Companies Beginning to Consider USMCA Labor Chapter Risks
A Mexican federal official, along with Mexican and U.S. attorneys, believe that Mexican firms will have to sharply change their labor relations policies, but they aren't as sure about how often labor issues will be brought up, in the context of the U.S.-Mexico-Canada Agreement. If the U.S. government doesn't agree that a Mexican company has come into compliance with Mexican labor laws, it could lead to goods from that producer being barred from USMCA tariff benefits.
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The panel spoke June 2 on a webinar convened by the U.S.-Mexico Bar Association.
Olga Torres, founder of Torres Law, told the moderator it's hard to say what will happen once USMCA enters into force on July 1. “I'm a mere trade attorney, not a labor attorney,” she said, adding, “I’m definitely not a political commentator.”
Of the USMCA labor chapter, she said, “We memorialized good intentions, but I think the skeptics want to see if it is really going to change things at the factory level.”
Gabriela Peregrina, a Deforest Abogados lawyer in Mexico who concentrates on labor law, explained that until the recent reforms, lawyers suggested to corporate clients that they “sign a protective union agreement.” She said that was necessary because until the reforms, any union could bring a complaint against any company, even if they didn't represent any workers there, and even if they weren't that familiar with the company's operations.
“Most of the companies provide higher benefits to the employees than is required by law,” Peregrina said. She said she expects some firms may go from a protection union to no union, if they have good enough relationships with their workforces. Others will have employees represented by a real union, and the workers will have to see the contracts they are party to. She said that's great news, because now only the unions that truly represent workers will be allowed to lodge complaints.
Torres said there's still quite a bit of confusion at American firms that import from Mexico or have affiliates in Mexico. She said companies are confusing the labor chapter with labor value content, which is a provision that affects rules of origin for the automotive and heavy truck sectors. On one webinar recently, she said, someone asked: “That only applies to the auto industry right? We don’t have to be concerned about it.”
That is not true. It doesn't even exclusively apply to factories. Ricardo Aranda, director general for international trade disciplines in Mexico's Undersecretariat for Foreign Trade of the Economy Ministry, said the agriculture sector in Mexico should not assume that. “Everybody needs to comply with the laws,” he said.
Torres said that some still don't realize that USMCA will go into force July 1, as they expect the coronavirus COVID-19 pandemic would delay that date.
She said she recommends that companies contact their suppliers, and identify potential weaknesses in employment policies in that supply chain. For some companies, she's even recommended “audits of their supply chain in Mexico to make sure they're complying with labor law.”
Aranda said the complexity of the rapid response labor mechanism will inspire unions and non-governmental organizations to “be totally sure the claims are founded … and they deserve a dialogue with a counterpart.” He said, “It will not be a constant presentation of cases, I think.”
Still, all three speakers said they hope companies will be proactive to improve communication from and with workers.
“I think that hopefully we will work ... in a prevention way, not in a corrective way,” after a USMCA labor complaint is filed, Peregrina said. She said that if firms know about the trade consequences of breaking labor laws, “maybe they will work harder to avoid this kind of risk.” She said labor lawyers are recommending changing handbooks and establishing hotlines, “in case workers have complaints, [so] they will air them in the company first.”
Aranda also said companies need to realize that unlike in state-to-state disputes, if the U.S. wins a case under the labor dispute mechanism, the penalty will be imposed on the company, not on Mexico. “It should be in the best interest of the employers to fix any kind of issue there,” he said.
Exactly what the consequences could be for firms that break Mexican labor laws in goods or services isn't clear, Torres noted. “The implementation act is quite broad, and we don’t have the implementing regulations just yet,” she said. “It’s not clear -- there could be monetary fines, or denial of market access, or both.” The draft implementing regulations were silent on the labor chapter, she said.