USMCA’s Labor Rapid Response Mechanism: An Increasingly Important Component of the Biden Administration’s ‘Worker-Centric’ Trade Policy
On September 24, 2022, the Office of the United States Trade Representative (USTR) announcement the successful resolution of a labor complaint filed under the Rapid Labor Response Mechanism (RRM) of the United States-Mexico-Canada Agreement (USMCA). This case marked the fifth time the RRM has been invoked since its inception in 2020. The RRM represents the most tangible aspect of the Biden administration. worker centered Exchange policy. As the number of such cases increases, companies with production operations in Mexico – and especially those in the automotive sector – need to be aware of their commitment to the labor rights of their workers.
The RRM, found in Annex 31-A of the USMCA, is designed to “provide relief from a denial of rights, as defined in Section 31-A.2, to workers at a covered facility, and not to restrict trade.” A denial of rights occurs when workers at a covered facility “are denied the right to free association and collective bargaining under laws necessary to fulfill the obligations of the other party” (Section 31-A.2) . Although the only RRM investigations to date have involved auto plants in Mexico, nothing in the USCMA restricts these investigations to that sector. The term “covered facility” is broadly defined to include any facility that (1) produces a good or provides a service traded between the United States and Mexico or (2) produces a good or provides a service that is in competition in the territory of the United States or Mexico with a good or service originating in the domestic market of the other party.
While many U.S. free trade agreements include provisions that focus on improving workers’ rights nationwide or industry-wide, the RRM is unique in that it focuses on working conditions. work in individual installations. The overall RRM process is very complex, as evidenced by this organizational chart prepared by the United States Chamber of Commerce. Generally speaking, RRM investigations begin with a complaint filed by a party, stakeholder, or large union alleging a denial of rights at a covered facility. After reviewing the complaint, a Party (hitherto always the United States) may act in the good faith belief that workers are being deprived of their rights, requesting the responding Party (hitherto always the Mexico) to investigate the situation. The defending party then has 10 days to notify the complaining party whether a review will be carried out; if the responding party decides to proceed with the review, a Board of Inquiry has 45 days to conduct the review, attempt a remedy, and report its findings. After that, both parties have another 10 days to try to reach a solution that will not disrupt trade. If no such solution can be found, the complaining party has the right to take action by imposing one of the remedies listed in Schedule 31-A of the USMCA.
The range of possible remedies is wide. If a denial of rights is found and not remedied, a Party may revoke preferential tariff treatment for goods from that facility or impose penalties on goods manufactured or services provided there. In extreme cases, where a Covered Facility (or a Covered Facility owned or controlled by the same person) that produces the same or related goods, or provides the same or related services, is subject to two violations earlier, the appeal may go as far as refusing the entry of these goods. Companies found in violation can also be forced to pay severance pay and back wages to workers unfairly fired for organizing.
The USMCA’s RRM provision also allows a Party to “defer final settlement of customs accounts related to incoming goods from the Covered Facility” from the time the claim is forwarded to the responding Party. From a U.S. perspective, this means that while the imports themselves may still enter the United States, clearance of those entries by U.S. Customs and Border Protection may remain suspended.
The five RRM proceedings to date have been resolved, including two with monetary penalties. Around 150 workers at the Tridonex car factory in Matamoros were reward $600,000 in severance pay and arrears after he was fired for trying to unionize with SNITIS, a Mexican auto union. The RRM procedure brought against a Panasonic Automotive Systems plant in Reynosa succeeded in the establishment agreeing to reimburse union dues and unpaid wages, as well as allowing unionization. The other three procedures – the Manufacturas VU procedure mentioned above, an investigation into a General Motors plant in Silaoand an investigation of Teksid Hierro in Frontera – have all been resolved by guaranteeing the covered rights of the workers of these installations without monetary payment.
Given the Biden administration’s emphasis on promoting a “worker-centric” trade policy and the relatively quick and positive results of the RRM cases filed to date, it is likely that the number of such proceedings will increase. Upon successfully concluding the Tridonex investigation, Ambassador Tai pledged to leverage USMCA’s “innovative enforcement tools to resolve long-standing labor issues and support enforcement by Mexico of its recent labor reforms”. Importantly, the RRM is also supported by the government of Mexico. For example, the Ministry of Economy of Mexico announcement its intention to support the fourth RRM request less than 10 days after filing. In the announcement, the government of Mexico reiterated its commitment to the USMCA’s labor chapter enforcement provisions and to “transparency and certainty for workers in Mexico.”
Given these recent developments, companies with operations in Mexico, especially those in the automotive sector, should follow these cases to see how the stricter USMCA labor rules are being applied. Recent media reports underscore this conclusion. El Paίs reported on the RRM’s third investigation by highlighting how “the new Mexican unions that claim to be independent of government and other interference see the [USMCA] as a useful and quick resource to force a certain democratization of trade unions in the country. Automotive News reported after the fourth RMM investigation that the USMCA is more important now than it has ever been, “because it is one of the few functioning dispute resolution mechanisms left.” The RRM layout also specifically shows to promise for the continued support and advancement of collective bargaining rights in Mexico, a goal entirely consistent with US worker-centered trade policy. In short, the relatively quick and positive results of the five RRM cases filed to date suggest that this administration is likely to pursue these cases, which means that companies producing in Mexico should continue to communicate and cooperate with the workers a priority.