USTR and US Labor Unions Initiate First Proceedings Targeting Mexican Facilities Under USMCA's 'Rapid Response' Mechanism

On May 12, the Office of the US Trade Representative (USTR) announced that it has requested a review of labor practices at an automotive manufacturing facility in Mexico under the new 'Facility-Specific Rapid Response Labor Mechanism' in the US-Mexico-Canada Agreement (USMCA). In its request, USTR has asked the Government of Mexico to review whether workers at a General Motors (GM) facility in Silao, State of Guanajuato are being denied the right of free association and collective bargaining. This is the first time that a USMCA Party has initiated proceedings under the Rapid Response Mechanism, which authorizes the imposition of trade penalties against specific facilities that are found by an independent panel to have denied certain labor rights to their workers. 

Separately, on May 10, the American Federation of Labor-Congress of Industrial Organizations (AFL-CIO), the Service Employees International Union (SEIU), Public Citizen's Global Trade Watch, and Mexico's National Independent Union of Industry and Service Workers (SNITIS) filed a petition with the United States' Interagency Labor Committee alleging that certain facilities producing automotive parts in Matamoros, Tamaulipas, Mexico are denying collective bargaining rights to their workers ('Petition'). The Petition requests that the US government initiate proceedings under the Rapid Response Mechanism with respect to the targeted facilities. This is the first time that a US party has petitioned the US government to take action under the Rapid Response Mechanism using the domestic petition process established by the Interagency Labor Committee. 

Though previous US trade agreements have included enforceable labor obligations, the USMCA's Rapid Response Mechanism is novel in several respects, and has been portrayed by its proponents as a major breakthrough that will facilitate more effective and expeditious enforcement of labor obligations. The new proceedings initiated this week will serve as a first test of the Mechanism and the United States' domestic process for considering 'rapid response' petitions from private parties. We provide an overview of the new enforcement actions and their implications below.

Background 

After the initial signing of the USMCA in November 2018, the United States and Mexico negotiated certain amendments to the Agreement in order to secure support for its ratification among key US stakeholders, particularly congressional Democrats and labor unions. The amendments included the addition of a Facility-Specific Rapid Response Labor Mechanism, set forth in Annex 31-A, that applies between the United States and Mexico. The stated goal of the Mechanism is to ensure that workers in the two countries are not denied the right of free association and collective bargaining. 

The Mechanism establishes a process by which the governments of the United States or Mexico may bring a complaint that workers at a specific facility in the other Party's territory are being denied their right of free association and collective bargaining under applicable domestic laws.¹ This process consists of (1) an initial review period, during which the two governments may attempt to resolve the issue bilaterally; and (2) a formal dispute settlement process, in which an independent panel will determine whether the alleged 'Denial of Rights' exists. If a Panel determines that a Denial of Rights exists, the complaining Party will be authorized to impose remedies (i.e., import restrictions) targeting goods or services from the facility at issue. The suspension of preferential tariff treatment under the USMCA is one available remedy, but the Mechanism contemplates additional, undefined 'penalties' that go beyond the suspension of preferential tariff treatment, if such additional penalties are 'proportional to the severity of the Denial of Rights[.]'²

The USMCA is not the first US trade agreement to include enforceable labor obligations, but the Rapid Response Mechanism is novel in that: (1) it aims to remedy isolated instances where labor rights are denied by a specific company (unlike traditional 'state-to-state' dispute settlement, which concerns whether governments have acted inconsistently with the trade agreement); and (2) the Mechanism permits a complaining Party to target offending facilities with trade penalties that go beyond the suspension of preferential tariff treatment (whereas state-to-state dispute settlement traditionally involves only the suspension of trade agreement benefits and does not permit the targeting of specific facilities.) Additionally, the time required to obtain panel decisions under the Rapid Response Mechanism is shorter than under state-to-state dispute settlement, with decisions due within 30 days after a panel is constituted or, if the panel conducts a 'verification' of the facility at issue, within 30 days after the verification.³

USTR's 'Request for Review' of Silao GM Facility

Request 

USTR has requested that the Government of Mexico review whether workers at a General Motors facility in Silao, State of Guanajuato are being denied the right of free association and collective bargaining. USTR's request expresses 'significant concerns' regarding 'events preceding, during, and surrounding an April 2021 vote for approval ('legitimación' or 'legitimization') of a collective bargaining agreement between General Motors de México…and the 'Miguel Trujillo López' union[.]' According to USTR, '[i]t appears that events in question involved violations of Mexican laws, including Article 390 Ter of Mexico's Federal Labor Law and the Eleventh Transitory Article in the Presidential Decree of April 30, 2019.' USTR has requested that the review encompass 'all actions and statements, by or on behalf of the Union or the Company, with respect to the legitimization process, including any action or statement contributing to the denial to any worker of the right to a personal, free, and secret vote on the legitimization of the collective bargaining agreement.'

USTR's request states that the legitimization process and vote at issue were 'suspended by the Secretaría de Trabajo y Previsión Social due to its concerns about irregularities, including the destruction of ballots.' USTR's accompanying press release commends the government of Mexico 'for stepping in to suspend the vote when it became aware of voting irregularities,' and it portrays USTR's request under the Rapid Response Mechanism as 'complement[ing] Mexico's efforts to ensure that these workers can fully exercise their collective bargaining rights.' 

USTR's request for review can be found here. USTR's accompanying statement can be viewed here. 

Next Steps

USTR submitted its request for review pursuant to Article 31-A.4.2 of the USMCA, which provides that '[i]f a complainant Party has a good faith basis to believe that a Denial of Rights is occurring at a Covered Facility, it shall first request that the respondent Party conduct its own review of whether a Denial of Rights exists and, if the respondent Party determines that there is a Denial of Rights, the latter shall attempt to remediate within 45 days of the request.' Mexico already has indicated that it will conduct the requested review. It will be required to report in writing the results of the review and any remediation at the end of the 45-day period.⁴ (Had Mexico declined to conduct the review, the United States would have been authorized to request the formation of a panel to determine whether a Denial of Rights exists.)⁵

The Mechanism provides multiple avenues for the dispute to be resolved after the initial review period without the formation of a Panel or the imposition of remedies (e.g., if Mexico determines that there is no Denial of Rights and the United States accepts this finding, or if Mexico determines that there is a Denial of Rights and agrees with the United States on a course of remediation).⁶ Alternatively, the United States may request the formation of a panel to conduct a separate 'verification' and determination if (1) Mexico determines in its review that there is no Denial of Rights, but the United States disagrees; or (2) the Parties cannot agree on a course of remediation for a Denial of Rights.⁷

If a Panel is composed, it will issue a request for 'verification' to the Government of Mexico (which Mexico may accept or refuse).⁸ If Mexico agrees to the verification, the Panel must conduct the verification within 30 days after Mexico's receipt of the request, and observers from both Parties may accompany the Panel in any on-site verification if both Parties so request.⁹ The Panel must make a determination as to whether there has been a Denial of Rights within 30 days after conducting a verification, or within 30 days after it is constituted if there has not been a verification.¹⁰ If a Panel were to find that there is a Denial of Rights, the United States would be permitted to impose remedies 'that are the most appropriate to remedy the Denial of Rights,' which may include (1) suspension of preferential tariff treatment for goods manufactured at the covered facility; or (2) other 'penalties' (which are not defined in the USMCA) on goods manufactured at the covered facility.¹¹

In connection with the US request for review, USTR has directed the Secretary of the Treasury to suspend the final settlement of customs accounts related to entries of goods from GM's Silao facility. USTR has indicated that liquidation will resume 'upon an agreement by the Parties that there is no Denial of Rights or a finding by a panel that there is no Denial of Rights,' as provided for in USMCA Article 31-A.4.3.

AFL-CIO Petition Concerning Certain Automotive Parts Facilities

Petition

The Petition filed by the AFL-CIO, the SEIU, Public Citizen, and SNITIS alleges a 'systematic and continuing Denial of Rights' at certain automotive parts manufacturing facilities operated by Tridonex S de RL de CV in Matamoros, Tamaulipas, Mexico. The Petition was filed with the United States' Interagency Labor Committee for Monitoring and Enforcement, which is co-Chaired by the USTR and the Secretary of Labor and includes representatives of other government agencies. 

The public portion of the Petition provides a brief summary of the matter alleged to constitute a Denial of Rights. Among other claims, the Petition alleges that:

• 'Tridonex has denied its workers the opportunity to read or obtain copies of the collective bargaining agreement [CBA] with [the Industrial Union of Workers at Maquiladora and Assembly Plants (SITPME)]' and has 'failed to deposit its CBAs with the Federal Conciliation and Arbitration Board, as required by the Mexican Constitution;' 
• Tridonex and the SITPME union 'have jointly denied the Tridonex workers the opportunity to ratify their CBA, in violation of Art. 400 Bis of the Federal Labor Law;'
• Tridonex and SITPME 'have jointly denied members of SITPME at Tridonex the right to elect their union leaders by personal, free, direct and secret vote, in violation of Art. 358.II of the Federal Labor Law;'
• Tridonex 'retaliated against workers who signed petitions to the Local CAB by firing more than 600 workers and compelling them to sign 'voluntary' resignations in order to receive severance pay, in violation of Article 47 of the Federal Labor Law, and by denying other workers benefits agreed on through the CBA, in violation of Article 396 of the Federal Labor Law.'

The public version of the Petition notes that Petitioners have submitted additional information for which they have requested confidential treatment, as it contains 'personal identifying information and information related to the litigation strategies of individuals and organizations identified therein, including Petitioners.' 

Next steps

The US government will consider the Petition in accordance with the requirements of the USMCA Implementation Act and the Interagency Labor Committee's Interim Procedural Guidelines for USMCA labor petitions. The Act and Interim Guidelines provide that, within 30 days after receiving a facility-specific petition, the Interagency Labor Committee must determine whether there is 'sufficient, credible evidence of a Denial of Rights' to enable the 'good-faith invocation' of the Rapid Response Mechanism.¹² If this determination is affirmative, USTR 'shall submit' a request under Article 31-A.4.2 for Mexico to conduct an initial review of that facility.¹³ The USMCA Implementation Act requires USTR to determine whether it will request a panel within 60 days after the Interagency Labor Committee's determination to request the initial review (i.e., within 15 days after the initial 45-day review period concludes).¹⁴

Outlook

The adoption of the Rapid Response Mechanism was instrumental in securing support for the USMCA's ratification in the United States, particularly among labor unions and congressional Democrats that traditionally have opposed US free trade agreements. These stakeholders argued that state-to-state dispute settlement historically has not been effective at promoting compliance with FTA labor commitments, and that a separate system allowing for facility-specific investigations and penalties was essential to ensure adequate enforcement. They have asserted that the Mechanism represents a new, improved model for enforcement of labor rules, and have urged the Biden administration to use the Mechanism aggressively. 

The Biden administration, for its part, has 'committed to self-initiating and advancing petitions under the new Rapid Response Mechanism…to ensure workers receive relief through efficient, facility-level enforcement,' and USTR Katherine Tai has expressed confidence that the Mechanism 'will allow us to address long-standing labor issues in Mexico.' It is therefore unsurprising that the Biden administration and US labor unions have now initiated proceedings under the Mechanism, with vocal support from the Democratic leadership of the House Ways and Means and Senate Finance Committees. House Ways and Means Committee Chairman Richard Neal (D-MA) and Trade Subcommittee Chairman Earl Blumenauer (D-OR) have stated that they expect 'many' additional complaints to be filed under the Mechanism. 

At this stage, it remains to be seen how the Mechanism will operate in practice. There is little precedent under previous trade agreements for the types of proceedings and determinations contemplated by the Mechanism, such as the assessment of specific facilities' compliance with domestic labor laws, bilateral consultations on ways to remediate a facility's denial of labor rights, and the calibration of trade penalties to be 'proportional' in severity to a denial of labor rights. The new proceedings initiated this week therefore will be an important first test of the Rapid Response Mechanism. Nevertheless, it is clear that the new Mechanism, and the US government's intent to utilize it aggressively, have the potential to generate trade frictions between the United States and Mexico.

_{1 With respect to Mexico, a claim can be brought with respect to an alleged Denial of Rights "under legislation that complies with Annex 23-A" of the USMCA, which concerns worker representation in collective bargaining in Mexico.  See USMCA Art. 31-A.2 at Fn. 2.  
2 Art. 31-A.10.  
3 Art. 31-A.8.1.
4 Art. 31-A.4.4. 
5 Art. 31-A.4.2
6 Art. 31-A.4.5-7.  
7 Art. 31-A.4.5 and Art. 31-A.4.9.  
8 Art. 31-A.7.
9 Art. 31-A.7.7.
10 Art. 31-A.8.1.
11 Art. 31-A.10.
12 Interagency Labor Committee for Monitoring and Enforcement Procedural Guidelines for Petitions Pursuant to the USMCA, Office of the United States Trade Representative, June 30, 2020 (85 FR 39257).  
13 19 U.S.C. 4646(b)(3).
14 19 U.S.C. 4646(b)(4).}

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