The Truth about USMCA’s Labor Provisions

Domestic policy reforms can more effectively help American workers.

For months, the fate of the United States-Mexico-Canada Agreement (USMCA) hinged on its provisions around labor—a key sticking point among Democrats whose support the Trump Administration deemed crucial.

After a concerted campaign to woo organized labor—to the chagrin of many Republicans—the Trump Administration ultimately secured the support of the AFL-CIO, thereby ensuring the agreement’s passage through the Democratically-controlled House. The agreement overwhelmingly passed this week 385 to 41.

“Make no mistake, we demanded a trade deal that benefits workers and fought every single day to negotiate that deal,” said AFL-CIO President Richard Trumka in a statement endorsing the agreement. “And now we have secured an agreement that working people can proudly support.”

But despite the attention paid to labor provisions in trade deals like USMCA, domestic policy, not trade agreements, might be the most direct, and most effective, way to improve workers’ lot, especially in advanced countries like the United States. As important as labor provisions have become to trade agreements, research points to a mixed record on their impacts. Moreover, the benefits that do exist are more likely to be felt by workers in America’s lower-income trading partners, not those in the United States.

Trade and labor have long been linked concerns. As early as the mid-1800s, European social activists agitated for international labor norms such as an eight-hour workday and the abolition of forced labor. By the end of the century, countries such as the United Kingdom, Australia, Canada, and New Zealand had passed laws banning the import of products made by prisoners.

But it wasn’t until the signing of the North American Free Trade Agreement (NAFTA) in 1993 that trade agreements explicitly addressed labor. NAFTA included the first side agreement on labor standards, the North American Agreement on Labor Cooperation (NAALC), which established a system of “cooperative activities” that the United States, Mexico, and Canada agreed to undertake together to improve worker treatment.

The floodgates opened thereafter. In 1996, the World Trade Organization (WTO) adopted The Singapore Ministerial Declaration, embodying a new global consensus on labor and trade. Among other things, the Declaration included a commitment to international core labor standards while rejecting the use of labor standards for “protectionist purposes.”

Today, labor provisions in trade deals are increasingly de rigeur. According to the International Labour Organization (ILO), 77 trade agreements negotiated globally in 2016 included labor provisions, compared to just three in 1995. Overall, says the ILO, more than a quarter of global trade pacts reached in 2016 (28.8 percent) addressed labor standards in some way. This includes so-called “promotional” provisions aimed at encouraging countries to raise labor standards as well as “conditional” provisions requiring a trading partner to meet certain obligations before a trade deal is ratified or in order to avoid sanctions.

For instance, in the CAFTA-DR agreement involving the United States, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic, the United States agreed to finance an array of “capacity building” activities aimed at improving countries’ infrastructure around workers’ rights. The United States’ agreement with Morocco, on the other hand, required Morocco to raise its minimum working age from 12 to 15 and to lower the maximum number of hours in its workweek from 48 to 44 as a precondition to ratification.

In the context of USMCA, a major concern was enforcement, particularly since weak enforcement was a chief criticism of NAFTA’s detractors, as well as of CAFTA-DR. For example, while more than 40 labor complaints have been filed under NAFTA, none have so far led to sanctions, a result that many labor advocates wanted to see remedied. Similarly frustrating to advocates is Guatemala, where the AFL-CIO and six trade unions filed a complaint in 2008 alleging that Guatemala was failing its obligations under CAFTA-DR. After nine years of procedural and other delays, an arbitration panel convened under the auspices of the agreement failed to find that Guatemala had breached its obligations, despite the lack of progress on systemic reforms and widespread reports of anti-union violence.

So given these results, do labor provisions work?

Proponents cite several justifications for including labor provisions in trade agreements. The first is moral: Trade agreements set the rules for international trade, and the inclusion of labor standards reinforces the social and human rights norms valued by the international community. Some argue that rich countries like the United States have a particular duty to use their leverage and buying power to raise standards in developing nations.

Another rationale is economic. As the ILO notes, “[L]abour provisions are tools against unfair competition, the main idea being that violations of labour standards can distort competitiveness (‘social dumping’) and should be addressed in a manner similar to that employed against other unfair trading practices.” In particular, labor standards arguably prevent a “race to the bottom,” where countries compete to produce ever-cheaper goods by shortchanging their workers. Some U.S. advocates further argue that labor standards can level the field between workers in competing countries, potentially stemming the tide of offshoring from wealthier countries to lower-paying ones and protecting domestic jobs.

A third rationale for these provisions is political. Labor provisions, especially in the United States, have become a powerful bargaining chip for competing interests, as the USMCA and other trade agreements have shown. The strength of a trade pact’s labor provisions has also become a proxy for the “fair” trade that the public increasingly wants to see; trade deals might be more likely to win public approval if its advocates can tout “tough” labor provisions that purport to protect U.S. jobs.

Research, however, shows, that advocates should be wary of overpromising what labor provisions can deliver.

First, it’s worth noting that research on this topic is relatively scant. For one thing, measuring the direct impacts of these provisions on workers’ circumstances is hard to do. What evidence there is, however, shows that labor provisions likely provide the biggest benefits to workers in developing countries, especially if they have the support of wealthier trading partners in building capacity for creating and implementing reforms.

In a 2017 survey of existing research, for instance, the ILO found that labor provisions in trade agreements can provide a modest boost to workforce participation in some countries, particularly among women, and even help ease the gender gap in wages. According to the ILO, the average workforce participation rates in countries subject to labor provisions is about 1.6 percentage points higher than in countries without such obligations. “One possible explanation for this effect is that labour provision-related policy dialogue and awareness-raising can influence people’s expectations of better working conditions, which in turn increase their willingness to enter the labour force,” says the ILO.

In certain circumstances, conditional labor provisions can dramatically benefit workers. In Cambodia, for instance, labor provisions included in the Cambodia–United States Bilateral Textile Agreement helped reduce the gender gap in Cambodia’s textile sector by as much as 80 percent between 1999 and 2004, according to the ILO.

And contrary to concerns that higher labor standards dampen the flow of trade by raising the cost of goods produced, research shows that countries subject to labor provisions often see a slight increase in exports. According to a 2017 analysis by the World Trade Organization (WTO), labor provisions can benefit low-income countries by “increas[ing] demand for products by concerned consumers” in richer countries, thereby leading to more trade. (Consider, for instance, the growing consumer demand for “fair trade” coffee.)  This result also seems to cut across the argument that “leveling the playing field” on worker wages and treatment can protect richer countries from being flooded by low-priced imports at the cost of domestic jobs.

The inclusion of robust labor provisions in trade agreements reinforces international norms for just worker treatment. It can also promote much-needed reforms in nations with weak standards and help protect workers from exploitation. Trade agreements should include labor standards because it’s the right thing to do.

Wealthy countries should not, however, count on labor provisions in trade agreements as a principal mechanism for protecting domestic jobs.

For one thing, companies’ decisions about where to put their factories depend on many factors other than the cost of labor, such as proximity to markets, intellectual property protections, tax and regulatory considerations, and the skill of the workforce. At the same time, labor provisions in trade agreements are, at best, a highly indirect way of leveling the playing field between workers from one country to another. Even with tougher enforcement—as USMCA promises to deliver—much still depends on a country’s internal political environment and appetite for reform. The positive results in Cambodia, for instance, were the consequence of strong backing from the ILO and domestic partners on the ground. On the flip side, the lack of progress in Guatemala was in no small part due to the foot-dragging of the Guatemalan government.

Third and most significantly, the biggest future threat to a worker’s job might not be a lower-paid worker in a maquilabut a robot. While apocalyptic forecasts of automation’s impacts are no doubt overblown, there’s little question that advances in automation will prove immensely disruptive in coming decades. For instance, one 2018 analysis by Price Waterhouse Cooper predicts that nearly 40 percent of U.S. jobs could be susceptible to automation by 2030. A trade agreement can’t stop that tide.

Ultimately, the best protection for workers is an ambitious set of domestic policies that prepare them for disruption and smooth their transition in the event of displacement. These policies can include better and more robust adjustment assistance for displaced workers; bigger government investments in career and technical education, particularly for incumbent workers; greater coordination among governments, businesses and schools so that workers have the right skills to fill gaps in the workforce; and increased public support for research into innovations that will lead to more jobs.

This is not to say that the energy spent on negotiating labor provisions in trade agreements isn’t time well-spent. What policymakers and the public need to know is what these provisions can and can’t do and be realistic about their impacts.

A modified version of this piece first appeared in TradeVistas.

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Anne Kim
