Offshorers Demand: No Taxes, No Risk

Leo Gerard

Ford hit Michigan and its auto workers with some crappy holiday news. Instead of building a $700 million electric vehicle factory in Michigan as promised in January, Ford will construct the plant in Mexico.

Ford reneged on its promise to Michigan workers just days after the Senate passed a tax plan intended to end levies on corporate profits made at factories offshore – in places like Mexico. News of the letdown also arrived just days before new negotiations on a revised North American Free Trade Agreement (NAFTA) are to begin in Washington, D.C.

Ford and other giant corporations got what they wanted out of Republicans on taxes, dramatically lower levies on domestic profits and total elimination on foreign profits. That makes Mexico an even more attractive manufacturing site for them than NAFTA did. So now they’re lobbying the Trump administration hard to retain the privileges that NAFTA bestowed on them. If they win that argument, they’ll have secured double incentives to offshore.

Trump administration officials don’t sound like they’re buying the corporate line, however. And they shouldn’t. NAFTA has cost Americans nearly a million jobs as thousands of factories migrated to Mexico. As he campaigned, President Trump promised untold numbers of factory workers and their families across the nation’s industrial belt that he would fix or end NAFTA to keep jobs and industry in America. He needs to keep that promise.

That means elimination of the Investor State Dispute Settlement (ISDS) scam that allows corporations to sue governments in secret courts presided over by corporate lawyers when legislatures pass laws corporations don’t like. That means standing strong on the Trump administration demands that the new pact expire in five years if it’s not working and that a substantial portion of automobiles – including Fords – be made in the USA to attain duty-free status. It means strong protection for workers’ right to organize and collectively bargain. It means substantially raising the Mexican minimum wage, which now stands at $4.70. That’s for a day, not an hour.

What it really means is prioritizing the needs of workers over the demands of corporations, something that was not done the first time around by NAFTA negotiators. As it stands now, NAFTA places all of the jeopardy on the shoulders of workers and communities while substantially eliminating normal business risks for corporations.

The jeopardy NAFTA created for workers is that its corporate-friendly provisions prompt employers to close American factories that sustain both workers and communities and move them to Mexico. This exodus of American manufacturing to Mexico has continued apace this year, even as the Trump administration began renegotiating NAFTA, probably because corporations assume they’ll get everything they want in the end. They have, after all, always done so in the past because they are, after all, massive political campaign donors and lobby firm patrons, while hourly workers are not.

Bloomberg reported in October, for example, that firms whose function it is to help corporations move factories from the United States to Mexico had a boom year in 2017, with one reporting it had done more offshoring this year than in any during the previous three decades.

Mexico is alluring because of its dirt-cheap wage rates, the paucity of environmental enforcement and the ISDS scam that lets corporations sue the government if Mexico would regulate in a way some CEO claims would crimp his profits.

The ISDS along with NAFTA’s unlimited lifespan reduce risk for corporations. Normal business decisions in capitalist systems involve some jeopardy. A chemical company could, for example, invest in developing a new pesticide, but then lose when the government bans the product after determining it kills babies as well as bugs.

NAFTA provides corporations with investment protection because it ensures they’ll get their profits even if a government changes regulations. ISDS enables corporations to sue to recoup money the corporations supposedly would have made if the government hadn’t issued new laws or regulations. The corporate-run court can order a country’s citizens to pay tens of millions to the corporation.

Some say this government-financed investment insurance corrupts capitalism. Among the significant people who have is U.S. Trade Representative Robert Lighthizer. He said corporations are insisting the government absolve CEOs of political risk. CEOs are using ISDS as a guarantee rather than buying risk insurance or factoring political risk into economic decisions about whether to move.

Lighthizer said businessmen have literally told him the administration cannot change ISDS because corporations wouldn’t have invested in Mexico without it. “I’m thinking,” he said, “‘Well, then, why is it a good policy of the United States government to encourage investment in Mexico?’”

These are the same corporate honchos who object to a five-year sunset clause for a new NAFTA, he said. They want a free eternal warranty on the provisions of a deal they describe as the world’s greatest. Lighthizer’s response is that if the deal is so great, why would the government choose to end it after five years? What are they really worried about?

The worry may be that those CEOs know NAFTA is great for their bottom line but not for the workers who elected Donald Trump President.

They know NAFTA was drafted by CEOs for CEOs. Its priorities were determined by corporate bigwigs behind doors closed to the public. Corporations designed it at the expense of workers and ordinary citizens, Joseph Stiglitz, the Nobel Prize winning economist, said in an op-ed in the Guardian newspaper this week.

It often seems, he wrote, “that workers, who have seen their wages fall and jobs disappear, are just collateral damage – innocent but unavoidable victims in the inexorable march of economic progress. But there is another interpretation of what has happened: one of the objectives of globalization was to weaken workers’ bargaining power. What corporations wanted was cheaper labor, however they could get it.”

U.S. corporations like Ford got it by writing a trade deal that gave them market-distorting profit protections, then abandoning their dedicated American workers and moving to Mexico where they could pay $4.70 a day and pollute unfettered.

President Trump has threatened to withdraw from NAFTA if his negotiators can’t get new reasonable terms that protect American manufacturing and American workers.

That is right. It’s appropriate that corporations like Ford sustain the actual risk of offshoring rather than workers bearing it all.

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