requiring beer to be brewed in each province.
Canada also imposes a 300% duty on imports of dairy products.
A new NAFTA must get rid of Canadian beer, milk and cheese barriers.
The environmental laws of all three North American nations must be equivalent to prevent driving all pollution-creating jobs to where the environmental laws are weakest. Pollution is an externality that must be included in the costs of production so that resources are allocated to where production is most efficient. Now polluting industries, such as the battery industry, is centered in Mexico. Mexican pollution flows freely into California, Arizona and Texas. It is in every nation’s interest to reduce air and water pollution. The revised NAFTA must take environmental degradation into consideration.
Wages in Mexico are about 16% percent of those in the US. A new, revised NAFTA will work to raise the minimum wage in Mexico with a goal to a Mexican minimum wage of $7 per hour and a US minimum wage of $15 an hour within five years. Now the Mexican minimum wage is 80 pesos per day, or about 50 cents per hour. NAFTA should be primarily concerned with the manufacturing wage. The minimum manufacturing wage in Mexico should rise to $2 per hour immediately, and increase by $1 per hour per year for five years to $7. At that wage Mexican workers will be able to buy American-made products as well as their own.
NAFTA currently requires that governmental purchases of goods not favor their own country. This should be changed to allow all three countries, and their provinces and states, to buy domestic products if they so desire. Taxpayers have the right to decide how to spend their own money. States have the right to purchase products made in their own state.
We cannot go back to pre-NAFTA days. Our three economies are too interconnected to do that. But we can improve NAFTA by allowing a temporary 10% duty on Mexican manufactured goods while phasing in higher Mexican wages. In addition, we can create a North American dollar and North American Environmental Standards to improve the conditions of workers in all three nations.
Joel Joseph is chairman of the Made in the USA Foundation, a non-profit organization dedicated to promoting American-made products. Email joeldjoseph@gmail.com. Phone 310 MADE-USA
From The Progressive Populist, August 1, 2017
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