By Alvaro Gonzalez-Schiaffino, Firm: Ringe y Correa SC
Newly agreed changes to the free trade agreement between the US, Mexico and Canada will have an impact on employers in Mexico.
The United States-Mexico-Canada Agreement (‘USMCA’) was initially signed in November 2018 and ratified by the Mexican Senate on 19 June 2019.
Although it was expected that each country would domestically ratify and implement USMCA shortly after the original agreement was signed, the ratification process was delayed to allow the United States to seek amendments to the agreement.
After months of no action regarding the USMCA, on 11 December the official final text of the revised version was published and appears to be headed toward ratification. On December 19, the US House of Representatives approved USMCA by a vote of 385 to 41; however, the US Senate is not expected to act until early 2020.
Amendments to USMCA from the version signed in 2018 relate to dispute settlement, environmental standards, intellectual property rights and automotive rules of origin; however, the most significant changes to the initial agreement relate to labour-related provisions.
Amendments to USMCA related to labour matters include the following:
- The original provisions required a party to prove a violation regarding worker rights occurred ‘in a manner affecting trade and investment.’ The amendment shifts the burden of proof by stating that a panel will presume a violation affects trade and investment unless otherwise demonstrated.
- The text on forced labour commitments was changed by removing language that stated a party could adopt measures it ‘considered appropriate’ to stop the importation of goods produced by forced labour.
- Language that a party would have to prove that a violation involved a ‘sustained or recurring’ pattern was removed. In addition, the amended agreement shifts the burden of proof to the responding party by stating that a panel will presume that a failure to comply affects trade or investment, unless the responding party demonstrates otherwise.
- Mexico’s Labor Reform Monitoring: USMCA implementing legislation creates a new inter-agency committee and reporting requirements to Congress on Mexico’s implementation of the labour reform implementation process. It also establishes key benchmarks for Mexico and for labor attachés or inspectors based in Mexico.
- A new ‘rapid-response’ mechanism would provide for an independent panel investigation at ‘covered facilities’, as opposed to a government inspection, for suspected denials of the right of free association and collective bargaining. For the United States, ‘covered facilities’ would be limited to those that have previously been proven to have violated US law. For Mexico, a claim can be only brought with respect to an alleged worker rights violation under Mexico’s labour reform commitments under USMCA. Violations could result in a suspension of preferential tariffs or potential penalties on goods manufactured at, or services provided by, the ‘covered facility’.
These amendments are likely to prove significant for companies doing business in Mexico as they will need to pay particular attention to labour and employment matters and compliance with labour law to prevent the possibility of their products being subject to import taxes or even being banned from access to the United States.