US Importers' ‘Full Supply Chain’ in Mexico Faces USMCA Labor Exposure, Experts Say
The labor provisions of the U.S.-Mexico-Canada Agreement on free trade “don’t only apply to U.S. companies doing business in Mexico,” regulatory law expert Ignacio Sanchez, with DLA Piper, told a webinar held June 24 to prepare clients for the treaty that takes effect July 1. USMCA also applies to “any facility producing goods in Mexico” for import into the U.S., he said.
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The “full supply chain” will be exposed to USMCA’s labor rules, “whether it is owned by a U.S. entity,” or one from South Korea or Germany, Sanchez said. “The goal of this agreement was to create some level of parity in labor” between the U.S. and Mexico, he said.
The treaty gives U.S. organized labor a “process” for filing grievances with the Trump administration alleging violations of Mexico’s new labor laws at Mexican factories, he said. The revamp gave Mexican workers collective bargaining rights for the first time and protects them against retaliation for joining unions or refusing to join, he said.
The U.S. Interagency Labor Committee, co-chaired by U.S. Trade Representative Robert Lighthizer and Labor Secretary Eugene Scalia, will field complaints about alleged violations, Sanchez said. Possible sanctions can include the imposition of tariffs or the rescission of an importer’s duty-free status, Sanchez said. The worst cases could bring import bans of the goods produced at the Mexican factory alleged to be in violation, he said. Though Mexican automotive imports have grabbed most of the USMCA headlines, electronics is one of eight industry sectors expected to undergo prioritized enforcement of the treaty’s labor rules, DLA Piper employment law expert Harriet Lipkin said. More than 61% of the 10.4 million TVs imported to the U.S. in the first four months of 2020 came from Mexico, according to the International Trade Commissions DataWeb tool.
It’s an “understatement” to suggest U.S. labor unions “are looking forward to July 1 for this process kicking off,” Sanchez said. “They worked hard and lobbied for it.” DLA Piper is “anticipating that we’re going to see some significant activity with respect to complaints alleging violations of labor standards in Mexican facilities under this process.” The AFL-CIO and the Teamsters didn’t comment.
“Hundreds of complaints” are expected from U.S. organized labor alleging noncompliance under USMCA, Lipkin said. The complaints are meant to force respondents to spend time and money defending their practices, she said. The unions also want to inflict “reputational harm” on the alleged offenders, she said. “The side benefit from the unions' perspective is any harm that goes to that facility or its partners in the U.S. could muddy the name or the product.”