NAFTA 2.0: ‘The benefits are unclear’

By: - October 15, 2019 8:06 am

From left, union leader Marcos Alfaro, Manitowoc Mayor Justin Nickels and Wisconsin Aluminum CEO Sachin Shivaram tour the plant Monday while discussing the impact on the company of the Trump administration’s recent trade actions. Photo by Philip Shulman

Vice President Mike Pence will visit Wisconsin later this week to promote the Trump administration’s triumphant view of the new U.S.-Mexico-Canada trade agreement, but a couple of early reviews Monday of the deal were more modest.

The agreement, officially abbreviated as USMCA but often referred to as “NAFTA 2.0,” was signed almost a year ago by leaders of the three countries on Nov. 30, 2018. To date it has been ratified only by Mexico. 

The chief executive officer of a Manitowoc aluminum foundry told Wisconsin Examiner on Monday that while the agreement appears on the surface to be an improvement over the original North American Free Trade Agreement, its actual impact remains uncertain.

“We have read parts of the agreement,” said Wisconsin Aluminum Foundry CEO Sachin Shivaram. “We talked to the [Mexican] consul general in Milwaukee. We’ve talked to our legislators about the deal. The benefits are unclear to us still.”

Labor provisions

Wisconsin Aluminum makes custom aluminum castings used for a variety of industries, ranging from tools and automotive equipment to parts of medical devices.

The company’s principal direct international trade takes place within North America, where the USMCA, and NAFTA before it, govern the day-to-day conditions in which it must operate. Shivaram says his company’s review of the agreement leaves him with a number of questions. 

Disparities in labor conditions are a particular concern. Where his company’s workforce, represented by the United Steelworkers and the International Association of Machinists, has a median wage around $24 an hour, Mexico-based competitors pay median wages of about $4.50 an hour.

The agreement appears to call for progress toward “equalization between their economy and ours over time,” he added. “But it’s not clear how long that will take. We want to understand better what the wage trajectory is going to be, but we don’t have clarity on that now.”

While the U.S. waits to ratify, Shivaram said, there is room to do more about those differences. “We would like to use this point in time to negotiate ways in which Mexico can modernize their labor market,” the CEO said. “They don’t offer enough protections for organized labor [in Mexico],” for example.

A provision setting a minimum wage in Mexican auto plants on the U.S. border, and a stipulation to increase it over time, shows promise, Shivaram said. “That’s very positive stuff. What’s unclear to me is how enforceable some of the labor protections area.”

Pocan: Possible progress

Shivaram’s observations echoed comments made Monday morning by U.S. Rep. Mark Pocan (D-Black Earth) in a conversation with reporters at his district office.

Congressman Mark Pocan
U.S. Rep. Mark Pocan

Pocan called ratification of the trade agreement one of a handful of issues in which there seems some chance of progress between the divided Congress and the Trump administration.

“But it’s going to take a few things,” Pocan said. 

On the plus side, Pocan gave the revised agreement credit for eliminating a provision that under NAFTA allowed investors to sidestep domestic courts when suing individual countries over claims that specific policies violated the agreement. Instead, those disputes went directly to international arbitration.

That end-run around the courts “affected our sovereignty, and that’s good that that’s gone,” Pocan said.

He called environmental and labor protections in the new agreement “marginally better” than the original NAFTA, but problematic because “it’s outside the trade agreement itself.”

Mexico has passed legislation that would transform unions largely controlled by employers into true independent unions representing workers, Pocan said

“The problem is they have almost no funding to rewrite the 700,000 contracts for those unions, and that has to be addressed or else you’re still going to see, I think, jobs going south for cheaper wages.”

But he criticized another measure that as written gives pharmaceutical manufacturers longer protection from competition and said it should be removed.

If the administration follows through on tightening environmental and labor protections and gets rid of the drug manufacturer protection, “you likely have a trade agreement that could get 390 to 410 votes on the floor of Congress.”

Trade war troubles

Wisconsin Aluminum
Wisconsin Aluminum Foundry in Manitowoc manufactures castings for various industrial customers. Photo courtesy of Wisconsin Aluminum Foundry.

Even as Wisconsin Aluminum is watching the advance of the USMCA, however, the company is feeling the ripple effects of another side of the Trump Administration’s trade policy. 

During a visit Monday morning to the company by Manitowoc Mayor Justin Nickels, the mayor along with Shiravam and Marcos Alfaro, vice president of United Steelworkers Local 125 at the plant, discussed the impact that recent trade disputes sparked by escalating tariffs particularly on Asian countries were having on the company.

In his interview later with the Examiner, Shivaram said that as much as the tariffs themselves, the growing uncertainty around international trade and trading policy appears to have cut into business.

His company hasn’t been directly hit by the tariff disputes, but it has customers who export to Asia that have been. Cutbacks from those customers have led his own business to see a drop. 

“That’s causing a slowdown for us,” Shivaram said, particularly in its automotive industry segment. The company has laid off 8% of its work force in the slowdown that began this past winter.

Even if the current trade conflicts are rapidly resolved, he added, it could take time to rebuild that lost business. 

“It’s not like someone can flip on the switch or change policy and we come right back,” Shivaram said. “Things can shut off pretty quickly, and coming back always seems to take some time.”

Our stories may be republished online or in print under Creative Commons license CC BY-NC-ND 4.0. We ask that you edit only for style or to shorten, provide proper attribution and link to our web site. Please see our republishing guidelines for use of photos and graphics.

Erik Gunn
Erik Gunn

Deputy Editor Erik Gunn reports and writes on work and the economy, health policy and related subjects, for the Wisconsin Examiner. He spent 24 years as a freelance writer for Milwaukee Magazine, Isthmus, The Progressive, BNA Inc., and other publications, winning awards for investigative reporting, feature writing, beat coverage, business writing, and commentary. An East Coast native, he previously covered labor for The Milwaukee Journal after reporting for newspapers in upstate New York and northern Illinois. He's a graduate of Beloit College (English Comp.) and the Columbia School of Journalism. Off hours he is the Examiner's resident Springsteen and Jackson Browne fanboy and model railroad nerd.