Background
Regardless of the fact that the USMCA had already been signed, before its ratification, and in order to ensure compliance with the agreed obligations on free association and collective bargaining, the governments of Mexico, the United States and Canada held talks relating to the ratification process of the USMCA Free Trade Agreement. As a result of these talks, a “Modifying Protocol” for the Treaty was signed on December 10, 2019, ratified by Mexico on December 12 of the same year, through which the addition of two annexes to Article 31, in regard to Dispute Settlement, was agreed.
The abovementioned annexes have the objective of establishing a rapid response mechanism for the treatment of claims in regard to non-compliance by the contracting parties, relating to the refusal of guaranteeing the rights of free association and collective bargaining in a specific facility.
These two annexes established a very particular situation in the Treaty, because while it is true that it is a trilateral treaty by nature, the settlement of disputes on this topic is of a bilateral nature, thus, Annex 31-A regulates relations between Mexico and the United States, and Annex 31-A regulates relations between Mexico and Canada.
Another novel characteristic is that, while the contracting parties are the signatory States, sanctions for non-compliance apply to individual companies and not to the State in which they operate.
The United States Government has put into effect a specific Law, the UMSCIA, for the application of Annex 31-A, while the Mexican government has not established a similar Law, nor a regulation, or protocol for the proper investigation of the alleged denials of the right to union freedom and collective bargaining in accordance with our rules of procedure that guarantee due process which, in many cases, has had the consequence that companies in Mexico are left in a complete state of defenselessness as they cannot exercise their rights to an evidentiary hearing and arguments. Additionally, the absence of proper regulation in Mexico has generated cases of abuse of the Rapid Response Mechanism, which has been invoked in cases that have absolutely nothing to do with the rights of free association and collective bargaining by NGOS, foreign unions and the Government of the United States itself, in accordance with their political interests.
It is important to note that the objective of the Rapid Response Mechanism is restricted exclusively to the protection of the rights of free association and collective bargaining, and not to other kinds of matters unrelated to this purpose, as the case of labor conflicts under the jurisdiction and competence of the Mexican Courts, which are sought to be solved outside of the labor Law of our Country.
Purpose
It is important to note that both annexes have the same purpose: to establish a rapid response mechanism in regard to a specific facility and that the purpose and object of this Mechanism is to establish the possibility of imposing measures to remedy the cases of “Denial of Rights”, understanding by this that in a covered facility (work center) workers are denied the rights of free association and collective bargaining.
To do this it is required that if the complainant party has a good faith belief that the workers at a Covered Facility of the defendant party are being denied the right of free association and collective bargaining under the necessary laws (obviously referring to the laws of the defendant country), it will request said party to carry out an investigation so that, in case that said denial of rights is true, measures are taken to remedy them.
In effect, the Annex literally establishes:
“Article 31-A.2: Denial of Rights
The Mechanism shall apply whenever a Party (the “complainant Party”) has a good faith basis belief that workers at a Covered Facility are being denied the right of free association and collective bargaining under laws necessary to fulfill the obligations of the other Party (the “respondent Party”) under this Agreement (a “Denial of Rights”).”
The problem is that, in practice, the United States conducts a unilateral investigation, without giving the opportunity to the company that is installed in Mexico, to know what the facts that it is being accused of are, not being given the opportunity to conduct its own investigation and present evidence or explanations of the reality of the facts, and it is declared guilty, and it is liable to be penalized.
For its part, the Mexican Government only takes into account the investigation conducted by the United States Government given that, as there are no national regulations for this process, the possibilities of defense for the companies are practically null.
Non-compliance by a covered facility to the abovementioned rights will have as consequence:
The application of sanctions to said covered facility consisting on:
- The suspension of preferential tariffs,
- The prohibition of the entry of products and/or services into the complainant State.
- The imposition of penalties on goods manufactured at or services provided by the covered facility.
For the United States to initiate a complaint, that country´s Congress approved the Law for the implementation of the rapid response mechanism known as USMACIA.
This law established the formation of an Interdepartmental Committee presided by the Secretary of Commerce of the United States, who will be responsible for:
- Deciding whether a complaint is admissible and, therefore, the claim can be brought on Mexico.
- Monitoring the application of the labor reform.
- Reviewing which are the prioritary sectors.
- Receiving reports from the labor attachés.
- Presenting reports before Congress every 6 months.
The Interdepartmental Committee will be assisted by a Council of Labor Experts consisting of 12 members appointed by the United States Congress and the United States Department of Commerce, which will be responsible for:
- Advising the Interdepartmental Committee.
- Monitoring and evaluating the application of the labor reform in Mexico.
It also provides for the appointment of 5 labor attachés based in Mexico, who will be in charge of:
- Providing support to the Interdepartmental Committee in monitoring compliance in Mexico.
- Submitting quarterly reports on Mexico’s compliance in relation to its obligations under the USMCA.
When the Interdepartmental Committee considers that a complaint in regard to the denial of the rights to free association or collective bargaining has taken place, it will, after an investigation, communicate this to the Department of Labor of the United States so that it, in turn, requests the Department of Commerce to file a complaint before the Department of Commerce of Mexico and the Rapid Response Mechanism is started.
The Department of Commerce will inform the Department of Labor and Social Welfare about the complaint so that it can start the corresponding investigations in order to provide a response to the complaint.
Investigation in Mexico
As can be seen, the United States, regardless of the Treaty, established an internal rule to regulate the procedure for initiating a complaint against Mexico, with specialized bodies for the process of receiving complaints and their investigation, which entails collecting information in our national territory, through their labor attachés, who in practice, and following the guidelines of their own legislation, operate as de facto labor inspectors in Mexico, without complying with the formalities that labor inspectors must comply with in the country, in effect, among other activities:
- They visit Work Centers
- They interrogate workers
- They interrogate company officials
- They request documents
- They review work processes.
Additionally, in many cases, the United States does not provide information to the Mexican Government about the actions that the company is being accused of in regard to the work center, a situation that leaves both the Company and the Mexican Government in a situation of absolute defenselessness, in violation of universal procedural principles.
The foregoing entails challenges for Mexican companies, for their suppliers, and for unions, considering that, to date, a considerable number of complaints against Mexico have already been filed in which the full information on the denial of rights is not available, and the trend indicates that more complaints will follow, with our country being at a disadvantage, because the labor attachés, without complying with our labor law, collect information that they do not share with the accused parties.
In order to prevent these accusations, companies in Mexico carry out the following actions: the dissemination of the obligations and consequences of non-compliance with the USMCA, the diagnosis of compliance with the obligations of free association and collective bargaining, the development of better practices for the systematization of compliance with the obligations, the analysis of suppliers and coordination with the government. Nevertheless, the application of all of these measures do not protect them from accusations that are unrelated to the rights of free association and collective bargaining, such as individual litigations for justified terminations or alleged violations of the collective bargaining agreement, among others, as there are no local regulations for conducting the investigation of the complaints, which puts Mexico and the companies at a great disadvantage.
Need for a Law or Regulation by Mexico, for investigations within the National Territory
Considering that the United States has promulgated a Law for the application of Annex 31-A and for filing its complaints, Mexico should also establish, for its part, regulations of the process for application within our territory, to ensure that investigations are conducted in accordance with and abiding by labor legislation, and so foreign officials, as in the case of the United States labor attachés, are not given roles in verification and the application of our law, to ensure that the visits and inspections are justified, well-grounded and that companies are notified in a timely manner, respecting their operations and justifying the acts of intrusion, a situation that, to date, is not complied with by the labor attachés and other officials of the United States.
Procedure for the application of the Rapid Response Mechanism
- The complainant party will request the respondent to conduct its own investigation,
- The respondent will have 10 days for deciding whether it will conduct the investigation.
- If the respondent decides not to conduct the investigation, the complainant party may request the formation of the arbitration panel.
- If the respondent determines that there is a denial of rights, it will try to remedy it within a term of 45 days.
- If the respondent does not agree to conduct the investigation, or if the complainant party was not in agreement with the remedy of the rights that were denied, the complainant may impose penalties, and the respondent may request the formation of an arbitration panel.
- The panel will have 30 days to determine whether there was a violation after conducting a verification, or 30 days after it is formed if there was no verification.
- Once it is determined that a violation took place, the complainant party may impose penalties that are proportional to the damage that was caused.
Remediation Agreements
In practice, and considering the serious consequences that this could entail for an exporting Company, who is the one that would run the risk of the application of penalties, and not the Mexican State, in the case of complaints raised by the United States, the Department of Labor answers within a term of 10 days, that it will start an investigation to determine whether there is, in fact, a denial of rights of free association or collective bargaining in a work center.
If the Department of Labor considers that there have been violations, it proposes a reparatory or remediation agreement. In the majority of cases, conflicts arise from alleged actions of repression against workers that have attempted to question the legitimacy of the union representation, and, in these cases, the reinstatement of the affected workers is proposed, if applicable, and the verification of the will of the workers through a voting process supervised by the Federal Center for Conciliation and Arbitration is conducted. In other cases, measures for the application of collective bargaining agreements are established, that entail modifications to the labor law.
The problem is that there have also been other cases in which the workers have a democratically elected union, with elections sanctioned by the Federal Center for Conciliation and Arbitration, which enters into collective bargaining agreements that have been submitted for consultation and approved by the workers through their personal, free and direct vote, but a group of workers that have been dismissed for violations to the Federal Labor Law, whose cases are under the jurisdiction of the Labor Courts, obtain the support of an NGO and groups with political interests and North American unions, to turn their cases into a matter of denial of free association or collective bargaining, as an instrument for litigating their trials through the rapid response mechanism, with the consent of the United States Government for political reasons, which translates into a means of extortion for the company.
In regard to this issue, it is important to note that some reparatory agreements have included measures that violate national labor regulations, exceeding powers not provided for in the Treaty, as Mexico has the obligation to comply with national laws on free association and collective bargaining, but not the modification of said laws through remediation agreements.
Now, if the Company does not want to enter into the agreement, the complainant Government will request the integration of the arbitration panel, which will decide whether there was a denial of rights and, if such is the case, will apply the penalties.
Final Considerations
While recognizing that the signature of the USMCA Free Trade Agreement has generated very important opportunities for the development of the industry, exports and investment, in addition to bringing positive consequences in the application of important changes in labor relationships what have translated into a strengthening of free association and collective bargaining, there is still an asymmetric relationship in the way in which rapid response mechanisms are handled, which makes it necessary to have internal regulations that level the obligations between the countries that participate in the Treaty and that this is used for its true purposes.
