On September 24, 2022, the Office of the United States Trade Representative (USTR) announced the successful resolution of a labor complaint brought under the Rapid Response Labor Mechanism (RRM) of the United States-Mexico-Canada Agreement (USMCA). This case marked the fifth time that the RRM has been invoked since its inception in 2020. The RRM represents the most tangible aspect of the Biden Administration’s worker-centric trade policy. As the number of these cases goes up, companies with production activities in Mexico–and particularly those in the automotive sector–should be mindful of their commitment to their workers’ labor rights.
The RRM, found in Annex 31-A of the USMCA, is designed to “ensure remediation of a Denial of Rights, as defined in Article 31-A.2, for workers at a Covered Facility, not to restrict trade.” A Denial of Rights occurs when workers at a Covered Facility “are being denied the right of free association and collective bargaining under laws necessary to fulfill the obligations of the other Party” (Article 31-A.2). While the only RRM investigations to date have been of automotive plants in Mexico, nothing in the USCMA limits such investigations to that sector. The term “Covered Facilities” is defined broadly to include any facility that (1) produces a good or supplies a service traded between the United States and Mexico or (2) that produces a good or supplies a service that competes in the territory of the United States or Mexico with a good or service from the other Party’s domestic market.
While many U.S. free trade agreements include provisions focused on raising worker rights on a country- or industry-wide scale, the RRM is unique in that it is focused on labor conditions at individual facilities. The overall RRM process is highly complex, as reflected in this flowchart prepared by the U.S. Chamber of Commerce. Generally speaking, RRM investigations originate with a complaint filed by a Party, stakeholder, or large labor union alleging a Denial of Rights at a Covered Facility. Upon review of the complaint, a Party (so far, always the United States) can act upon a good faith belief that workers are being denied their rights, by requesting that the respondent Party (so far, always Mexico) investigate the situation. The respondent Party then has 10 days to notify the complainant Party if a review will be conducted; if the respondent Party decides to move forward with the review, an investigatory panel has 45 days to conduct the review, attempt a remediation, and report its results. After this, both Parties have a further 10 days to try to arrive at a solution that will not disrupt trade. If no such solution can be found, then the complainant Party has the right to act by imposing one of the remedies cited in Annex 31-A of the USMCA.
The range of potential remedies is broad. If a Denial of Rights is found and not remedied, a Party can revoke preferential tariff treatment for goods from that facility or impose penalties on goods manufactured or services provided there. In extreme cases, when a Covered Facility (or Covered Facility owned or controlled by the same person) that produces the same or related goods, or provides the same or related services, is the subject of two prior violations, the remedy may escalate to denying entry of such goods. Companies found in violation may also be forced to pay severance and back pay for workers who are unjustly fired for organizing.
The RRM provision of the USMCA also permits a Party to “delay final settlement of customs accounts related to entries of goods from the Covered Facility” beginning when the request is delivered to the respondent Party. From the U.S. perspective, this means that while the imports themselves can still enter the United States, the liquidation of these entries by U.S. Customs and Border Protection may remain suspended.
All five of the RRM proceedings to date have been resolved, two with monetary penalties. Approximately 150 workers at the Tridonex automotive plant in Matamoros were awarded $600,000 in severance and back pay after having been fired for attempting to unionize with SNITIS, a Mexican automotive labor union. The RRM proceeding brought against a Panasonic Automotive Systems facility in Reynosa resulted in the facility agreeing to reimburse union dues and unpaid wages, as well as permit unionization. The other three proceedings – the Manufacturas VU proceeding referenced above, an investigation of a General Motors facility in Silao, and an investigation of a Teksid Hierro facility in Frontera – were all resolved by securing the covered rights for workers at those facilities without monetary payments.
Given the Biden Administration’s emphasis on promoting a “worker-centric” trade policy, and the relatively quick and positive outcomes of the RRM cases brought to date, it is likely that the number of these proceedings will increase. When successfully concluding the Tridonex investigation, Ambassador Tai committed to leveraging “the USMCA’s innovative enforcement tools to address long-standing labor issues and support Mexico’s implementation of its recent labor reforms.” Importantly, the RRM is also supported by the Government of Mexico. For example, the Economic Ministry of Mexico announced its intention to support the fourth RRM request less than 10 days after it was filed. In the announcement, the Government of Mexico reiterated its commitment to the enforcement provisions of the USMCA’s Labor Chapter and to “transparency and certainty for the workers of Mexico.”
Given these recent developments, companies with operations in Mexico, particularly those in the auto sector, should be following these cases to see how the USMCA’s tougher labor rules are being enforced. Recent media reports underscore this conclusion. El Paίs reported on the third RRM investigation by highlighting how “new Mexican unions claiming to be independent of government and other interference see the [USMCA] as a useful and quick resource to force some democratization of unions in the country.” Automotive News reported after the fourth RMM investigation that the USMCA is of more importance now than it has ever been, “because it’s one of the few functioning dispute mechanisms that’s left.” The RRM provision also specifically shows promise for the continued support and advancement of collective bargaining rights in Mexico, a goal wholly consistent with U.S. worker-centric trade policy. In short, the relatively prompt and positive outcomes of the five RRM cases filed to date suggest that this Administration is likely to continue pursuing these cases, meaning that companies producing in Mexico should continue to make communication and cooperation with labor a priority.