Part 5: In NAFTA We Trust

Charles de Gaulle once said that "in politics it is necessary either to betray one's country or betray the electorate. I prefer to betray the electorate."

As a nation and as a people we are too often too trusting of our leaders. The renowned seventeenth century scholar, Robert Burton noted that “stylus virum arguit, - our style betrays us."

Our political leaders have taken advantage of our trust and enacted a free trade agreement that after fourteen years has borne out the dour admonitions proclaimed by Pat Buchannan and Ross Perot.

History, I believe, will judge NAFTA to be a golden trough where rapacious U.S. NAFTA companies gorge themselves to the bursting point with ill gotten gains.

I’ve explained how the U.S. NAFTA companies have mislead and subordinated the Mexican Government and misled the hapless Americans sent to work in Mexico. Now let’s see how the U.S. NAFTA companies have deceived we the people and how our politicians made it feasible.

Our business and political leaders assured us that NAFTA would benefit all of the citizenry of the three partner nations, i.e., the United States, Canada and Mexico. The term used was “win-win-win for all.”

We discounted the gloomy warnings of Pat Buchannan and laughed at Ross Perot’s sucking sound. I believe we Americans owe both Pat Buchannan and Ross Perot an apology for our derision.

We were assured that NAFTA was devised to secure an international trade region where the enterprises of the United States, Canada and Mexico would flourish and jobs would be created for all.

What good are these assurances when tens of thousands of Americans working in Mexico are defrauded out of Mexican mandated compensation? Why does the Mexican Government refuse to abide by the laws of the land and provide equal protection for all workers?

Transparency International issues three indices pertaining to governmental corruption, i.e., The Corruption Perceptions Index, The Global Corruption Report, and The Bribe Payers Index. All three indices rate Mexico as a corrupt Government with weak public integrity. The affects of the corruption brought about by drug money is common knowledge. The corruption brought about by rapacious businessmen is obscure.

An example is Carlos Slim Helú, the youngest son of a Lebanese immigrant to Mexico. Through his influence with the Mexican Government, Carlos Slim has succeeded in parlaying a modest investment into the powerful quasi-monopoly called TelMex. Simultaneously, Carlos Slim has become the second most richest person in the world. Meanwhile, the citizenry of Mexico pay all too high rates for TelMex services.

Carlos Slim is not a the only example. Mexico can hold up numerous industrialists who’ve obtained the acquiescence of the Mexican Government to detrimentally control vital sectors of commerce. Numerous private and public sector monopolies and duopolies in energy, telecommunications, construction, food production, broadcasting, financial services, and transportation have long been a drag on competitiveness and job creation in Mexico.

Realizing that U.S. NAFTA companies are blatantly violating Mexican Laws without any repercussions demonstrates the collaboration between public and private organizations to breach the public trust in the name of personal and corporate gain.

But, the payroll and tax shenanigans are merely the grease that lubricates the wheels of the corporate gravy train. Article 303 of NAFTA is meant to protect NAFTA region manufacturers from undue competition from materials made in non-NAFTA countries. Article 303 provides that duty paid on imported materials cannot be drawn back (refunded) if and when the materials are incorporated into NAFTA qualifying articles that are then shipped to another NAFTA partner.

The intent of Article 303 was to provide an incentive to use NAFTA region made materials in lieu of non-NAFTA made materials. The articles of all non-NAFTA countries are to be subject to the usual import duties provided for in the tariff schedules of the importing NAFTA countries.

This was supposed to induce the NAFTA partners to invest in the manufacturing facilities to provide the materials necessary to make the articles to be marketed within and outside of the NAFTA region. Article 303 was one of the pillars of what was supposed to lead to a multitude of new jobs.

The truth is the United States and Canada have lost millions of manufacturing jobs and Mexico’s manufacturing employment is stagnant. If we are to believe the NAFTA pundits that NAFTA trade has tripled and quadrupled, where are the manufacturing jobs for the increased trade? Where are the materials coming from that are integrated into NAFTA articles?

Some would point to the growth of U.S. exports to Mexico. While exports to Mexico have grown, the export numbers contain a large portion of non industrial goods such as agricultural commodities, foodstuffs, metal scrap and used vehicles. Also, a significant portion of the exports contain redirected materials and circular non-commercial transactions. So, I reiterate - where are the materials coming from?

The answer - PROSEC, Presidential Proclamations, an Amended U.S. Customs Harmonized Tariff Schedule and trade supports. PROSEC is a Mexican Government duty exemption program that allows NAFTA companies to apply for duty exemption for foreign materials they will integrate into NAFTA articles.

Article 303 disallowed duty drawback (refund) so PROSEC exempted the duty. Now NAFTA companies can import materials duty free from subsidiaries in Asia and elsewhere and subject them to perfunctory operations that changes the tariff identity and viola - a duty free NAFTA qualifying material. An example would be installing Chinese electronic components onto a PC Board. The components have lost their identity and have become a NAFTA made PC Board.

The NAFTA Rules of Origin are intended to rule out NAFTA benefits being granted to non-NAFTA materials. The Rules of Origin require that vendors and manufacturers issue a binding Certificate of Origin claiming NAFTA origin for all materials incorporated into articles claiming NAFTA benefits.

Numerous Presidential Proclamations have modified and diluted the Rules of Origin in the U.S. Harmonized Tariff Schedule. The dilution led to conflicts and confusion. So, in 2006, a new Amended Harmonized Tariff Schedule was put forth. About 80% of the tariff classifications and most of the Rules of Origin were revised in the new Amended Harmonized Tariff Schedule.

What could the U.S. NAFTA companies gain from all of this tomfoolery? I will lay forth a feasible theoretical set of circumstances. Let’s suppose U.S. Co. “X” has operations in the Orient. These operations supply many companies and/or subsidiaries of Co. “X“. Co. “X” does not want to duplicate these operations in Mexico in order to supply NAFTA operations.

The host countries of Co. “X” Asian operations offer tax breaks and subsidies for materials exported to other countries. For most countries, these tax breaks and subsidies reduce the cost of otherwise expensive materials. Since these countries do not have domestic competing industries - the tax breaks and subsidies are welcome.

Not so in most of the major industrialized nations. Terms such as dumping and countervailing duties crop up. But, if a related Asian company is shipping to a related Mexican company - whose to know. The two companies will operate on Transfer Pricing Schedules and the companies can put forth whatever numbers they deem adequate.

Whose to stop them? Not the corrupt Mexican Government officials. So, the forbidden tax breaks and subsidies become lost in the various layers of Transfer Pricing Schedules and audits by corrupt government officials. The artificially lower cost materials require lower cost inputs to sustain NAFTA qualification. By deception the foreign materials become NAFTA qualifying materials and Co. “X” makes a few million more.

Another advantage to this flow is the high cost of marine freight from the orient to the west coast. There is an adage that “parts ship cheaper than finished goods.” Marine shipping containers can by a factor of 2, 3 and 4 times hold more parts than finished goods. Moreover, the value per pound is less, therefore the marine freight charge is less.

There is one other advantage. The U.S. Customs Service Inspectors and Import Specialists plying their specialties at west coast ports of entry have long been wary of shipments from the orient. This same distrust existed along the U.S./Mexican Border until NAFTA. The reasoning behind this is NAFTA is duty free so commercial fraud is inconsequential. Besides there are more important issues such as drug trafficking, terrorism, etc.

Meanwhile, American, Canadian and Mexican workers continue to wonder when will they prosper from NAFTA? Answer - NEVER! The early neigh Sayers had it right. NAFTA was not crafted to benefit the many - only the few.

Part 1: NAFTA is Fraud on Steroids

This is a prelude to the blog. Please take this into consideration when reading through the postings.

The use of steroids creates a formidable being that is unnatural and distorted. All accomplishments are false and misleading. Likewise, the U.S. multinational companies that partake in NAFTA become dominant, unnatural and distorted and their results are false and misleading. Once outside the confines of the United States, the U.S. companies enter the world of corruption, influence peddling, power brokerage and fear mongering.

The list of the injured encompasses the gamut of the citizenry of the United States and Mexico.

The list of the injured is astounding; the hapless Americans transferred to work in Mexico, The Government of Mexico, The Government of the United States, The stockholders of the U.S. companies, the citizenry of Mexico and the citizenry of the United States.

The hapless Americans that are transferred to work in Mexico are usually a core of employees that have survived a massive layoff because their jobs were exported to Mexico. The U.S. companies secure Mexican work permits for their American employees all the while telling them they will remain on the U.S. payroll and be subject to U.S. labor and tax laws while working in Mexico.

They’re told the only exemption is a personal service tax levied by the Mexican Government. They’re told not to fear because the IRS grants a foreign tax credit on their U.S. income taxes. If they question the incongruities of working in Mexico under U.S. law, they’re usually told NAFTA makes it legal. At no time during this process are the Americans advised by the U.S. companies of the American workers rights under The Mexican Constitution and Labor Law.

When any company incorporates in Mexico, it must by Mexican Law sign a covenant known as the “Calvo Clause.” A “Calvo Clause” is unique to most Latin American countries and requires a foreign investor to agree to comport themselves as a citizen of Mexico. They agree to abide by all of its laws and be subject to the Mexican courts if a legal dispute arises. They further agree not to seek the protection of any branch of the government of their resident country. They’re told that failure to adhere to the covenant can result in a forfeiture of all of the investments in Mexico. Few, if any shareholders are ever told of this stipulation.

Mexican Law requires that before an employer puts an employee to work, the employee must be apprised of their rights, guarantees, wages, benefits and perquisites as provided for under the Mexican Constitution and Labor Law. In general U.S. companies do not tell the Americans who will work in Mexico that they are subject while in Mexican territory to the protections and guarantees of the Mexican Constitution and Labor Law.

Nor are they told they qualify for the numerous lucrative Mexican mandated benefits and perks, such as double and triple overtime, seventh day pay, 15 days Christmas bonus, 25% vacation premium, free medical services, free child care services and 10% of the profits declared by their employer. These are some but not all of the benefits and perks found in Mexico.

Some Americans, like myself are becoming aware of their civil and labor rights under Mexican Law. Most have initiated legal actions to recoup monies improperly withheld from their paychecks.

To forestall the American workers, some U.S. companies have begun circulating a document whose purpose is ostensibly to protect the American workers from being assessed additional Mexican taxes. The true nature of the document is to frighten the American workers into believing they are the ones who owe added taxes. The document fails to say that added taxes would only result if withheld wages and benefits were to be paid to the American workers.

Moreover, the document menaces the American workers with a vow to file an action in a Superior Court if and when the American workers pursue their civil and labor rights in Mexico. The document fails to disclose that the Labor Commissioner for their U.S. state of residence is the sole party empowered to adjudicate labor, wage and hours issues. The Labor Commissioner cannot rule on labor issues that arise outside the state.

Some Americans working in Mexico have bucked the system and sought redress through the Mexican courts. Nearly all have won, but because the victories can only be to the victor, the rest of the Americans suffer. To receive their due compensation, the other Americans must also seek redress through the Mexican court system.

Subsequent postings will reveal in detail the full implecations to the citizenry of the United States, Canada and Mexico of the actions of the rapacious corporations and scofflaw executives.

Part 3: Fraud Under NAFTA

Halliburton is a +$15 billion dollar per year multinational corporation with operations in more than 120 countries. By its very nature and commitment to its shareholders, Halliburton must be knowledgeable about the laws of the many countries they operate in.

However, the Mexican judicial system has ruled that Halliburton has violated exceedingly fundamental sections of the Mexican Constitution, Labor Law, Social Security Law and Occupational Health and Safety Laws.

If the sections that were violated were an untested novel legal precept without any litigation history under the Mexican judicial system I would begrudgingly agree that unwary companies could innocently run afoul of the above cited Mexican Laws. But since the 1920’s, the Mexican Supreme Court has numerous times interpreted the Constitution of 1917 regarding the issue of the rights and guarantees to be accorded to foreigners working in Mexico. The statutes and case law are fundamental to Mexican college and university business, accounting and law courses .

Each time, the Mexican Supreme Court has been consistent. Per Article 1 of the Constitution, all persons - national or foreign - are to be equally accorded all of the rights, protections and guarantees enumerated in the Mexican Constitution. Per Article 123, a framework for a labor law is provided with a central principle the labor law shall apply equally to all workers regardless of sex or nationality.

Corporations such as Halliburton have induced Americans to accept work in Mexico without informing the American workers of their labor and civil rights in Mexico. The result in the case of the following Americans working for Halliburton in Mexico, was their workplace safety rights were violated, their rights to medical services for workplace injuries were denied, their termination rights were breached and their rights to mandated compensation were contravened. This is a bold statement, but the ensuing facts will bear me out.

Even though court records are sealed in Mexico, reasonable conclusions can be reached by analyzing the written decisions. In the matter of Halliburton, in 2003, a Federal Magistrate issued a Constitutional Amparo (Federal Court issued injunctive order) directing a lower court to “abide by the rights and guarantees accorded by the Mexican Constitution…..and…..the International Labor Organization Convention of 1935.…..to all foreign workers…..in Mexico.”
The Amparo further instructs the lower court to assure that the “rightful claimant foreign workers who were victims of a workplace accident,” receive “equal treatment without any condition.”

The synopsis of the decision does not state that Halliburton denied company sponsored medical treatment to the foreign victims. It seems only logical the only reason foreign workers (Americans) would seek redress in a Mexican Tribunal would be if they were denied medical treatment because Halliburton refused to authorize the medical services for its foreign (American) employees injured while working in Mexico.

On the same day, the same Federal Magistrate issued another Constitutional Amparo directing the same lower court to protect the rights and guarantees of foreign workers who were unjustifiably terminated by Halliburton. The Amparo further states the foreign workers are “mandated indemnification for unjustified termination, withheld salaries, seventh day pay, holiday pay, vacation pay, vacation premium, obligatory Christmas bonus, etc.”

In 2007, the Mexican Supreme Court reviewed and upheld the two Constitutional Amparos issued by the Federal Magistrate.

The compensation referred to by the Mexican Federal Magistrate are Mexican payroll benefits and perquisites. The list is incomplete and the abbreviation etc. is used to indicate there is a logical continuation of other applicable benefits and perquisites under Mexican Law.

The synopsis of the decision does not state that Halliburton unjustifiably terminated (fired) the injured foreign (American) workers. But, it seems reasonable to infer that the same Magistrate, issued two Amparos to the same lower court where injured foreign workers were pursuing legal action against Halliburton. It also seems reasonable to infer that both Amparos relate to the same action wherein the foreign workers were injured on the job and Halliburton refused to authorize company paid medical treatment. When the foreign workers complained they were fired.

The Federal Court instructed the lower court to acknowledge that foreign workers have the same occupational health and safety protections as Mexican workers. When those rights are infringed the foreign workers have the same rights to redress as Mexican workers. If a company takes a rash action such as firing “rightful claimants,” the Mexican Labor Law provides onerous punitive termination compensation to the unjustifiably terminated workers.

In my instance, the court ruled I was defrauded 70% of my base pay. The court also ruled that after seven years I was awarded almost $1.5 million dollars in withheld pay, profit sharing, fines, interest and penalties. The court also ruled that unpaid mandated compensation also resulted in unpaid corporate payroll and social security taxes owing to the Federal Government.

Herein lies the problems for corporations such as Halliburton. Most Americans working in Mexico are listed as exempt workers and are paid for a forty hour week. Standard work weeks for exempt employees can be as high as fifty five to sixty hours per week. One of the etc’s not listed above is overtime.

Overtime in Mexico is very burdensome to employers. The first nine hours are paid at double time and all subsequent hours are paid at triple time. When an American worker is transferred to Mexico, he has under Mexican Law a forty hour per week labor contract. Thusly, if sixty hours were incurred, the first nine hours would tally to eighteen hours and the subsequent eleven hours would tally to thirty three hours for a grand total of forty one hours of overtime.

That’s more than 100% of the Americans base pay. But this isn’t the end. To the overtime hours must be added the mandated benefits and perquisites applicable to the hours. Thereby driving the cost of the overtime hours much higher. Potentially as great as 35% more.

Herein lies the rub. As long as the American workers don’t know their labor and civil rights in Mexico, the weekly cost to corporations such as Halliburton are usually less than for comparable Mexican workers who must be paid the incurred overtime and added benefits and perquisites. This proviso usually causes comparable Mexican workers to be more expensive than American workers. Who would’ve thought.

But, there is a more insidious reason to keep foreign workers in the dark regarding their labor and civil rights. I referred to this above - 10% annual profit sharing. Mexican Law mandates that all workers in Mexico must be paid by their employers an annual 10% profit sharing. Most Mexican subsidiaries of U.S. NAFTA companies operate on a break even basis. Most compute a transfer price which includes a minimal profit. From this profit all Mexican employees receive a nominal share of the profits.

However, the lower the stated costs in Mexico, the greater the profits for the parent corporation. When Americans are transferred to work in Mexico, they apply for and are given a Work Permit (FM3) which claims they are an employee of the U.S. parent. Therefore, under Mexican Law, the Americans working in Mexico should divide 10% of the U.S. parents stated annual profit. Halliburton declared a c.$3.5 billion dollar net income. Ten percent would amount to $350 million. If Halliburton were to have 500 foreigners working in Mexico, they’d each receive a profit sharing check for c.$700,000 dollars.

This is a fact most shareholders lack knowledge of. If this were to ever surface, the shareholders would rise up, grab their pitchforks and torches and storm the corporate headquarters.

I have reviewed available Halliburton annual reports and I cannot find any reference to the two significant court rulings. Nor can I find any disclosure to the shareholders that annual dividends may be diluted by mandated Mexican 10% profit sharing owing to Halliburton employees working in Mexico.

My next posting will bring to light the fiscal implications to the United States and Mexican Governments.

Part 2: NAFTA Statistics Are Half Truths

Free Trade? No such thing! Sir Isaac Newton once postulated that for any action there must be an equal and opposite reaction.

Therefore, for something to be free, it must cost someone an equal amount. There’s a quotation by Robert Heinlein that states “there ain’t no such thing as a free lunch.” To be free of cost is a benefit. But for a cost to be free to a party it must be a cost or detriment to some other party.

For the North American Free Trade Agreement (NAFTA) to be free, it must be a detriment to some other party. The framers of NAFTA would have everyone believe that there are no losers. They claim NAFTA is a win-win for all parties.

Wrong! NAFTA victimizes the workers of each of the three partner nations, i.e., The United States, Canada and especially Mexico. American and Canadian workers are victimized when rapacious corporations decide to relocate manufacturing operations to Mexico. Many of those who work in Mexico are victimized by the foreign corporations who’ve relocated their manufacturing operations to Mexico.

An example is Halliburton who recently was tried in a Mexican Tribunal for its labor indiscretions. The Mexican Supreme Court last year upheld the lower courts two rulings adverse to Halliburton.

For those who want to access the two Halliburton rulings, first go the Mexican Supreme Court website @ http://www.scjn.gob.mx/PortalSCJN/. Next, click on “Actividad Jurisdiccional”, then click on “Jurisprudencia”, then click on “IUS 2006”, and then click on “BUSQUEDA POR NUMERO DE IUS (TESIS).” Next input 182067 or 182068 into the space and press “BUSCAR.” When the synopsis appears, click on the underlined number. Viola!

There’s an adage that states, “figures don’t lie, but liars do figure.” NAFTA statistics have been formulated to characterize what NAFTA proponents want the statistics to represent. Namely that NAFTA is a benefit to all parties. Sir Isaac Newton would dispute that claim. For every winner there must be a loser.

NAFTA proponents claim that the trade between the three nations is up signifying that employment in each of the three countries has increased by the rate the exports have risen. Lofty claim, to bad it’s a faulty claim.

There are some deficiencies in this claim. First, when jobs are relocated from the U.S. and Canada to Mexico, there is an inventory of U.S. and Canadian made materials that follows the jobs from the U.S. and Canada to Mexico. Each American and Canadian worker was processing a list of materials before their job was relocated to Mexico. U.S. and Canadian employment did not increase in order to supply and export those materials to workers in Mexico.

Therefore, a significant portion of the exports to Mexico consists of materials that were supporting U.S. and Canadian workers and are now supporting Mexican workers. The jobs in the U.S. and Canadian suppliers were preexisting to relocation and continue after relocation. There are no new jobs in the U.S. because of increased exports. The only thing that’s changed for the material suppliers is the shipping destination.

Second, a significant portion of the U.S. and Canadian exports consists of “circular non-commercial” transactions. Mexico initiated a program for foreign corporations that wanted to relocate operations to Mexico. The program is called “The Border Industrialization Program.” Euphemistically called “The Twin Plant Program” in the U.S.

The U.S. and Mexican Customs procedures that enabled these programs to exist are called “Temporary In-bond” (TIB) transactions. TIB transactions involve the temporary export of materials from the U.S. and import into Mexico under TIB in order to be processed and then returned to the U.S. to cancel the TIB. The Mexican manufacturer never enters into a commercial contract to purchase the materials. The process is called bailment in the U.S. and comodato in Mexico.

An example would be when a person takes their car to a mechanic for a needed repair. The mechanic makes no commitment to purchase the car. The mechanics only responsibility is to receive the car, perform the agreed upon repairs and return the car to the owner.

But, under NAFTA, the car would be claimed as a purchase by the mechanic for repair and subsequent sale back to the owner. At worst, this is a distortion of the truth and at best a self neutralizing process.

The Border Industrialization Program is also known as the Maquiladora Program. Mexico has implemented a new program entitled Programs of Temporary Importation for Production of Articles for Exportation or PITEX for short. The U.S. and Canadian NAFTA corporations greatly utilize the Maquiladora and PITEX programs.

Both the Maquiladora and PITEX programs put Mexican manufacturers at a disadvantage. The Maquiladora and PITEX companies can import their materials free of any duties and value added tax (IVA). Mexican manufacturers cannot.

When Mexican manufacturers sell their products they must pass along the Mexican duty and IVA costs to the buyer. Articles made under the Maquiladora or PITEX programs are sold from the U.S. to Mexican buyers. The buyers must pay the Mexican duties and IVA directly to Mexican Customs. Mexican manufacturers are forced to prepay duties and IVA and then wait until the finished goods are sold to recoup their costs. U.S. and Canadian NAFTA companies do not usually have to prepay Mexican duties and IVA.

Upcoming postings will provide more in depth revelations pertaining to NAFTA misdeeds. The Halliburton rulings and their implications to NAFTA as a whole will be discussed in detail as will other labor, economic and legal issues.

Meanwhile, Global Trade Watch reveals some related NAFTA misdeeds. Follow the link below in order to become acquainted with more of the deceptions fielded by NAFTA proponents.
http://www.citizen.org/trade/nafta/