Nafta Talks Target Stubbornly Low Mexican Wages

By Dudley Althaus Features Dow Jones Newswires

CIUDAD JUÁREZ, Mexico -- Emma Palacios started working in factories in this city on the Texas border in 1994, the year the North American Free Trade Agreement came into effect. Ever since, she says, it has been easy to find work at the scores of U.S.-owned factories that opened here. What's proved harder to find is decent pay.

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After 11 years with a major automotive supplier, Ms. Palacios was earning just $1 an hour plus benefits last year. She and dozens of co-workers staged a walkout to demand a six-cent-an-hour bump in pay. She ended up losing her job, and is now at another factory -- for even less pay.

"We didn't resolve anything," said Ms. Palacios, a 37-year-old mother of four.

Mexico has reaped enormous benefits in industrial development and jobs from the 23-year-old pact, which U.S., Canadian and Mexican officials started renegotiating this month and will discuss again at a second round in Mexico City beginning Friday. What it hasn't achieved are significantly better -- or often even livable -- wages for Ms. Palacios and millions of other workers.

Labor advocates from all three countries say Mexico's stubbornly low pay -- the minimum wage here is $4.50 a day, and $100 a week is considered among the best factory-floor wages -- create unfair competition for U.S. and Canadian workers and hobble Mexico's economic growth.

Now, U.S. and Canadian trade officials and labor advocates want to use the Nafta renegotiation to prod Mexico into raising its wages.

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"Higher wages in Mexico are in the interests of Mexico and the U.S.," economist Peter Navarro, a trade adviser to President Donald Trump, told The Wall Street Journal recently. "Without this adjustment Mexico will never have a robust middle class, and our middle class will wither if not die."

With that in mind, the U.S. is likely to push for tougher Mexican labor standards, such as ensuring Mexican workers are able to freely organize unions and stage strikes without fear of losing their jobs. While Mexico has worker-protection laws on the books, critics contend the country enforces them poorly to help lure global manufacturers to Mexico.

"Low labor standards are an unfair advantage," Robert Lighthizer, the U.S. Trade Representative, told the House Ways and Means Committee recently, espousing a view that many congressional Democrats have also long held.

When Nafta began in 1994, labor and environment standards were relegated to largely toothless side agreements. Mexican officials say they are open to including mechanisms to ensure stricter enforcement of its labor laws. What they don't want, they say, are measures that force Mexico to raise wages.

"We think wages are part of the free market and we want to keep it that way," said Moisés Kalach, a member of the private-sector board that advises the Mexican government on the negotiations.

Economy Secretary Ildefonso Guajardo says cheap wages aren't a long-term competitive advantage for Mexico and suggests that recently passed labor reforms will lead to better pay. "Undoubtedly the strengthening of labor rights will be reflected in the market and determining wages," he said recently.

Wages have remained low in Mexico for many reasons, and any modified labor standards in Nafta may have little impact on raising them, at least in the short run.

The country's population has surged by three-quarters in 30 years, to 123 million, outstripping the supply of good jobs. Half the country remains poor. Low productivity plagues the four-fifths of the economy not involved in manufactured exports. And nearly six in 10 workers work off the books in the informal sector.

Even within the manufacturing-export sector, where productivity is growing, the country faces stiff competition from China and other low-cost locations in Asia.

In May, wages averaged $18 a day nationwide for workers enrolled in the Mexican Social Security Institute, which accounts for most formal employment.

Wages in the Nafta-bolstered north of the country -- closer to the U.S. and with greater foreign investment -- tend to be higher than in the rural south. Some economists say that suggests wages would be even lower in Mexico without foreign investment drawn in by Nafta.

The failure of Mexican wages to rise faster partly reflects the same global pressures that keep U.S. wages from climbing faster, said Alfonso Navarrete Prida, Mexico's labor secretary, such as increasing automation.

Another factor is docile labor unions, said Benjamin Davis, international affairs director at the United Steel Workers, a U.S. union.

A little under 14% of Mexican workers are unionized, compared with about 11% in the U.S. But nearly all the country's unions are run by leaders chosen through rigged elections, leaving members no say, labor experts say. Many union leaders have been closely allied to President Enrique Peña Nieto's Institutional Revolutionary Party, or PRI, for which many have served as legislators, governors and other top officials.

"You generally don't have free and independent unions in Mexico," said Raymond Robertson, an economist at Texas A&M who chairs the U.S. Labor Department's advisory committee on worker protections in free-trade negotiations.

Many Mexican unions routinely cut deals with companies to forge so-called protection contracts -- signed without the input or knowledge of members, or even before a single worker is hired, labor advocates say. Business leaders say such contracts are necessary to prevent wildcat strikes and extortion by rogue unions.

Protection contracts have been condemned by the International Labor Organization and were outlawed by Mexico's congress in February. Yet efforts to form independent unions are routinely thwarted by state and federal regulators. Workers who try to organize without permission -- or otherwise push for better pay and working conditions -- are often summarily fired, advocates say.

"We don't want strikes because then we would impact the source of jobs," said Gloria Porras, local leader of the CROC, a leading labor federation that says it represents 30,000 workers in Ciudad Juárez. The organization's last sanctioned strike was four decades ago, she says.

Ciudad Juárez, across the border from El Paso, Texas, was the site of a series of wildcat strikes last year, including the one Emma Palacios joined. Neither Ms. Porras's organization nor the larger Mexican Workers Confederation came to the aid of the striking workers. Though the strikers drew international notice and support, including from Pope Francis in his February 2016 visit to the city, they gave up when meager savings and sympathizers' donations ran dry.

"What options do they have?," said Susana Prieto, a local labor lawyer. "Loyalty to the cause is one thing. Hunger is another."

Now working from dawn to midafternoon on an assembly line, Ms. Palacios is increasingly dissatisfied with the chronic low pay. She shares a three-room house -- built by U.S. missionaries -- with her husband and two youngest children, less than a mile from the reinforced fence being built along the border.

"I don't know why I've been satisfied with this all these years," Ms. Palacios said in the dirt yard of her home, before starting a dinner of soup and pasta for her family in the home's cramped kitchen. "But these are the only jobs available for me. I have to care for my family."

Write to Dudley Althaus at Dudley.Althaus@wsj.com

(END) Dow Jones Newswires

August 29, 2017 05:44 ET (09:44 GMT)