Industry News

Rapid-fire "Rapid Response Labor Mechanism" Actions Signal U.S. Commitment to Enforce Labor Protections under the USMCA

Jun. 7, 2022

The progressive labor rules contained in the U.S.-Mexico-Canada Agreement, which were the subject of great debate and negotiation during the trade agreement’s ratification, are proving to have teeth, thanks to the novel “Facility-Specific Rapid Response Labor Mechanism.”

On Monday, July 6, the U.S. requested permission from Mexico to review labor and worker conditions at an auto parts facility pursuant to the agreement’s rapid-response labor mechanism. This is the fourth time that the U.S. has invoked the rapid-response labor mechanism, and it most assuredly will not be the last.

The rapid-response labor mechanism (RRLM) gives the U.S. authority to expedite enforcement actions against individual factories in Mexico that appear to be denying workers the right of freedom of association and collective bargaining under Mexican law.

Generally, the RRLM process is as follows: First, a petition must be filed with the U.S. “Interagency Labor Committee,” headed by the Office of the U.S. Trade Representative (USTR). Petitions can be filed by any stakeholder, usually labor unions, NGOs, affected workers and other interested parties. The U.S. has 30 days to evaluate the credibility of allegations before moving forward on a petition. Ultimately, the U.S. must have a “good faith basis to believe” that violations of labor rights are occurring before engaging in consultation with the country where the alleged violates are occurring. Note that the rapid-response labor mechanism also permits the U.S to self-initiate actions.

If the U.S. decides to move forward on a petition or sua-sponte file a complaint, the next step is an initial review period, during which the respondent country agrees to undertake a review of whether labor rights are being violated. The respondent country has 45 days to conduct the review. If the respondent country determines violations have occurred, it must remediate the violation within those 45 days. In the event the issue is not resolved during the review period or the country declines to conduct a review, the agreement provides for a formal dispute settlement process, in which an independent panel determines whether labor rights have been violated.

If the panel makes an affirmative finding, the complaining country is authorized to impose remedies on goods or services from the offending facility. The likely remedy is the suspension of preferential tariff treatment however the agreement provides for additional, undefined penalties so long as they are “proportional to the severity” of the violation.

So far, the United States has invoked the rapid-review mechanism four times, in each case citing a facility related to the automotive industry. The growing number of actions under the rapid-response labor mechanism demonstrate the U.S. commitment to aggressively using the tool to enforce the labor provisions contained in the USMCA. Enforcement has been described as a “race to the top” for North American manufacturers, and appears to be intended to support United States manufacturers under the rules requiring the use of high wage facilities for some articles under USMCA.

Facilities that may be the subject of an RRLM action are “priority sector facilities in a party’s territory that produce goods or supply services that are traded between both parties or competes in the territory of the other party.” Any Mexican facility that comes within this definition may be targeted, however, only U.S. priority sector facilities that are “under an enforced order by the National Labor Relations Board” are subject to complaints.

Thus, industries manufacturing in Mexico or utilizing services supplied by Mexican facilities should be on high alert given the increased actions under the RRLM. Affected companies should work to understand the agreement’s labor provisions and update any operations in Mexico, so that employment rules and agreements align with the governing Mexican labor laws.

For questions on labor provision compliance under the USMCA, please contact a trade attorney at Barnes, Richardson & Colburn LLP.