This is a joint client alert update of WilmerHale and Creel García-Cuéllar Aiza & Enriquez.1
[co-authors: Guillermo Govela Martínez, Jean Michel Enríquez, Leonel Pereznieto]
After weeks of concerns expressed by business interests on both sides of the US–Mexico border, the Mexican government has issued a framework for reopening critical parts of Mexico’s economy, including industry in the supply chain to US manufacturers. This client alert updates our two prior client alerts on emergency measures in Mexico, published on April 8 and on April 29, and describes the reopening framework established by the latest orders.
As described in our client alerts, previous declarations issued by Mexican federal departments created confusion over which businesses should be deemed “Essential Activities” and therefore could continue to operate during the pandemic. Critical elements of supply chains, such as those responsible for parts and manufacturing, found themselves unable to operate—causing fundamental operational challenges for international companies with operations in Mexico, even those companies producing such crucial goods as ventilators, face masks and military equipment.
The challenges attracted the attention of US diplomats, businesspeople and lawmakers. On April 21, US Ambassador to Mexico Christopher Landau tweeted, “I’m doing all I can to save the US –Mexico–Canada supply chains that were created over the last decades.”2 On April 22, the National Association of Manufacturers, a Washington DC-based advocacy group, sent Mexico’s President López Obrador a letter signed by over 300 manufacturing executives, asking that his government refer to the CISA Guidance3 issued by the US Department of Homeland Security in determining what business operations constitute Essential Activity.4 On April 29, a bipartisan group of senators sent a letter to Secretary of State Mike Pompeo requesting that he seek clarification from the Mexican government regarding the definition of Essential Activities to resolve uncertainty in the US–Mexico supply chain. And the media reported that US government officials were engaging Mexican officials regarding reopening businesses in Mexico critical to the US manufacturing supply chain.5
May 13 General Health Council Declaration
On May 13, President López Obrador announced6 a highly anticipated Declaration7 (the May 13 Declaration), issued by the General Health Council (Consejo de Salubridad General), aimed at reopening Mexico’s economy. Along with the May 13 Declaration, President López Obrador presented New Normality8 and Reopening9 Plans (the Plans), which provided limited guidance on what the country’s next steps will look like. Construction, mining and the manufacturing of transportation equipment—which include the auto and aerospace industries—(the Newly Designated Essential Activities) were also added to the list of Essential Activities that can operate with proper safety protocols in place.
The Plans established the framework for a three-phase reopening process. Phase 1 allowed municipalities to resume certain activities on May 18, with restrictions, if those municipalities (i) do not neighbor other municipalities with confirmed infection cases and (ii) have no COVID-19 cases.10
Phase 2 also began on May 18 and runs until May 31. During this phase, Mexico is “preparing” for reopening by introducing enhanced sanitary measures for the safe reopening of businesses, limiting the number of people in workplaces, reorganizing workspaces and production lines, managing entrances and exits, and requiring sanitization and hygiene protocols.
Finally, Phase 3, scheduled to begin on June 1, will involve an ongoing analysis to determine the level of risk for each region of Mexico, based on an evaluation using traffic signal colors for each region. The risk factors informing the risk level/stoplight color include the probability the virus will reemerge, the impacts of reemergence, the vulnerability of the population and the capacity to react to a reemergence. The color designations for each region will be updated on a weekly basis.
May 14 Ministry of Health Declaration and May 15 Modified Declaration
On May 14, the Ministry of Health (Secretaría de Salud) issued a declaration11 that laid out the strategy for the reopening of social, educational and economic activities. One day later, on May 15, the Ministry of Health issued a modified declaration12 (collectively, the Ministry of Health Declarations) providing additional guidance as to the “preparations” that companies must conduct before reopening.
The declaration and modified declaration largely parallel the May 13 Declaration, setting forth the three phases of reopening that began on May 18. During Phase 2, businesses and industries engaged in Essential Activities, including the three Newly Designated Essential Activities—construction, mining and transportation equipment manufacturing—present sanitary security protocols to be implemented. The Ministry of Health Declarations refer to the reopening process contemplated for the Newly Designated Essential Activities as a “goodwill understanding” with the businesses, and provide that breach of that goodwill will result in the closure of “companies or industries that put the health of their workers at risk.”
The Ministry of Health Declarations are silent—as was the March 31 Essential Activity Declaration—regarding businesses forming a part of the supply chain of goods and services for Essential Activities. In some individual states such as Nuevo León, state governments have clarified that the supply chain is also included in the Essential Activity designation, but most Mexican states have not clarified whether the supply chain is included.13 As a result, suppliers to industries falling within the Newly Designated Essential Activities will need to go through a self-assessment exercise and provide evidence that the supply activity is required for the function of an Essential Activity. This self-assessment will be subject to review and confirmation on a case-by-case basis upon inspection by health and labor authorities.
May 18 Ministry of Economy Technical Guidelines on Sanitary Safety in the Labor Sector
In order to allow the businesses to resume operations in the Newly Designated Essential Activities during Phase 2, or thereafter, a self-certification process was rolled out through an online posting by the federal government of the Technical Guidelines on Sanitary Safety in the Labor Sector (Technical Guidelines).14
The Technical Guidelines establish a specific process for reopening businesses. First, businesses wishing to reopen in the Newly Designated Essential Activities industries must develop and implement sanitary security protocols consistent with the published guidelines.15 Businesses falling within these industries must then complete a standard-form self-evaluation of their sanitary security protocols.16 Based on their goodwill understanding of compliance, these companies must present a “commitment letter” (carta compromiso) to upload along with the self-evaluation to the Mexican Social Security Institute. Within 72 hours, the Mexican Social Security Institute will acknowledge receipt and make a determination as to permission for a business to reopen and will indicate whether (i) the company’s submission has been approved—in which case it may start operating; (ii) additional information is requested; or (iii) the submission has been rejected—in which case the business will need to submit its sanitary safety protocol along with the completed self-evaluation and refile for approval.
Businesses engaged in the Newly Designated Business Activities that conclude the process may begin operations upon receipt of the certification issued by the Mexican Social Security Institute. With respect to the previously designated Essential Activities, businesses in these sectors are directed to follow the Technical Guidelines as a reference standard for preparing and implementing their corresponding sanitary safety protocol, but are not required to follow the procedure for obtaining the certification established by the Mexican Social Security Institute.
Notably, government authorities may conduct inspection visits at any time, which will focus on the sanitary security protocol and its implementation at the worksite. As such, it is critical that businesses operating in both the Newly Designated Essential Activities and the previously designated Essential Activities demonstrate a fully compliant and properly implemented sanitary security protocol to avoid the risk of closure and fines.
The Technical Guidelines also establish economy-wide strategies for control of the virus, set forth a framework for businesses to build their sanitary security protocols and include the 10-page self-authorization standard form itself. Overall, the reopening guidance from the Mexican Social Security Institute is complex and will need to be analyzed on a case-by-case basis. In addition, businesses will need to review, analyze and comply with declarations issued at the state level. At least one Mexican state—the state of Puebla—has issued a declaration prohibiting the reopening of construction and transportation equipment manufacturing operations despite these businesses qualifying as Newly Designated Essential Activities.17
Best Practices for Cross-Border Compliance
COVID-19 has severely disrupted supply chains between the United States and Mexico, and hampered production on both sides of the border. Mexican government pronouncements on supply chain issues have been less than clear, leaving businesses with the challenge of interpreting them in order to continue economic activity while at the same time minimizing health risks. WilmerHale and Creel García-Cuéllar Aiza & Enríquez are counseling businesses on how best to approach the regulatory challenges and offer the following suggested approaches.
- Employee/Union Communications
During this challenging pandemic, employers should continue clear lines of communication with employees and relevant unions. These communications should be two-way, allowing employees to ask questions and share ideas with employers as new protocols are implemented to comply with the ever-evolving regulations. Keeping employees and unions up to date will also avoid surprises and allow for smooth transition.
- Relationships With Local, State and Federal Government
Given constantly shifting guidance, staying apprised of local, state and federal measures in Mexico is critical. In addition, companies should identify key contacts and foster communication and engagement with all levels of government regarding key compliance issues.
Companies should work with regulators to focus on health and safety rather than rigid enforcement of “essential” versus “nonessential” activities. Because the overarching guidance is unclear, the importance of cooperation in negotiating solutions is elevated.
- Develop and Implement Strong Sanitary Safety Measures
Mexico’s regulatory guidance has been far from a model of clarity. However, the government’s Reopening and New Normality Plans, along with the corresponding Technical Guidelines, provide a sharper picture on where the country is headed and what businesses must do in order to reopen. The focus on health and safety continues, and businesses should develop strong sanitary security protocols to ensure that workers and the general public are not at risk once operations begin again.
US companies facing shutdown issues in Mexico should assemble the best package of information demonstrating the essential nature of the work they do there under relevant government standards and documenting the health and safety measures they have put in place. Inspectors will generally look first to ensure that health and safety measures are adequate, and then determine whether the business is essential or nonessential.
- Plan for the Transition and Post-Coronavirus Future
Manufacturers should do all they can to both plan for the transition from COVID-19 closures and prepare for what operations will ultimately look like after the pandemic has been contained.
Conclusion
Although the mid-May Ministry of Health and Ministry of Economy declarations described here provide a path forward, more guidance is sure to follow as the public health situation in Mexico evolves. The implementation of strict sanitary guidelines will be the utmost priority and focus of government authorities when inspecting Newly Designated Essential Activities that seek to resume operations on or after June 1.
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