The wage factor in NAFTA negotiations - a potential deal breaker
NAFTA renegotiations have run into rough weather over the twist given by USA by trying to introduce a wage factor into the negotiations over auto sector. Apart from rules of origin requirements, USA wants that at-least 30% of content by partner countries should be made by workers who earn more than the median wages for workers in the auto sector in US.
This is new and preposterous. It could be the dealbreaker. It might be better to face a non NAFTA trade barrier of 2.5% over complying with this provision. The median wages in USA for auto workers is almost 8 times that in Mexico on an average. In addition, there would be the burden of accounting and bookkeeping to comply with the provision.
These types of requirements are usually designed for dealing with developing countries who prove too hot to handle for the domestic sector in developed countries. Recall the child labour free certifications, carbon footprint requirements, wood certification for legality and so on. These requirements are cloaked in the guise of humanitarian concerns, eco footprint, food safety etc to give it a semblance of respect while implementing. But the wage requirement is bare knuckle tactic that punches on the face of the idea of free trade.
A wage requirement like the one proposed would take away the very key advantage that makes trade possible between developing and developed nations. Developing countries typically have wage advantage in terms of competitive labour costs. Take that away and the developing country is handicapped in cross border trade. There is still a possibility that Mexico might negotiate. But then, Mexico might as well walk away and face the tariff if the costs outweighs benefits. At the moment, it looks like it would be the dealbreaker.
It's interesting times to watch as NAFTA renegotiations are falling behind schedule. America is slowly and steadily undermining the very system it helped build in the last fifty and more years. Its amazing how one person's paranoia about free trade can grip an entire country and shake the very foundations on which lasting ideas are built. It's sad to see the very competent US trade officials twisting themselves into knots to propagate ideas that suit the president.
Sooner or later, these ideas would trickle down to other forums including WTO. India needs to be on guard.