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What has changed?

On 10 December 2019, the United States, Canada and Mexico reached an agreement on a revised United States-Mexico-Canada Agreement (USMCA), which establishes a rapid response labor mechanism (RRLM) for dispute resolution for alleged violations of the right of freedom of association and the right to collective bargaining in these countries. The mechanism allows the US and Canadian governments to make claims against facilities in Mexico for potential violations of these rights, to the extent that the rights are established by Mexican law. The Mexican government may also file a claim for potential violations to these labor rights in the US or Canada, but only if the facility involved is under an enforced order of the National Labor Relations Board or the Canada Industrial Relations Board, respectively. This mechanism cannot be invoked for disputes of this nature between the US and Canada.

What does it mean?

Because of the asymmetry in application described above, the predominant impact of the RRLM will be on companies accused of violating the covered labor rights of workers at facilities in Mexico. According to the protocol, the complainant country (such as the US or Canada) may invoke the RRLM when it considers in good faith that a covered facility in the territory of the respondent country (such as Mexico) has denied the right of freedom of association and collective bargaining to its workers (Denial of Rights). The United States and Canada are each establishing domestic processes by which private parties, including labor unions, NGOs, competitors or even affected workers may file complaints about an offending facility in the respondent country. An affirmative determination on a private party complaint will result in the suspension of liquidation of entries of goods from the covered facility, and commence the state-to-state dialogue provided for in the RRLM.

Covered facilities include any enterprise in the territory of a contracting country that produces a good or supplies a service traded between the two countries or competes with a good or service produced or supplied by the other country, in the manufactured goods, services or mining sectors. The USMCA specifically highlights the aerospace and automotive industries, as well as cosmetics, industrial baked goods, steel, aluminum, glass, pottery, plastic, forgings and cement as priority manufacturing sectors for purposes of the RRLM.

The RRLM prescribes extensive state-to-state discussions regarding any complaint. When an agreement cannot be reached, the complainant country may appeal to a panel comprised of independent labor experts. Under the USMCA, the respondent country may agree with the complaint, and impose "actions and sanctions" against the offending facility. If the parties cannot reach a resolution, the matter is referred to the panel, which is authorized to determine whether there has been a Denial of Rights, and if so, to provide views on the severity of such Denial of Rights. The complainant country can only impose remedies after a determination from the panel. Such remedies may include: (a) suspension of preferential duty treatment, (b) penalties on goods manufactured or services supplied at the covered facility, or in the case of certain repeat violations, (c) denial of entry of such goods.

Actions to take . . . now

Companies with operations in Mexico, the US and Canada should implement the following measures to reduce the risk of possible violations to the right of freedom of association and collective bargaining (and resulting adverse commercial effects):

  • Review your current collective structure to ensure the right of freedom of association to create or join a union.
  • Guarantee the right of workers to negotiate collective labor terms and conditions.
  • Publicize the terms and conditions of existing collective bargaining agreements in the workplace.
  • Implement an "open door" policy to address employees concerns on collective matters.
  • Implement preventative audits to verify compliance with labor obligations arising from the recent amendments to the Mexican Federal Labor Law, Convention 98 of the ILO, and labor provisions of the USMCA.

ICYMI: Background on the Trade Pact

The USMCA is intended to replace the twenty-six-year-old NAFTA. Although substantially consistent with NAFTA in many respects, the USMCA reflects a number of modernizations in addition to the creation of the RRLM. The agreement, among other things: (a) revises the investor-state dispute settlement mechanism in a manner likely to reduce the number of successful claims brought; (b) revises rule of origin and regional content requirements, including new minimum wage requirements for originating goods in the automotive sector; (c) enhances the state-to-state dispute resolution mechanism in an effort to render it functional; (d) places labor and environmental obligations within the scope of the state-to-state dispute mechanism; and (e) allows importing companies to make a claim for preference on the basis of the importer's knowledge, rather than just an exporter's certificate of origin, as under NAFTA.

The USMCA has been ratified by the US and Mexico. Once it is ratified by Canada and the three countries deliver formal ratification notices, the USMCA will enter into force on the first day of the third month thereafter. It is difficult to predict when the ratification notices will be issued, as a number of steps must first be taken including each country's adoption of "uniform regulations" regarding the interpretation, application, and administration of several USMCA chapters including the Rules of Origin chapter. The USMCA will be subject to periodic reviews and, unlike NAFTA, it will terminate automatically after sixteen years unless the three parties agree to renew the term.

In May, 2019, Mexico underwent significant labor reform. The reform establishes new provisions to secure the rights of freedom of association and collective bargaining, including a pre-certification process for unions to follow to request the execution and review of a collective bargaining agreement. The new legal framework, also includes protection against employer interference in union organizing activities. As a result, in July 2019 the Labor Ministry issued a protocol establishing a consultation process for unions to follow to legitimize collective bargaining agreements that are filed with the Labor Boards, before the new Federal Center of Conciliation and Labor Registration starts operations. The Federal Center of Conciliation and Labor Registration will be in charge, among others, of the registration of unions and collective bargaining agreements.

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