T-MEC: Mexico's policies 'harm environment and business', warns United States

U.S. Trade Representative (USTR) Katherine Tai said Mexico's energy policies harm the environment, U.S. business, and investor interests in multiple sectors, and hinder joint efforts against climate change.

T-MEC: Mexico's policies 'harm environment and business', warns United States
Treaty between Mexico, the United States and Canada (T-MEC). Image: Pixabay

Katherine Tai, the United States Trade Representative (USTR), said Mexico's energy policies harm the environment, U.S. business, and investor interests in multiple sectors, and hinder joint efforts against climate change.

A virtual panel - which included Kevin Brady of the Ways and Means Committee, Representative Veronica Escobar, and environmental organizations, business associations, and U.S. companies - addressed troubling developments in Mexico's energy sector and their implications for the Mexican economy under the U.S.-Mexico-Canada Agreement (T-MEC).

Tai noted the "serious concerns (...) [about] the deteriorating trajectory of Mexico's energy policies, including a number of ongoing actions the Mexican government has taken to increase state control and limit competition in the energy sector."

It "heard directly from participants on these issues, including chronic delays in permitting renewable energy facilities and the abrupt closures of numerous fuel terminals near the U.S. border."

"Participants noted that these developments are undermining investor confidence in Mexico, at the expense of the environment, restricting U.S. fuel exports, and harming efforts to improve North American competitiveness as the U.S. government seeks to more fully implement T-MEC and meet broader environmental and climate goals."

Tensions between Mexico and the United States grow over union disputes and differences over T-MEC

New provisions in the free trade agreement between Mexico, the United States, and Canada (T-MEC) have generated new tensions between the countries and these are approaching a tipping point. Two allegations of labor rights abuses and union corruption in Mexico, as well as differences in interpretations of export rules of origin show contention between Mexico and the United States from what was negotiated under previous administrations in 2018.

Some 6,000 workers at the General Motors plant in Silao, Guanajuato, will vote this week for or against the collective bargaining agreement negotiated by one of the country's largest labor organizations, the Confederation of Mexican Workers (CTM) - marking, in turn, a milestone in Mexico's labor history. On Tuesday, the same day that the consultation begins in Guanajuato, the Secretary of Foreign Affairs, Marcelo Ebrard, announced that he will travel to Washington with the Secretary of Economy, Tatiana Clouthier, on September 9 as part of the High-Level Economic Dialogue (HLED), headed there by Vice President Kamala Harris. The success of the consultation, measured by transparency and credibility, will lay the groundwork for these meetings.

Although the scope of the HLED goes beyond trade, "the T-MEC will be more than present at that meeting because of the magnitude it represents," says Ignacio Martínez Cortés, academic coordinator of UNAM's Laboratory of Trade, Economics, and Business (LACEN). "That is why the union issue must come out as clean as possible so that the meeting does not have an open front," adds the international trade expert. Furthermore, if the consultation fails, the United States could impose a tariff of up to 25% on the Silao plant's production.

One of the biggest differences between the old NAFTA and the new T-MEC is the provisions offered to authorities to denounce labor abuses by unions. The T-MEC included the creation of the facility-specific Labor Rapid Response Mechanism (MLRR), a first-of-its-kind dispute resolution procedure. When, in May, U.S. authorities received information that the union workers at the General Motors plant in Silao were suffering "serious violations" of their rights, the U.S. used the mechanism to demand a consultation. The T-MEC also allowed for the presence of more foreign labor attachés.

The Silao case is the second complaint filed by the Joe Biden Administration accusing the union of a plant in Mexico of preventing workers from organizing in an alternative organization to their own. Another case is that of the company Tridonex, in Matamoros (Tamaulipas), which finally reached an agreement with the Biden Administration in which it committed to compensating 154 workers who were fired, as well as to guarantee the free association of workers, among other actions.

"The two cases that the United States initiated were found to be flawed and in both cases the Mexican Government took action," said Juan Carlos Baker, a consultant and one of the negotiators of the T-MEC under the previous Administration in Mexico. "This could be seen as a success, but there are also arguments and complaints that companies and unions in the United States do not have the same protection from their government as they do in Mexico," he adds.

On Sunday, two days before the vote in Silao, the CTM issued a statement accusing foreign unions of interfering in the process. "There has been, for several weeks, constant pressure from American unions on the Mexican authorities and on the workers of this auto plant to try to influence the result; therefore, we reject this interference," the communiqué notes.

To guarantee legitimacy, the vote will be observed by the National Electoral Institute (INE) as well as the International Labor Organization (ILO). The INE has been the target of attacks by Mexican President Andrés Manuel López Obrador, who, as recently as Monday, proposed in a press conference a reform to the institution, since "they are not democrats, they do not respect the will of the people, they do not act with rectitude, they do not apply that nothing is outside the law and nobody is above the law", he said, "therefore, they cannot be there, there has to be a change".

Mexico's Secretary Clouthier has expressed her disagreement with the way the United States is interpreting the rules of origin in the automotive sector, which define how much of the parts that make up an exported product must be produced in the country, versus imported from countries that do not belong to the T-MEC. In July, after a meeting with his U.S. and Canadian counterparts, Clouthier said that since the treaty came into operation both Canada and Mexico have expressed that the interpretation of the rules as being made by the Biden Administration "is not what we agreed to in terms of the T-MEC and we have asked for a review of this issue and for the interpretation to be what was agreed to."

Changes that were made to the T-MEC

Labor Standards

U.S. unions accused NAFTA of stealing manufacturing jobs because Mexican labor is cheaper. Democrat Nancy Pelosi, Speaker of the House of Representatives, had warned that she would not admit the new agreement unless they provided guarantees that Mexico would meet labor standards.

After months of negotiations, Pelosi said Tuesday that the agreement was "infinitely better" than the original. The new text was also welcomed by the powerful AFL-CIO union whose president, Richard Trunka, said that for the first time there will be labor standards whose compliance can be monitored.

The new provisions will force Mexico to comply with labor reforms it has already approved and to allow verification of its labor standards for goods and services, under penalty of sanctions.

The verification will be carried out by "independent labor experts. Mexico did not allow factory inspections.

Environmental regulations

The Democrats insisted on including strict environmental standards and mechanisms to monitor compliance.

As with labor, the agreement creates "environmental aggregates" in Mexico City that will oversee its laws and regulations.

Medicines

The revision of the text included the chapter on medicines.

The changes removed rules requiring the three partners to grant at least 10 years of exclusivity for biological drugs, which will facilitate the rapid entry of generics into the market and thus reduce prices.

Economic impact

From its entry into force, NAFTA boosted U.S. trade, helped stabilize Mexico's economy, and restructured the manufacturing sector into a tri-national production chain.

Some, including Trump, accuse NAFTA of destroying U.S. jobs, but more jobs were lost to technology.

And NAFTA gave a big boost to GDP that surpassed the jobs lost by the treaty, according to the Peterson Institute of Economics.

An analysis by the U.S. International Trade Commission said that in six years, the T-MEC will raise U.S. real GDP by 0.35 percent and generate 176,000 jobs, especially in the manufacturing sector.

Increased trade

The Commission believes that the new pact will increase U.S. imports from Canada and Mexico, and equally so exports to those markets.

In 2017 Canada and Mexico were among the United States' largest partners.

The United States exported goods worth 292 billion dollars to Canada and 243 billion dollars to Mexico in 2017.

In comparison, the United States exported to China, its third-largest customer, goods for only 130 million dollars.

Meanwhile, the leading global economy received products from Canada for 314 million dollars in 2017 and $299 million from Mexico.

Cars: higher wages

Car manufacturing was a key element. To be traded duty-free, T-Mec will require that 75 percent of the composition of the vehicles originate in the region when under NAFTA the rate was 62.5 percent. Also, between 40 and 45 percent of it must be manufactured by operators who earn at least 16 dollars per hour.

Mexico has admitted to respecting the safety standards established by the United States unless the Mexican authorities conclude that they are inferior to theirs.

Dispute Resolution

At Canada's insistence, the United States agreed to maintain the system of dispute settlement among partners; formerly known as Chapter 19.

But some changes were made to the mechanism known as "Investor-State Dispute Settlement. Critics say this allows powerful companies and investors to override local laws or judgments through a mechanism that is not subject to arbitrations demanding accountability.

Digital Commerce

When NAFTA was born in 1994, digital trade hardly existed at all, but 25 years later it became a key negotiating factor for a new agreement. The T-MEC prohibits the application of customs duties to digitally distributed goods such as software, games, books, music, and films.

It also restricts the power of governments to force companies to reveal ownership of source code or impose restrictions on where data can be stored.

Chinese clause

Included in the agreement is a provision that seems designed to prevent Mexico or Canada from seeking a better agreement with Beijing.

If a signatory seeks a free trade agreement with an economy not considered as "market" - read China - the other parties can cancel the trilateral agreement and establish a bilateral one.

Twilight clause

The new agreement will be in force for 16 years but will be reviewed every six years. If the parties decide to renew it, it will be in force for another 16 years. But if a problem arises, a period of 10 years is opened to negotiate a solution and if it is not reached, the T-MEC will expire.