Goal of latest NAFTA pitch from U.S.: Credit countries for higher auto wages

Here's an idea that has shaken up the NAFTA negotiations: Crediting countries for higher auto wages.

It's at the heart of the latest proposal from the United States.

Several sources in different countries say the U.S. has offered to drop its controversial demand for 50 per cent U.S. content in every car but it comes with conditions attached.

Sources say the U.S. still wants a higher level of North American content in vehicles, and is now suggesting rules that reward jurisdictions for offering salaries beyond a certain level.

One American source familiar with the proposal told the Canadian Press the level in question involves incentives for a salary range between $13 and $17 an hour which is significantly higher than the current average hourly wage in Mexico.

Details of the idea were first reported by the publication Inside U.S. Trade, which pegged the salary cutoff at $15 per hour.

U.S. trade czar Robert Lighthizer described his broad objective in a public appearance last week. He told a congressional committee that there are several proposals designed to drive up wages in Mexico, including the right of workers to vote by secret ballot on collective agreements.

"There's a whole series of processes that we're involved with in negotiating that (labour) element," Lighthizer told a House of Representatives committee last week.

"That's a hugely important issue. And the objective is to try to get wages up in Mexico which makes the United States more competitive, but also creates customers for the United States."

Raising workers' salaries

The proposal was first floated several days ago, and appears to have kick-started the negotiations: Canada says it's pleased by some of the latest developments, and the U.S. says all three countries are finally converging on a common vision.

The idea of driving up wages in Mexico is designed to reduce the gap in costs of production between the countries, and lessen the incentives for companies to shift jobs there.

"The thing that's clever ingenious, actually is it creates an incentive to raise worker salaries," said one American familiar with the proposal.

"You'd be creating this incentive to improve wage levels."

That source, who spoke on condition of anonymity in order to speak frankly about the idea, said it's unclear how it would work whether auto-makers would get credits for using high-salary jurisdictions toward an overall formula, or whether every car would have to have a fixed percentage of high-paid labour.

Battling over wages

One trade insider said there's strong desire in Washington to drive up Mexican salaries. The Democrats, in particular, bemoan the stagnant wages in Mexico the average auto-sector salary there is reportedly $2.04 an hour as a drag on workers across the continent.

"If there is no wage increase (in NAFTA), there is going to have to be very strong provisions in the NAFTA getting rid of what some call white unions, or yellow unions basically company-sponsored unions," said Dan Ujczo of the law firm Dickinson Wright.

"I wouldn't be surprised to see some type of movement towards setting a wage in Mexico. And I think that would be a red line for Mexico."

He said Mexico finds itself in a tough spot.

On the one hand, that country is especially anxious to get a deal, with elections approaching and an anti-establishment outsider candidate leading in the polls.

On the other hand, the pro-establishment government in Mexico has systematically opposed the idea of enshrining wage increases in a trade deal.