US-Mexico-Canada Agreement Introduces Labor Changes

​The new United States-Mexico-Canada Agreement (USMCA) introduces labor provisions that carry potentially significant consequences for employers operating across borders.

While similar to the North American Free Trade Agreement (NAFTA) that it replaced, the trade deal, which went into effect July 1, introduced rules aimed at narrowing pay differences among the countries and improving workers' rights.

"Understanding the importance and implementation of the labor protections is key," said Nicole Simonian, an attorney with Crowell & Moring LLP in Los Angeles.

The "USMCA, unlike NAFTA, aims to level the playing field for companies and address wage disparities between the participating countries, with the intent to create more jobs in the U.S. and create better working conditions, geared primarily to companies operating in Mexico," she said. "Employers will have to invest time and money to understand the numerous provisions and educate their employees who have oversight on operations to ensure compliance."

Complaints Against Mexican Companies

One new component of the USMCA, relevant to Mexican companies and U.S. and Canadian businesses with operations there, allows labor-organizing and collective bargaining complaints against companies, noted Lance Compa, a retired Cornell University ILR School professor who now works as an independent international labor consultant in San Diego.

Under NAFTA, he explained, governments could be sued for failing to enforce labor laws, but companies themselves didn't directly face grievances. Under the USMCA, companies that violate Mexican labor law by interfering with freedom-of-association and collective bargaining rights may be hit with sanctions, he said.

Quick Investigations

The USMCA establishes a rapid-response labor mechanism to provide a quick investigation and determination to establish whether violations occurred at a facility, Compa said. If there were violations, "that particular company would lose the tariff benefits of the trade agreements, so they would have to pay additional tariffs." Repeat offenders could have goods seized at the border, he said.

Lawyers from Akin Gump Strauss Hauer & Feld LLP noted in a recent blog post that the mechanism allows the United States or Canada to request remediation for labor rights denied at covered facilities in Mexico. The two countries can take action against noncompliant companies 120 days after filing the complaint, according to the law firm, which noted that unions, workers and others can petition the U.S. government to trigger the rapid-response process.

Mexico can bring such claims, as well, against facilities in the United States and Canada, according to the firm.

"It's quite a powerful mechanism," said Compa, one of six U.S. citizens appointed to a roster of rapid-response panelists who will investigate and decide on the suspected labor violations. HR professionals with global responsibilities "need to educate their Mexican managers in the first place to obey the law" and not interfere with workers' organizing rights, he added.

Rooting Out Corruption

Compa said that companies need to be aware of changes in law relating to Mexico's long-standing "protection union" system. For decades, U.S. and other global companies opening call centers or factories in Mexico would reach collective bargaining agreements with corrupt protection unions that were favorable to businesses, he explained. "It protects the employer against having a real union come in."

Mexico has adopted labor reform to do away with this system, Compa noted. "HR professionals need to educate themselves on this particular element of the trade agreement, because if managers in Mexico think they can continue to get away with the old system," they could be hit with a rapid-response investigation and tariffs, he said. "Employers should immediately be obeying this new law."

A U.S. company contemplating setting up shop in Mexico "should not work out a deal with a corrupt union leader," Compa said. He noted that several members of Congress wrote to Mexico's president in early July expressing concern over reports of Mexican labor practices, including illegal firings and new protection-union contracts, that appear to violate the USMCA's labor-rights provisions.

Other Requirements

HR professionals in the automobile or auto parts industry also should be aware of a USMCA requirement that 40 percent of a passenger car and 45 percent of a truck manufactured in North America be built by workers earning at least $16 an hour, Compa said. This provision, which would be phased in over three years, aims to raise wages for Mexican workers.

Simonian with Crowell & Moring said that companies should expect more inspections, and products will be blocked from entering the United States if violations occur. "At a time that employers are still trying to assess and mitigate labor costs arising due to COVID-19," she said, "this will add another potential layer of burden for companies still struggling with layoffs, furloughs and reopening."

Dinah Wisenberg Brin is a freelance reporter and writer based in Philadelphia.