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U.S. Requests First Dispute-Settlement Panel Under USMCA, Amid Key Labor Developments in Mexico

The Mexican government recently rejected two complaints filed by the United States for alleged labor violations. In one of the cases, the U.S. requested the first dispute-settlement panel invoking the Rapid Response Mechanism (RRM) under the USMCA. Meanwhile, two other cases were concluded with new courses of remediation, including significant new provisions that require companies to issue a public statement of neutrality and a union operation guideline. 

Additionally, Mexico’s Federal Center for Conciliation and Labor Registration (CFCRL) is contemplating a heavier penalty for companies who don’t comply with the new labor law, after VU manufacturing’s abrupt decision to shut down its operations in Mexico instead of implementing required remedies. To learn all the significant updates and their implications, please join our webinar Mexico's Labor Reform: Updates and New Developments Under USMCA on September 21. 

The rejections in the Grupo Mexico and Yazaki cases

On June 16, the U.S. government asked Mexico to review a case in a Grupo Mexico facility at San Martin. However, Mexican officials denied the claim as the alleged violations took place prior to the effective date of the USMCA, putting them beyond the scope of the agreement. 

Last week, the U.S. government contested Mexico’s decision in the Grupo case and requested a dispute settlement panel, the first time this mechanism will be used for a USMCA labor matter. The panelists will be able to assess complaints about conditions at specific facilities, and, in cases of non-compliance with key labor obligations, suspend USMCA tariff benefits or impose other penalties, such as denial of entry of goods from Mexico. 

In another case, the U.S. Trade Representative filed a request on August 7 for a review of labor rights concerns at a Yazaki factory in Guanajuato. On August 18, Mexico rejected the claim because “there is no substantial evidence of employer interference or denial of rights to freedom of association and collective bargaining by the company.”

New alerting provisions in course of remediations 

Last month, an agreement and course of remediation was reached at the Draxton auto parts facility in Irapuato, Guanajuato. Notably, the course of remediation required the company to issue a public statement of neutrality  and, for the first time, establish employer guidelines on the separation of union and company functions on matters such as the hiring process and financial affairs of the union. To comply with the agreement, Draxton must also reinstate a worker dismissed for engaging in protected union activity  with backpay and benefits as required under Mexican law.

Imposing penalties for noncompliance The auto parts company VU Manufacturing, recently made an abrupt decision to close its operations in Piedras Negras, Coahuila, instead of complying with the actions required by the mandated remediation plan or following labor law requirements for closing a factory. As a response, the Director of the Federal Center for Conciliation and Labor Registration (CFCRL) suggested imposing penalties and sanctions on companies who do not comply with the new labor laws. 

Outlook: Global employers are facing new challenges as the RRM has been more frequently leveraged by Mexican unions. HR Policy Global has provided a new tool, the Comparative Analysis of the NLRA to Mexican Labor Legislation Post-USMCA. Co-authored by HR Policy’s Senior Labor Counsel, Roger King, Dante Trevendan, Partner at Norton Rose Fulbright, and Carlos R. Martin del Campo, Partner at Baker McKenzie, the report helps HR Policy Global members understand the differences between the two national labor laws and ensure compliance.

Upcoming Webinar: To learn about significant updates and implications, join our webinar Mexico's Labor Reform: Updates and New Developments Under USMCA on September 21.

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Authors: Wenchao Dong

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