October 2020, Volume 26, Number 4
The US government, citing national security, imposed a 10 percent tariff on Canadian aluminum imports in August 2020 despite the new USMCA that went into effect July 1, 2020. Canada retaliated with tariffs on goods imported from the US. Most economists decried the tariffs on Canadian aluminum, which costs less because of Canada’s low electricity costs due to its hydro power. The US imports primary aluminum from Canada and turns it into manufactured products, from autos to cans.
The World Trade Organization in August 2020 agreed with Canada that the US violated WTO rules by imposing a 20 percent tariff on Canadian softwood imports in 2017. The US used the benchmark lumber prices in one province, even though each of the 10 provinces sets its own price for logging trees on public lands.
The Federal Court of Canada in July 2020 ruled that the Canada-US Safe Third Country Agreement breached Canada’s Charter of Rights and Freedoms, which guarantees the right to “liberty” and “security.” The ruling criticized the US for detaining asylum applicants in what the judges considered to be poor conditions. The Canadian government has six months to respond to the ruling and can appeal to the Federal Court of Appeal.
Prime Minister Justin Trudeau, who has been in power since 2015, came under fire in summer 2020 after the government made a grant to the WE Charity to provide payments to postsecondary students who volunteer in their communities; WE Charity would have received $33 million of the $690 million grant. We Charity’s for-profit division made payments to Trudeau’s friends and relatives. Trudeau’s government won a vote of confidence 177-152 in October 2020.
Activists in August 2020 toppled a statute of John Macdonald, Canada’s first PM, because he launched a residential schooling program for indigenous children that included banning them from speaking Indian languages. The Montreal statute of MacDonald was erected in 1895 and was vandalized in 1992 by protestors who emphasized that MacDonald ordered the 1885 hanging of Louis Riel for treason.
Mexico. Mexico’s economy is expected to shrink at least 10 percent in 2020. The government resisted calls to support businesses and their employees because President Andres Manuel Lopez Obrador does not want to increase the public debt, which is approaching 60 percent of GDP, to help private firms.
Formal sector private sector workers are enrolled in the social security system IMSS, which had 20.8 million workers registered in November 2019 and 19.5 million in June 2020, down six percent. IMSS job growth resumed in August 2020, taking IMSS enrollment to 19.6 million, still a million below pre-Covid levels.
AMLO in July 2020 proposed higher employer contributions for IMSS pensions, with total contributions rising from 6.5 to 15 percent of wages over eight years. Workers have since 1997 contributed 1.1 percent of their pay for pension benefits, employers 5.2 percent, and the government 0.2 percent on wages up to 25 times the minimum wage. The new employer contribution rate will be 13.9 percent when fully phased in.
Currently, workers and their employers must contribute for 1,250 weeks or 25 full-time years and workers must be at least 60 to receive pension benefits. AMLO’s reform would reduce the work requirement for pension benefits to 750 weeks or 15 years, but leave the age for receiving IMSS pension benefits at 60.
The goal of the IMSS pension reform is to raise the pension replacement ratio from the current average of 40 percent of previous earnings, the lowest in the OECD, to 80 percent to provide Mexicans with a “dignified retirement.” However, raising the pension portion of mandatory contributions to IMSS, which are already 30 percent of wages to cover the cost of health insurance, child care, and pensions, may keep more jobs in the informal sector. AMLO’s coalition controls both houses of Congress, making it likely that the pension reform will be enacted.
The USMCA that went into effect July 1, 2020 includes 24 revised chapters and 10 new chapters. A new Chapter 23 on labor requires Mexico to reform its labor laws to give workers more rights vis-à-vis union leaders and collective bargaining agreements. Article 23.9 acknowledges that migrant workers are vulnerable, and commits all three governments to “ensure that migrant workers are protected under its labor laws.”
Chapter 23’s Annex A includes a rapid response labor mechanism that allows complaints about violations of labor laws at specific workplaces and promises quick government responses. The AFL-CIO in summer 2020 said it would file a complaint under Annex A because Mexican labor attorney Susana Prieto was arrested in Matamoros for inciting riots in June 2020 after leading strikes at border-area manufacturing plants and ordered to stay outside the state of Tamaulipas.
The US Department of Labor’s ILAB released its 2019 report on child and forced labor in September 2020, finding that China had 17 products made with forced labor, including processed tomato products from Xinjiang, the 25 million resident northwestern province with Muslims who are being “re-educated” in government-run labor camps.
The report included an 18-page section on Mexico that estimated 2.1 million children aged five to 17 worked in 2017, down from 3.5 million in 2007. Mexico’s minimum age for work is 15. Among children five to 14 who were employed, 36 percent were employed in agriculture, including in avocados and tomatoes, the most valuable fruit and vegetable exported to the US.
Funding for labor law enforcement was $30 million in 2019 for 420 investigators who conducted 36,000 investigations, down sharply from 111,000 investigations in 2018 due to fewer investigators. ILO guidelines call for one labor law investigator for each 15,000 workers, which would suggest over 3,600 investigators for the Mexican labor force of 54 million.
The social development agency Coneval in September 2020 reported that most of Mexico’s 17 anti-poverty programs have not identified their target populations nor collected data to evaluate their effectiveness. Most of the programs lacked baseline data against which to assess the effects of the programs. President AMLO’s the tree-planting initiative and the apprenticeship scheme were singled out for corruption.
A former CEO of Pemex alleged that ex-President Enrique Pena Nieto used bribes to persuade legislators to vote in favor of partial de-regulation of Pemex, the government-owned oil company formed after foreign oil firms were nationalized in 1938.
Over 288,000 people were killed in Mexico since the war on drugs began in 2006 and July 2020, including 73,000 who disappeared and whose bodies were not found. Those who disappeared include 43 students who were detained by police in September 2014 in Ayotzinapa and never seen again. There were 35,600 homicides in 2019, and 7,350 people disappeared.
Chiapas is one of Mexico’s poorest states despite significant federal investment in education and infrastructure since the January 1, 1994 Zapatista uprising. However, per capita income in Chiapas declined in the two decades after NAFTA came into effect, and earnings in Chiapas remained much lower than in other Mexican states for workers in similar jobs. However, workers who left Chiapas had earnings similar to other workers in the states to which they moved.
One multinational, Japanese car board manufacturer Yazaki, established plants in Chiapas to assemble car harnesses that employed 3,000 workers, most around the capital of Tuxla Guiterrez. Most residents of Chiapas live in rural areas, including many in highlands where communal ownership of land is common, which may contribute to lack of investment and job creation. Investors cannot own land in communal areas, and disputes between villages often lead to roadblocks that can block travel and force factory closures.
The Equitable Food Initiative certified Promotora Agricola El Toro BB in July 2020, a JV Smith Companies farm with 3,500 workers and 10,000 acres in Ciudad Morelos in the Mexicali Valley. EFI has certified 42 farms, including 25 in Mexico.
Latin America. Many governments that pioneered mandatory contributions to pension funds in summer 2020 allowed contributors to withdraw some of their contributions during the Covid-19 pandemic. Chile, where pension fund assets of $184 billion are equivalent to two-thirds of GDP, allowed the 11 million contributors to withdraw up to 10 percent of their contributions.
Some $20 billion is expected to be withdrawn, with critics asserting that the result will be “bread for today, but hunger tomorrow” because future pensions will be smaller. Workers in Chile must contribute up to 12 percent of their earnings, but management fees reduce payouts so that the average retiree receives less than half of previous earnings.
Argentina teetered on the edge of its 10th default on government debt before reaching agreement with creditors in April 2020. Past governments borrowed money to provide subsidies for consumers, and then asked creditors to forgive some of the debt. Argentina in 2020 offered creditors 40 cents for each dollar of debt, and eventually settled for 55 cents.
The Inter-American Development Bank, which lends $13 billion a year to Latin American countries for infrastructure, may be headed by an American for the first time. The US nominated Mauricio Claver-Carone, a member of President Trump’s National Security Council, to head the IADB. Some Latin American countries are strong supporters of Claver-Carone, while others fear that American leadership could mean that the bank stresses private rather than public investment.
Many Latin American countries, especially Caribbean islands, depend on tourism and remittances to fuel their economies. The shutdown of travel led to unemployment in tourist areas, threatening to reverse internal rural-urban migration toward areas such as Cancun, Mexico, which attracts mostly US tourists. The Moon Palace hotel complex in Cancun that once employed 10,000 workers to serve up to 25,000 guests had fewer than 1,500 guests in August 2020.