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Auto manufacturing could be especially vulnerable if the the RRLM finds that a company has violated a USMCA commitment and imposes import restrictions. Here Ford's Cuautitlán plant in Mexico. (Photo: Ford)
Wednesday, October 14, 2020

Labor Rules Spur USMCA Uncertainty

The USMCA’s Rapid Response Labor Mechanism could spur a number of dispute settlement cases.

Inter-American Dialogue

The American Federation of Labor and Congress of Industrial Organizations, or AFL-CIO, said last month it would file the first two public complaints under the new U.S.-Mexico-Canada Agreement’s labor enforcement mechanism. At least one of the complaints could potentially suspend exports from individual factories in Mexico that violate labor rights provisions, said Richard Trumka, the trade union’s head. What’s behind the suit, and how valid are the concerns regarding labor rights in Mexico? How well has the USMCA functioned since it came into effect in July, and what can be expected of the new labor enforcement mechanism under the deal?

Kim A. Nolan, assistant professor in the Democracy, Human Rights and Rule of Law program at FLACSO-Mexico, and Tamara Kay, associate professor of global affairs and sociology at the University of Notre Dame: The labor enforcement mechanisms of the USMCA directly respond to key failures of the NAFTA labor panels to address the core issue of violations of the rights to freedom of association and collective bargaining, primarily in Mexico. These violations have been the center of nearly every public complaint filed under NAFTA’s labor side agreement during the last 25 years. The NAFTA labor chapter lives on in the USMCA as Chapter 23, but with important changes. Primary among them is a new cooperative process that can result in trade sanctions for all types of labor violations. This was not possible under NAFTA. The AFL-CIO is preparing to file its first case under the USMCA’s new Rapid Response Labor Mechanism (RRLM). The NAFTA experience suggests that any test case must be chosen strategically and clearly meet procedural criteria; the first cases are opportunities for panels to interpret the application of the rules and will condition how subsequent cases are processed. RRLM panels will interpret key provisions as they adjudicate the first test cases, including when and how exports can be suspended, and whether an export ban can be extended through all Mexican facilities of a given manufacturer, or just the plant that is the subject of the case. A case that does not meet RRLM criteria, or fails to demonstrate violations of the union procedures listed in Annex 23, risks an unexpected outcome and could discredit the new RRLM panel as yet another futile experiment in enforcing labor rights commitments though trade agreements.

Antonio Ortiz-Mena, senior vice president at Albright Stonebridge Group: The USMCA will provide less certainty for U.S. investors than NAFTA. One reason has to do with the Rapid Response Labor Mechanism (RRLM), which provides for expeditious and enforceable dispute settlement. If a panel established under the RRLM finds that a company has violated a USMCA commitment, it can recommend the imposition of import restrictions on the goods involved in the dispute. Manufacturing (autos, aerospace, electronics) and agribusiness could be especially vulnerable. The current U.S. Republican administration has stated it will take action ‘early and often’ via the RRLM, while the AFL-CIO has signaled its intent to file a case under the RRLM. As if this weren’t enough to generate uncertainty, the U.S. Department of Labor has set up a ‘hotline’ to receive confidential complaints on alleged USMCA labor violations. The new RRLM and hotline, which have not been tested and could yield unintended results, and the highly charged political environment in the United States, which will likely remain so over trade and labor regardless of the presidential election result, will combine to deter outsourcing and keep some U.S. companies on edge about how the new labor rules will play out. I hope, for the benefit of both workers and management, that frivolous claims are avoided and that cooler heads prevail over the months ahead.

Sarah Kirwin, associate at Akin Gump: Mexico’s ability to adequately enforce its labor reform law has been of particular concern for U.S. congressional Democrats and key labor groups such as the AFL-CIO, which prompted the creation of the USMCA’s facility-specific Rapid Response Labor Mechanism (RRLM). The AFL-CIO has not yet shared the subject of its complaints, but the RRLM addresses ‘priority sectors,’ including aerospace, auto and auto parts, cosmetic, industrial baked goods, steel, aluminum, glass, pottery, plastic, forgings, cement and mining. Mexican officials have emphasized significant compliance efforts undertaken by both the government and private sector in these areas, so the legitimacy of the AFL-CIO’s concerns with respect to any particular Mexican facility will ultimately be determined under the RRLM. These ongoing tensions over labor compliance are indicative of the overall state of USMCA implementation, and labor complaints may only serve to further exacerbate issues in other areas. In their haste to complete a politically driven renegotiation, none of the USMCA parties conducted a thorough legal scrub of the agreement’s text. So, it is unsurprising that they continue to disagree about their respective implementation of the auto rules of origin, de minimis treatment for express shipments, dairy market access and food labeling commitments and other topics, in addition to more systemic trade irritants such as lumber and seasonal produce imports. These strains could imminently lead to a number of dispute settlement cases, which is hardly a good omen for a new agreement—lauded by U.S. officials as a ‘gold standard’—between historically close trading partners.

Republished with permission from the Inter-American Dialogue's daily Latin America Advisor




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