How Businesses Can Risk Manage the USMCA: Labour

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Bennett Jones LLPThis is the second in a three-part series on new challenges for businesses presented by the USMCA from Canadian and Mexican perspectives. Part one looked at trade and customs and part three will look at anti-corruption.

On July 1, 2020, the successor free trade agreement to NAFTA entered into force in Canada, Mexico and the United States. The agreement is commonly referred to internationally as the USMCA; in Canada, we call it CUSMA and in Mexico it is called T-MEC. The agreement presents new challenges for businesses, especially in trade & customs, labour and anti-corruption standards.

These three areas were a particular focus for discussion at a webinar roundtable hosted recently by Bennett Jones and the Mexican law firm, Chevez Ruiz Zamarripa, where experienced practitioners shared their perspectives.

Here is a look at new or heightened risks in labour that Canadian companies face under USMCA and suggest some practical mitigation tactics.

"Novel and Potent" Labour Measures

The panel characterized labour measures as both "novel and potent" under the USMCA, citing in particular a new "Facility-Specific Rapid-Response Labour Mechanism" for expedited dispute settlement of labour obligations. Under the new process, a party may request an investigation into allegations of labour relations violations by an independent tribunal of labour experts. The panel noted that USMCA labour measures had strong support in the U.S. from Democratic legislators and will be a considerable focus for U.S. authorities regardless of the outcome of the upcoming US federal election.

Key Features of the Facility-Specific Rapid Response Labour Mechanism

  • Penalties against companies can be imposed quickly—in as little as 102 days.
  • Penalties are significant and can include the loss of a company's preferential trade rate and monetary penalties. Three breaches can result in the refusal of a company's products altogether
  • It is an on-the-ground process, directed at labour relations practices of specific companies by unions and employees.
  • Complaints can come from a coalition of groups, permitting collaboration by unions, grassroots institutions, lobby groups—or even companies against their competitors.
  • It applies to an extremely broad range of goods and services. This is the only provision in the USMCA that also applies to goods and services in priority areas that are traded in markets outside the USMCA, such as Asia.
  • The choice of remedy where there has been a breach is in the hands of the complainant. This can lead to unpredictable penalties for companies.

To mitigate the risk of a labour complaint, companies operating in Mexico should review their labour relations practices to ensure compliance with new Mexican labour legislation passed in 2019. In particular, companies should ensure they comply with laws relating to:

  • when unionization can occur;
  • the need for a free and secret vote on choice of union;
  • collective bargaining with unions;
  • minimum employment standards, including minimum wages; and
  • harassment and violence in the workplace.

Companies should document all steps taken to comply with domestic laws. Where there has been a breach by a union of its obligations, companies should file a complaint with domestic labour courts.

In the event of a complaint under the new USMCA rapid enforcement provisions, companies should respond fully to the initial investigation by the Mexican government. In the event of an appeal to the Expert Panel, companies will need to respond expeditiously to this further investigation.

The unprecedented economic shock brought by the COVID-19 pandemic coupled with increasing geopolitical tensions have increased the likelihood of rigorous enforcement actions by governments (and in the case of labour measures, potentially by competitors) under the USMCA. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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